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CAPITAL IDEAS: What are Americans’ savings behaviors?

It has been a fortuitous stretch for investors. Through December 31, 2023, their average IRA balances increased 18 percent and 31 percent over a five-year and 10-year period, respectively.

A new retirement analysis from Fidelity Investments reveals Americans’ savings behavior compared to previous periods. Specifically, the information was culled from investors who custody their money at Fidelity. Given that the institution is one of the world’s largest, with $12.6 trillion in assets under administration for nearly 50 million individual investors as of December 2023, the financial firm’s customers are representative of the entire country.

Investors ended 2023 on an upswing, with their average IRA (individual retirement account) account balances rising six percent in the fourth quarter and up 12 percent higher for all of 2023. The average IRA balance at the end of 2023 reached $116,600.

Chart courtesy of Fidelity.

It has been a fortuitous stretch for investors. Through December 31, 2023, their average IRA balances increased 18 percent and 31 percent over a five-year and 10-year period, respectively.

Chart courtesy of Fidelity.

Nearly three out of four (73 percent) eligible employees participated in their employer’s savings plan in 2023. Investors also experienced positive returns in their 401(k) and 403(b) company retirement plans. Average balances for those accounts reached $118,600 and $106,100, respectively.

Chart courtesy of Fidelity.

In response to those gains, more than a third (37.2 percent) of workers increased their retirement savings contribution rate in 2023 to put even more of their cash to work for them.

Chart courtesy of Fidelity.

Perhaps motivated by portfolio appreciation, five percent of workers changed their asset allocation in the last quarter of 2023. For all of 2023, 8.4 percent adjusted.

Those extra contributions and the positive returns pushed the average 401(k) balance up to $118,600. Long-term investors recognized even loftier levels. The average 401(k) balance reached $501,000 at the end of 2023 for Generation X workers (those born between 1965 and 1976) who had been in their plan for 15 years straight. As Fidelity noted in its analysis, that high average balance was an example of the benefits of “consistent savings, contributing enough to receive the employer match, and taking a long-term approach to retirement.”

Many of the Baby Boomer generation (those born between 1946 and 1964) apparently felt some of those “consistent savings” vibes. Beginning in 2023, the SECURE 2.0 Act raised the age at which you must begin taking RMDs (required minimum distributions) to age 73. (Non-mandatory distributions are allowed prior to age 73 and after age 59.5). Most investors under the age of 70 did not withdraw from their 401(k) plans. Of those Fidelity investors aged 73 or higher in 2023 (so they had RMDs), 94 percent took withdrawals (withdrawals for the other six percent could have been satisfied from other accounts). In comparison, of those between the ages of 70 and 72, only 20 percent made withdrawals in 2023.

Reasons to roll over your 401(k) to an IRA

Fidelity’s retirement analysis did not explain why so many investors held their assets in 401(k) accounts when potentially more beneficial opportunities were available. Two possibilities for not making advantageous account switches are a lack of investor education and inertia.

The 401(k) account structure is generally inferior to IRAs for investors. Compared to 401(k)s, IRAs often have more and less expensive investment options, allow for advanced Roth IRA options, are easier on your beneficiaries, have more cash distribution options, have more transparent IRS rules, and generally have better account and service access.

If the worker is retired, they can “roll over” their 401(k) to an IRA. If the investor is employed and is at least age 59.5, they can take an in-service distribution to move the 401(k) assets to an IRA.

If you are at least 59.5 years old and have a 401(k), or if you have a 401(k) with a former employer, I suggest that you speak with your financial advisor to consider an IRA instead.

A little more on the stock market

Berkshire Money Management’s Scott Little posted the following on his LinkedIn page on March 28, 2024, as the quarter closed for the year.

With March’s 2 [percent] gain, the S&P 500 is on its way to a 5th consecutive monthly gain. That would be only the 12th occurrence since 1950. As you will see in the graphic below from Carson Investment research, when this happened historically, good things followed for the rest of the year.

Chart courtesy of Carson Investment Research.

The last nine months of 2024 should be good ones for the stock market relative to typical years, if history were to be repeated. However, history is not always kind. If history were to repeat itself, the stock market should also take it on the chin this year and decline five to 10 percent over a three- to five-month stretch. That type of decline has nothing to do with a tremendous run for the stock market and everything to do with the fact that those types of garden-variety corrections happen frequently.

Those two occurrences do not need to be mutually exclusive. As those half-millionaire Gen X 401(k) investors understand, being invested in the stock market can create a lot of wealth, just not always in a linear fashion.


Allen Harris is an owner of Berkshire Money Management in Dalton, Mass., managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com. A recommendation to roll over 401(k) account assets creates a conflict of interest if BMM will earn an advisory fee on the rolled over assets. No client is under any obligation to roll over retirement plan assets to an account managed by BMM.

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