401(k) balances have increased despite the challenges

Secure 2.0: An Alternative to 401(k) Benefits for Workers under President Biden’s 2019 Budget Cuts and Expansion

The $1.7 trillion spending bill President Biden is expected to sign into law this week includes several key provisions that are meant to make it easier for workers to save for retirement.

As the population ages, many Americans are working later in life, unable to keep up with Social Security and retirement savings. By 2030, the number of people age 75 years and older who will be working or looking for work is expected to grow by 96.5%, according to the Bureau of Labor Statistics.

“Only about half of workers have ever had a retirement plan since modern recorded history, according to an economist with the Economic Policy Institute.” Half of workers have little or nothing.

The new legislation, known as Secure 2.0, would mostly benefit workers who already have access to workplace retirement plans, but there are features that would help certain employees who cannot obtain them at work.

Currently, 51% of Americans can’t pay more than than three months’ of expenses through an emergency fund, and 25% say they have no emergency fund at all, according to consumer financial services company Bankrate.

It will become easier and less expensive for 401(k) participants to take money out of their account for emergency needs over $1,000 a year under the new retirement law.

Part-time workers would no longer be required to work three consecutive years to be eligible for for their company’s 401(k) plans, a policy introduced under the 2019 Secure Act. Instead, part-time workers would need to work between 500 and 999 hours for two consecutive years to be eligible for their company’s 401(k) plans.

The Impact of New Student Loan Payment Law on Retirement Savings: Fidelity Investments Reveals an Improved Workplace Investment Strategy

Workers with large student loans often opt to pay down their debts instead of contributing to retirement savings. A study by Fidelity Investment found that workers with student debts are less likely to have enough money for retirement.

Under the new law student loan payments will qualify for an employer’s matching contribution, as they will count as retirement contributions.

Currently, only low and middle-income earners who owe at least $1,000 in taxes can get back half of their retirement savings contribution — a maximum of $1,000 — as a nonrefundable tax credit.

The bill would require employers to automatically enroll employees in 401(k) and 403(b) plans starting in 2025. Automatic employee contributions would increase by 1 percent each year until they reached at least 10%, but not more than 15%.

If you’re 50 and older, you can direct an extra $7,500 annually to your 401(k)s. Starting in 2025, that limit would increase to $10,000.

By that Barry means the average 401(k) savings rate (including both employee contributions and employer matches) held roughly steady at 13.7%, down from the 13.8% in the third quarter and 13.9% in the second quarter.

According to new data from Fidelity Investments, the largest provider of workplace retirement plans, the total amount of assets on its platform is more than $2 trillion.

Even though the market shifted, data shows that retirement saver understand the need to save for the long-term. We are encouraged to see people look past the current volatility and continue to make smart choices for their future,” said Kevin Barry, president of Workplace Investing at Fidelity.

Among generations in the workforce, Baby Boomers had the highest savings rate as a percent of their income (16.5%). The youngest cohort – Gen Z workers – saved 10.2%.

A third of participants actually increased their contribution rate over the last year, according to Fidelity. The average rate among this group is just over 2.5%.

Fidelity-administered plans have an average 401(k) balance of $103,900. The average is still 23% below the $135,600 recorded at the end of 2021, despite the poor performing bonds and stocks last year.

The average outstanding loan amount was $10,200. Baby Boomers had the highest average, followed by Gen Xers. They have not had a lot of time to build a nest egg, but 4.7% of Gen Z workers also had outstanding 401(k) loans, but their average amount was less than the other age groups.

Hardship withdrawals from 401(k)s – money taken when a participant is under financial stress of some kind (e.g., to prevent eviction, pay for funeral expenses or to cover a near-term tuition bill) – stood at 2.4% for the year, up from 1.9% in 2021. The average amount taken out was $2,200. Unlike a 401(k) loan, a hardship withdrawal does not need to be paid back, and will be taxed. Plus, in some instances it may be subject to a 10% penalty if you’re under 59-1/2.

Multi-Jansky Additions to the Fidelity Platform in the Fourth Quarter of ‘Monte Carlo/Solitar IRA’

In the fourth quarter of last year, Fidelity noticed an increase in the number of IRA contributions on its platform, which went into Roth IRAs, compared to the same quarter the previous year.