The tally of 401(k) and IRA millionaires hit their second-highest level in the second quarter despite the pandemic that forced a large part of the economy into a standstill.
The number of 401(k) millionaires increased to 224,000 from 150,000, a 49% jump from the first quarter, according to an analysis of more than 30 million retirement accounts from Fidelity Investments provided exclusively to Yahoo Money. The number of IRA millionaires increased about 30% to 204,000 from 157,000.
The totals for each trailed the record highs each reached in the fourth quarter of 2019, when there were 233,000 401(k) millionaires and 208,000 IRA millionaires.
But remarkably, the increases occurred during April, May, and June when tens of millions of Americans lost their jobs or were placed on furlough during state shutdowns, especially during those first two months.
“Steady deposits and not panicking or succumbing to emotions will always yield good results,” said Amit Chopra, managing partner at Forefront Wealth Planning and Asset Management, a financial firm. “Keep in mind most 401(k)s are heavily invested in the indices, which means people were heavily exposed to Facebook, Apple, Amazon, Netflix and Alphabet stocks as well as Microsoft, which have been less impacted by COVID.”
Retirement balances rebound after last quarter’s dip
It wasn't just millionaires that had a reason to celebrate. The average 401(k) and IRA balances also rebounded after dips in the first quarter, according to the company’s press release, thanks to a 21% increase in the S&P 500.
Average IRA balances were $111,500, a 13% spike from the previous quarter and a 0.9% increase from a year ago. Meanwhile, the average balance for employer-based 401(k) plans jumped to $104,400, a 14% gain from the first quarter.
“This is not surprising at all to me, as I’ve told people for years that there is a ‘mutual fund feeding frenzy,’” said Steve Kruman, an investment advisor at Bryce Wealth Management, a financial firm. “Every week, huge sums of money nationwide are contributed by employees and matched in portions by many employers [and] all flowing into the market, and these must be invested for those workers.”
Almost 9 in 10 individuals — or 88% — continued to contribute to their 401(k) in the second quarter, which was only a slight drop-off from the record high of about 90% in the first quarter. One in 11 investors increased their contribution rates.
Even those fighting the pandemic on the frontlines remained steadfast to their retirement investments. About 96% of workers in the healthcare industry, which includes hospitals, either maintained or increased their contribution rate in the second quarter, according to the report.
Millennials remain committed to their retirement future
The pandemic also saw a boost in millennial savings rates in the second quarter, with the number of IRA accounts owned by the generation increasing by more than 23% year over year.
Roth IRAs, retirement accounts funded by post-tax earnings, saw the largest jump with a 36% year-over-year gain in the number of accounts and a 50% increase in contributions.
One expert attributed the growth to a cutback in expenses, such as gas and dining out.
“It is not surprising that individuals used the extra capital generated from lower expenses to invest in retirement programs,” said Ron Oertell, chief financial officer at LendingUSA, “especially when the market is rising.”