401(k) Millionaires Reach Near Record Levels With 41% Surge in 2023, Reflecting Market Rebound: Report

There has been a 41% increase in the number of 401(k) millionaires in 2023, nearing an all-time high, according to an analysis by financial services firm Fidelity. The surge in seven-figure 401(k) accounts, reaching 422,000 in the final quarter alone, marks a huge recovery from the previous quarter's 7.7% decline. Despite inflation, the average 401(k) balance rose by 14% from the previous year to $118,600, reflecting a rebound from the downturn in 2022. 

As inflation eased towards the end of 2023, the stock market experienced steady growth, with the S&P 500 concluding the year with a nine-week winning streak. This upward trend in the market translated into gains for retirement savers, resulting in a significant increase in the number of 401(k) millionaires.

Data from the analysis reveals a 20% increase in the number of accounts with balances exceeding $1 million from the third quarter of 2023. Compared to the previous year, this figure rose by 11.5%. Moreover, the average account balance for the millionaire group was reported at $1,551,300 in the fourth quarter.

Fidelity reported that nearly half of its millionaires were boomers, and the number was on par with Gen X millionaires. Millennials, on the other hand, accounted for just 0.8% of the total millionaires. For Gen Xers who have consistently saved for at least 15 years, the average 401(k) balance exceeded $500,000 on average.

According to the analysis, nearly half of individuals increased their contribution in the fourth quarter, with the average 401(k) contribution rate, including employer and employee contributions, standing at 13.9%, just below Fidelity’s suggested savings rate of 15%. Additionally, the average employer default contribution rate reached an all-time high of 4.1%.

Despite high savings, account holders also utilized 401(k) plans to access cash and take out loans, with the percentage of workers taking a loan from their 401(k) increasing by 8.9% compared to the end of 2022. While federal law permits borrowing up to 50% of their balance or $50,000, financial experts caution against such loans due to the loss of compound interest.

"During financial strain, borrowing from a retirement account may be preferable to high-interest debt like credit cards," says Mike Shamrell, Fidelity’s vice president of thought leadership.

The rise in 401(k) balances can be attributed not only to market performance but also to savers' good practices. Furthermore, 27% of participants proactively increased their contribution rate throughout the year, with about 78% of savers contributing at a higher rate to maximize their employer’s matching contribution.

Last year, the average savings rate between employee and employer contributions was 13.9%, slightly up from 13.7% in 2022. Additionally, the average individual retirement account balance rose by 12% year over year to $116,600 in the final quarter.