401(k)s soared so much in the last year it's making more Americans rich enough to retire

401(k)s soared so much in the last year it's making more Americans rich enough to retire
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  • The number of 401(k) and IRA millionaires hit a record in the second quarter, Fidelity said.
  • Retirement accounts ballooned over the last year as Federal Reserve support and reopening lifted stocks.
  • The rally powered a wave of early retirements. The trend could delay the labor market's recovery.

The stock market's rebound minted a record number of retirement-account millionaires this year, according to new data from Fidelity.

The number of 401(k) accounts with at least $1 million rocketed to 412,000 in the second quarter, the broker said in a Thursday report. That's the most seven-figure balances on record and compares to a year-ago total of just 224,000.

Individual retirement accounts also surged. Roughly 342,000 accounts boasted balances of at least $1 million by the end of the second quarter, according to Fidelity. That's up from the year-ago sum of 208,000 and also a record. Together, the number of million-dollar accounts rose nearly 75%.

Retirement accounts have thrived over the past year as a handful of factors drove stock prices higher. The Federal Reserve's continued support of financial markets aided the run-up, with the central bank snapping up more than $1 trillion in Treasurys and mortgage-backed securities through the year. The central bank's pledge to keep interest rates low through the year also lifted the market.

The 12-month period also saw the US government approve the first COVID-19 vaccines. Inoculation throughout 2021 helped the US reverse lockdown measures and led businesses to reopen. By the end of the second quarter, daily case counts were the lowest since March 2020. Spending subsequently surged, business activity rebounded, and stocks rallied on hopes for a swift recovery.


Million-dollar accounts weren't the only ones to benefit. The average 401(k) balance leaped 24% to $129,300, according to Fidelity. IRA balances rose 21%, to $134,900, on average.

While impressive, the gains signal most account holders underperformed the market. The S&P 500 rose 39% over the same period, while the Dow Jones industrial average gained 34%.

Retirees on the rise

While encouraging, the market's rally could have knock-on effects for the broader recovery. Specifically, the surge in retirement savings could prevent the labor market from fully bouncing back.

"Some of the retirees may come back if the job market is hot enough, but the muscular boost to 401(k) plans over the past year may keep a larger fraction of senior workers on the golf course than anticipated," Bob Schwartz, senior economist at Oxford Economics, said in a June note.

That effect might already be taking hold. Labor-force participation for Americans age 55 and over was just 38.4% in July, according to the Bureau of Labor Statistics. That's just above the pandemic-era low seen in March. By comparison, participation among Americans aged 25 to 54 has retraced more than half of its recent decline and jumped in July to 81.8%.


The wave of early retirements has clouded some aspects of the recovery. The US can still foster a strong labor market, but the "significant number" of pandemic-era retirees suggests the market won't look exactly like it did before the crisis, Federal Reserve Chair Jerome Powell said in June.

"We don't actually know exactly what labor force participation will be as we go forward," Powell said at a press conference. "We have had a slew of retirements, and that may weigh on participation."

The disruption, however, shouldn't last long, the central banker added. The effect is expected to wane in a "few years" as younger people enter the workforce and replace their older peers. Early retirements could throw a wrench in the near-term recovery, but there's "no reason to think" that maximum employment can't still be reached, Powell said.