Despite economic uncertainty and financial stress caused by COVID-19, employees are contributing to their retirement accounts at a record pace–and their balances have hit a high too.
The average quarterly savings rate for 403(b) accounts was 7.3% while the savings rate for 401(k) accounts reached 9.1%, both record levels, according to new figures from Fidelity Investments, which manages some 30 million retirement accounts. When combined with employer contributions, the total savings rate–employee and employer contributions–for 403(b) accounts was 11%, while the total savings rate for 401(k) accounts was 13.5%. Across Fidelity’s 401(k) platform, one in three individuals increased their contribution rate at some point in 2020.
In addition to increased savings, a bull market and automatic contributions have helped lift workers’ retirement accounts. The average 401(k) balance swelled to $121,500 in the fourth quarter, an 11% increase from the third quarter and up from 8% from a year ago. The average 403(b) account balance increased to a record $106,100, a growth of 10% from last quarter, Fidelity found.
“The stock market results in Q4 played a part in boosting average account balances to record levels, but we’re encouraged to see how positive saving behaviors among our retirement investors also contributed to increased balances,” says Kevin Barry, president of Workplace Investing at Fidelity Investments.
Despite the positive news, there were still signs of COVID-19 repercussions. Withdrawals under the CARES Act remained steady throughout most of 2020, although they increased slightly in December. From March to the end of 2020, 1.6 million individuals–representing 6.3% of eligible employees on Fidelity’s workplace savings platform–had taken a CARES Act distribution from their retirement account. The majority of individuals (59%) took one withdrawal in 2020 and the overall average amount per withdrawal was $9,400. The median amount per withdrawal was $2,500, Fidelity said.