401(k) retirement accounts are among the most powerful investment vehicles for American workers, due to their high annual contribution limits, tax advantages, and free money provided by employers.
More Millennials are tapping into the potential of 401(k) accounts. Fidelity Investments Data It shows the number of millennials with 401(k) account balances of more than £798,170 ($1 million) rose 400% year over year in the third quarter to 10,000 from 2,000.
Many millennials You still believe that reaching a net worth of $1 million is necessary to retire comfortably. However, financial advisors suggest saving more, taking into account uncertainties regarding health and living costs in retirement.
A critical factor is the strong market pool in growing 401(k) balances.
Saving $1 million in a 401(k) takes decades of disciplined contributions. However, a strong market rally this year led by tech giants on AI hype has sent account balances to new highs.
The Nasdaq Composite and the S&P 500 are up more than 25% year to date. Meanwhile, the Dow Jones Industrial Average jumped more than 13% in the same period.
“Even short-term savers have done well because of big gains in the market,” said Mike Shamrill, vice president of thought leadership at Fidelity. “If we continue to see positive market conditions, we could see not only the total number of millionaires exceed that threshold but also more millennials.”
401(k) savings rate stays close to Fidelity’s 15% goal
Fidelity data It revealed that the overall average 401(k) savings rate was 14.1% in the third quarter. About 9.4% were employee contributions, and 4.7% were employer contributions. Fidelity, a leading 401(k) provider, recommends a savings rate of 15%.
New Jersey-based certified financial planner Chelsea Ransom Cooper He said CNBC They urge Millennial clients to take full advantage of the employer matching option. It even encourages them to contribute to the 401(k) annual limit of £18,758 ($23,500) for 2025.
Employer contributions, which are essentially free money, are also on the rise as many companies choose to match employee 401(k) contributions of up to 6% of their annual salaries.
Pointing to increased employer 401(k) contributions over the years, Ransom-Cooper said they make a big difference in helping push more 401(k) account balances up “to help people achieve their retirement goals.”
Millennials are prioritizing retirement savings as they approach their peak income years
In 2025, the oldest millennials will be 44 years old, while the youngest will be 29 years old. Millions of them are entering their peak income years, which is also why they are focusing more on retirement savings.
Financial advisor Jordan Ooi believes that 401(k) account holders need a “combination of long-term savings efforts” and positive market conditions to realize maximum benefit.
Since 401(k) account growth is generally tied to stock market performance, net worth often fluctuates during market turbulence. 401(k) savers You tend to make quick changes to asset allocation and even cash withdrawal balances when the stock market falls. This trend has gained momentum since the pandemic-induced recession. These actions seriously impact your long-term retirement goals and make years of saving efforts go to waste.
Ooi explained that 401(k) accounts will fluctuate, even dramatically, over the years as the world navigates the new normal. However, the advisor says millennial savers have enough time to access their 401(k) funds. “You probably won’t touch that money for 20 years.” even if [the market] “It goes up and down, stick to the script,” Ooi said.
Likewise, Ransom Cooper added that inevitable market crashes will always affect 401(k) balances, but the markets gained more than they lost. “Staying the course and maintaining that long-term vision is really helpful,” she concluded.
Disclaimer: Our digital media content is for informational purposes only and is not investment advice. Please do your own analysis or seek professional advice before investing. Remember that investments are subject to market risk and that past performance is not indicative of future returns.