The Reasons Why a 1 Million 401(k) Isn’t Foolproof

According to a recent survey by Fidelity, the number of 401k millionaires has decreased by 32% over the past year. In an era where pensions are vanishing, a 401(k) is most employees’ primary retirement security source. A recently-passed retirement bill will soon remove the 10% penalty for people who need to withdraw $1,000 each year due to economic difficulty; most financial planners would advise you to save as much as possible as soon as possible and fight the temptation to withdraw anything early.

While saving is always preferable to not saving, one’s financial condition also depends mainly on the state of the economy when one has to begin using that money. According to the most recent data from Fidelity Investments, the number of individuals with over $1 million in their accounts decreased by 32%, from 442,000 in 2021 to 299,000 in 2024.

In 2024, the average 401(k) decreased by an obscene amount.

Despite “401(k) millionaires” representing only 1.4% of the 21.5 million Fidelity account holders, the average value of a Fidelity plan declined by 20.5% in 2024, while the S&P 500 (IN) fell 19.4% in a year marked by conflict, energy instability, and rampant inflation.

Here’s Why The Number Of 401(k) Millionaires Fell So Suddenly

A previous analysis from Vanguard discovered the same 20% decline for accounts held true across the industry. The average Vanguard balance was $112,572, but the median balance unaffected by the top and lowest one percent of savings was $27,376, a loss of 23% from 2021.

In 2024, the average account balance at Fidelity was $103,900. The 442,000 millionaire level peaked in 2021 since the first 401(k) plan was founded in 1978. Nevertheless, the year that followed was highly volatile, and many participants experienced considerable reductions in their savings.

Millionaires with individual retirement accounts (IRAs) also decrease too.  

The number of millionaires with individual retirement accounts (IRAs) decreased by 25% to 280,320 in 2024. People for whom retirement is still decades away will be largely unaffected by these ups and downs; over 20 years, an average portfolio with 60% invested in stocks and 40% invested in bonds generates between 5% and 8% annually, even if this number is higher in prosperous years and lower during times of economic turmoil.

Despite the instability of 2024, people continue to save at record rates.

An annual survey by Northwestern Mutual indicated that the average retiree will require $1.25 million to retire comfortably next year, even though having extra savings is always a good idea during periods of inflation.

The majority of savers recognize this pressure and respond by increasing their savings. Over four out of ten savers increased their deferral rate in 2024, according to a poll by Vanguard, while 97 percent of those under retirement age did not make any early withdrawals.

From 2.1% in 2021 to 2.8% in 2024, this final figure represents a modest increase in the proportion of early retirees citing economic difficulties. In addition, the percentage of investors with diversified portfolios grew to 79% by the end of 2024. Many redirected their funds to avoid having too many eggs in one basket in economic turmoil.

Mike Shamrell, vice president of the workplace thought leadership at Fidelity, told the Washington Post that the expectation is that savings continue to remain on pace, and when market conditions improve, more retirement savers should surpass the million-dollar benchmark.