money These 401(k) millionaires crossed the $1M threshold amid the pandemic. Here’s why.
More than 220,000 workers crossed the $1 million mark in their 401(k)s in the second quarter of 2020, according to Fidelity Investments. And as of the third quarter of 2020, there were at least 262,000 Fidelity 401(k) customers with $1 million or more in their retirement accounts.
This came amid a pandemic-induced market crash in March, when the S&P 500 index plunged 7%. Since then the index climbed 38% from close of March 9, 2020, to Jan. 7, 2021.
For savers with 401(k)s approaching retirement, watching their portfolio dwindle is anguish, but those who kept contributing reaped the rewards.
“When the market tanked in March, and I know my heart just dropped too, they stayed steady and didn’t make any changes,” Washington Post syndicated personal finance columnist Michelle Singletary told Yahoo Finance. They “saw those losses come back and then some. They aren’t panicked by everyday gyrations of the market. They have a plan. They stick to it. They don’t panic. And so those are the reasons why they’ve been able to become a millionaire during a time when the economy is really rough for a lot of people.”
The coronavirus health crisis wrought economic devastation on millions of Americans, with the U.S. unemployment rate reaching 14.7% in April, its highest level in 2020. Nearly a third of Americans resigned themselves to the fact that they might never be able to retire due to a combination of factors, including lack of emergency and retirement savings and job losses due to the pandemic.
The CARES Act passed in March made it possible for millions of Americans to tap their retirement accounts in the face of financial hardship. More than 2.1 million Americans have withdrawn up to $100,000 from their 401(k)s at the nation’s five largest plan administrators, according to one report.
But pulling out of those retirement accounts came with a cost. “The markets just tanked [in March]. We were in a recession. And people were like, I can’t take this. They panicked. They pulled money out, and they realized those losses,” said Singletary.
Remarkably, there were more 401(k) millionaires in 2020 in the aftermath of the economic shutdown than there were in the same time period in 2019. In the second quarter of 2020, 224,000 Fidelity 401(k) customers crossed the $1 million mark, up from 196,000 in the same quarter in 2019.
In the third quarter of 2020, 262,000 workers had $1 million or more in their retirement accounts, up from 200,000 from the year before. Average 401(k) account balances were $109,600 in the third quarter of 2020, up from $105,200 in the same quarter in 2019. (These numbers are based on the 19 million 401(k) accounts managed by Fidelity.)
Workers who managed to have $1 million or more in their retirement accounts in spite of the pandemic benefited from the stock market reaching record highs in 2020. They’ve likely also been saving steadily for 20 years or more, taking a long-term approach to retirement investing. These workers are often in their 50’s and in addition to saving aggressively, have typically been contributing 15% of their salaries to their 401(k)s and taking advantage of their employers’ matching contributions.
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