Millennial 401(k) Millionaires Rise by 400% as Market Rally and Steady Savings Lift Account Balances

401(k) retirement accounts are among the most powerful investment tools for US workers, given the high annual contribution limits, tax benefits, and free money from employer-matching options.

More millennials are tapping into the potential of 401(k) accounts. Fidelity Investments data show that the number of millennials with 401(k) account balances above £798,170 ($1 million) increased by 400% year-over-year in Q3 to 10,000 from 2,000.

Many millennials continue to believe that reaching a million dollars in net worth is essential to retiring comfortably. However, financial advisers suggest saving even more, considering the uncertainties over health and living costs in retirement.

Strong Market Rally Critical Factor In Growing 401(k) Balances

Saving a million dollars in a 401(k) takes decades of disciplined contributions. However, this year's strong market rally led by tech giants on the AI hype buoyed account balances to new highs.

The Nasdaq Composite and the S&P 500 index gained over 25% year-to-date. Meanwhile, the Dow Jones Industrial Average index jumped over 13% in the same period.

'Even shorter-term savers have done well because of significant market gains,' said Mike Shamrell, Fidelity's vice president of thought leadership. 'If we continue to see positive market conditions, we could see not only the overall number of millionaires bump up over that threshold but also more millennials.'

401(k) Savings Rate Remains Close To Fidelity's 15% Target

Fidelity data revealed that the total average 401(k) savings rate was 14.1% in Q3. Around 9.4% were employee contributions, and 4.7% were employer contributions. Fidelity, a leading 401(k) provider, recommends a savings rate of 15%.

New Jersey-based certified financial planner Chelsea Ransom-Cooper told CNBC that she urges millennial clients to fully utilise the employer match option. She even encourages them to contribute to the annual 401(k) limit of £18,758 ($23,500) for 2025.

Employer contributions, essentially free money, are also climbing as many companies choose to match 401(k) employee contributions for up to 6% of their annual salaries.

Referring to the growing 401(k) employer contributions over the years, Ransom-Cooper said it is making a big difference in helping push more 401(k) account balances higher to "help people reach their retirement goals."

Millennials Prioritise Retirement Savings As They Near Peak Earning Years

In 2025, the oldest millennials will turn 44, while the youngest will be 29. Millions of them are entering their peak earning years, which is also why they are focusing even more on retirement savings.

Financial adviser Jordan Awoye believes that 401(k) account holders require a 'blend of both' long-term savings efforts and positive market conditions for maximum benefit.

Since 401(k) account growth is generally tied to stock market performance, net worth often fluctuates during market upheavals. 401(k) savers tend to make quick changes to asset allocations and even cash-out balances when the stock market nosedives. This trend has gained momentum since the pandemic-induced recession. These actions gravely impact long-term retirement goals and render years of savings effort in vain.

Awoye explained that 401(k) accounts will fluctuate, even dramatically, over the years as the world navigates the new normal. However, the adviser says millennial savers have enough time to access 401(k) funds. 'You are likely not touching that money for 20 years. Even if [the market] goes up and down, stick to the script,' Awoye said.

Similarly, Ransom-Cooper added that inevitable market crashes will always take a toll on 401(k) balances, but markets have gained more than they are down. 'Staying the course and keeping that longer-term vision is really helpful,' she concluded.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.