According to Fidelity, one of the largest financial institutions in the United States, people of all ages are saving more for retirement than ever before. Assisted by a tailwind from capital markets, which saw an increase in the S&P 500 index during the first quarter of 5.5%, the average 401(k) balance rose to $95,500 as of March 31, 2017. This is an increase of $3,000, or 3.2%, from year-end when balances were at a then-record $92,500. Contribution rates also increased as people felt more secure about their job and also more confident in the economy. The average contribution rate for all age groups increased to 8.40%. Below is a chart showing how Americans’ accounts are faring by age group.
Reading a money magazine you’d think people couldn’t care less about retirement, but as you can see the numbers aren’t all that bad. Clearly the trend is to save more for retirement as a person ages. This is most likely due to people slowly eliminating debt and also earning more later in life. Although balances aren’t all that high yet, it’s nice to see younger people are starting to save more for their future. Currently people in their twenties are saving 6.66% of each paycheck for retirement. This is up from 6.56% at the end of 2016. The state of Washington continues to kill it in terms of millennials who are saving for retirement. The average balance for a person in their thirties is $55,100 while it is $15,900 for people in their twenties. As for the older generations it apparently pays to be on the east coast as Washington D.C. continues to occupy the top spot for those in their sixties. For sixty-somethings the average balance in Washington D.C. rose to $289,900, in a different stratosphere than the rest of the country, even those in Connecticut, who came in with a very respectable $241,000 per account. As sixty year olds in the District of Columbia close in on average balances of nearly $300k it's worth pointing out that this sum may generate only $12,000 of yearly income if a safe withdrawal rate is used. To see how the current data compares to that as of the end of the year check this post out.
An additional interesting point is that the market rose over 5% during the quarter yet the average balance rose only 3.4%. Since we know contribution rates actually increased during the quarter, this can only mean that more people are opening 401(k) accounts. This is good news for savers as well as good news for the financial institutions which oversee the holdings and collect fees on the accounts. Although this data suggests people are starting to take their retirement savings a little bit more seriously than in the past, there is still work to do for most. All in all a very good quarter and, who knows, perhaps it won’t be too long before we see the average balance creep above $100,000. In the short term keep an eye on the Federal Reserve meeting this week, as well as the unemployment numbers being released Friday, to gauge where the economy is headed over the next quarter.