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Retirement Savers Kept Saving in Q1: Fidelity

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The market downturn caused average 401(k), IRA and 403(b) balances to fall in the first quarter, but contributions to retirement accounts held steady, with some investors actually increasing their savings, according to the latest analysis of retirement savings trends released Friday by Fidelity Investments.

The average 401(k) balance was $91,400, down 19% from the record high of $112,300 in the fourth quarter, but still well above the $71,500 balance in the 2010 first quarter.

The average IRA balance decreased by 14% to $98,900, but was ahead of the $66,200 balance 10 years ago. And the average 403(b)/tax exempt account balance fell 19% to $75,700, compared with the average balance of $50,000 a decade ago.

Despite huge market swings in the first quarter, the majority of retirement savers continued to add to their nest eggs. The average 401(k) contribution rate remained steady at 8.9%, consistent with the previous quarter.

Not only that, 15% of 401(k) savers increased their contribution rate in the first quarter. Fidelity noted that these included participants who use their plan’s automatic increase service and had their contribution rate automatically increased in the quarter.

The average employer contribution also held steady at 4.7%, up from 4.6% in the previous quarter and consistent with 4.7% in the 2019 first quarter.

The average amount investors contributed to an IRA increased by 10% year over year to $3,330, up 10% over the average contribution amount in last year’s fourth quarter. Contributions to 403(b)/tax-exempt accounts also increased, to 6.9% from 5.6% in the fourth quarter and 5.4% a year ago.

“Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,” Kevin Barry, president of workplace investing at Fidelity Investments, said in a statement.

“It was encouraging to see that many investors stayed the course and did not make drastic changes to their asset allocations, with some investors increasing contributions to their retirement accounts.”

Surging New Accounts, Minimal Withdrawals

Fidelity’s analysis showed some 407,000 savers opened IRAs in the first quarter, a 36% increase over new IRAs opened in the 2019 first quarter.

A growing number of millennials are gravitating to IRAs as a retirement savings vehicle. Their first-quarter contributions increased by 41% over last year, while the amount they contributed shot up by 64%. Among millennial women, the number of IRAs increased by 20% year over year.

In addition, the number of Roth IRAs among millennials also increased by 41% over the last year, with the amount of Roth IRA contributions growing by 64%.

According to the analysis, retirement savers did not significantly change their asset allocation in the first quarter despite significant volatility. Only 7.3% of individuals made a change to their 401(k) allocation, up from 5.2% in the fourth quarter.

Of those savers who did change their asset allocation, 60% made only one change in the quarter. Even among baby boomers, only 9.9% made a change to their 401(k) allocation, with most moving their savings into a conservative investment option.

Among individuals saving within 403(b)/tax exempt accounts, just 5.2% made a change to their allocation, up from 4.1% last quarter. And only 3% of individuals across Fidelity’s 401(k) and 403(b)/tax exempt platform dropped their allocation to 0% equities.

Although continuing financial uncertainty and provisions within the CARES Act passed in March may result in higher loans and withdrawals later in the year, individuals did not draw significant funds from their retirement accounts in the first quarter, the analysis found.

Only 1.4% of individuals took a hardship withdrawal from their 401(k) in the first quarter, compared with 0.9% who did so a year ago. The percentage of individuals who initiated a 401(k) loan dropped to 2.3% in the first quarter from the 2.6% of 401(k) savers who initiated a loan in the fourth quarter and consistent with 2.3% who took a 401(k) loan in the 2019 first quarter.

Barry noted that despite their steadfastness in the first quarter, investors continue to be concerned about how the economic environment and global pandemic may affect their health and financial futures. Fidelity is already seeing the how the market downturn is weighing on its clients, he said.

Average daily customer calls from the firm’s retail and workplace investors increased by 20% year over year in the first quarter, and new COVID-19 resource centers created for its retail, workplace and institutional clients generated nearly 1 million views through the end of the quarter.