Despite market swings, ongoing economic uncertainty and worsening financial stress due to the pandemic, there’s some good news on employees’ retirement progress: contributions to retirement accounts remained steady overall in the third quarter of 2020, from both employees and employers.
Employees continued to contribute to their retirement accounts, and average account balances increased slightly in the third quarter, according to a third-quarter analysis of the 30 million retirement accounts held at Fidelity Investments. Nearly nine out of 10 individuals (89%) left their 401(k) contribution rate unchanged in the third quarter, and the average 401(k) balance increased to $109,600 that quarter, a 5% increase from the second quarter and up from 4% from a year ago. The average 403(b) account balance increased to $96,100, an increase of 5% from last quarter and up 9% from a year ago.
“One of our observations over the last six months was that individuals who had a savings plan tended to stick to their plan,” says Kevin Barry, president of workplace investing at Fidelity Investments. “There will always be unexpected events that come up, but having a plan in place can often put individuals in the best position to stay on track.”
Still, while contributions to retirement accounts remained steady overall, the financial challenges created by the pandemic did drive an increase in retirement account withdrawals under the CARES Act for those employees with an immediate financial need, Fidelity found. But it wasn’t a major rush of funds out of accounts.
From March to the end of the third quarter, 1.2 million individuals had taken a CARES Act distribution from their retirement account, which represents just 4.6% of eligible employees on Fidelity’s workplace savings platform, the company said. In the third quarter, the overall average withdrawal amount was $9,000, while the median withdrawal amount was $2,400.
“While the goal for retirement is to save and invest for the long-term, unexpected events can create a need to withdraw savings to cover near-term expenses,” Barry says.