After years of declines in American retirement savings, leading to jokes about 401(k)s turning into 201(k)s, the tide has turned. Now, some folks may have a 601(k). A new report citing data from Fidelity Investments finds the number of 401(k) millionaires grew by 11.5% in 2023, while the average 401(k) balance overall rose by 14% for the year. Credit goes to the surging stock market, which saw the Dow Jones Industrial Average, the S&P 500 and the Nasdaq all finish the year at or near record highs.
Those fatter retirement balances are great news for Boomers reaching retirement age, but there is a downside for those who aren't cashing out right away. "For somebody with a million dollars in a 401(k) or the stock market, when we saw Tuesday's selloff, you would have seen their account decline by roughly $10,000," says KTRH Money Man Pat Shinn with Heritage Asset Advisors.
Shinn tells KTRH retirement investors have to allow for some market volatility. How much depends on the individual investor. "Some people are very, very comfortable with the ups and downs of the markets, while there are others who would rather have a lower rate of return for a more consistent rate of return," he says.
Aside from your risk tolerance, the biggest factor in your retirement strategy is how close you are to retirement. "If you're within a few years or less of retirement, you need to take a serious look at your 401(k) investments and make sure that they match your time horizon," says Shinn.
While investing in the stock market is always a gamble, the recent surge in 401(k) balances shows there is a reward for those who stay the course. "We know the market will decline at some point, that's normal," says Shinn. "It's normal to get one or two 10-percent selloffs, so if you don't think you are going to be able to ride through something like that, now's the time to make some adjustments."
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