COVID-19 had devastating consequences for human health, their lives and livelihoods. But for millions, it is a boon for their retirement savings, an area where many Americans lag behind for years.
According to Fidelity Investments, the average balance on IRA accounts in the firm has increased from $ 115,400 in the fourth quarter of 2019 to $ 128,100 in the fourth quarter of 2020, an increase of 11%. With reinvested dividends, S&P 500
it earned almost 18% during that time, but keep in mind that most IRAs are invested in a mix of stocks, bonds, and cash, and few are 100% in stocks.
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Last year, the number of Fidelity IRA accounts that received a contribution increased by 35%, and the average contribution per account increased by 5%. It doesn’t sound too much, but it suggests that many people who have kept jobs (roughly the eight million jobs lost last year have not yet returned) decided to increase their pension savings during the pandemic, along with the purchase of Peloton
and a Netflix subscription
and Disney +
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Furthermore, Fidelity reported, the number of new, traditional, Roth and Roth for minor IRA accounts increased by 56% from 2019 to 2020. This is in line with data from Charles Schwab
which reported an increase in IRA opening by 50% during the first two months of 2021 to the first two months of 2020, a slightly different time period.
I wanted to explore this more deeply, but no one from Fidelity or Schwab was available to talk to me. Vanguard and T. Rowe Price
refused to discuss or share data, and the Institute for Investment Companies, a trade organization, and a lobbying group in the fund industry, referred me to companies for further comment.
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But in February, Fidelity released a full quarterly report on pension investors that contains a wealth of data. I can’t say for sure how many Fidelity customers are generally U.S. retirement investors, but the firm has 30 million retail clients and their behavior tells us something.
The most important thing may be to save – a record 9% savings on retirement accounts at work in the fourth quarter of last year. Every third individual has increased their contribution to the 401 (k) plan at some point in 2020, in addition to increasing the IRA’s contribution. This was true for the boom-generation, Generation X, and millennials. The average combined employee and employer contribution to Fidelity-managed corporate defined contribution plans was more than $ 11,000 last year, which I think is pretty good.
Generation Z, those born between 1997 and 2012, whose oldest members have just entered the workforce, started strong, with 800,000 workplace accounts and 114,000 IRAs. And while we’re talking about young people, some 69% of millennials in Fidelity-managed employer retirement plans are 100% invested in targeted pension funds. It’s a pretty boring thing compared to cryptomania or “sticking to a man” by buying a GameStop
shares, but I am confident that this will pay off for young investors in the long run: the average pension account balance with Fidelity has risen by 80% in the decade from 31 December 2010 to the end of 2020.
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Younger investors are also buy Roth IRAs, which are financed with money after tax and whose withdrawals are non-taxable; accounted for 58.7% of all Fidelity IRA contributions in 2020. If you can afford it, combining a workplace retirement plan that includes automatic pre-tax deductions with a Roth IRA or Roth 401 (k) is the optimal savings strategy and retirement investments. This is because traditional 401 (k) plans usually have a nice match with the employer, which is free money, and Roth IRAs allow you to invest very long-term, not worry about paying withholding tax, and give you an easy way to exempt from paying taxes future heirs.
And although the CARE Act waived 10% penalty for early withdrawals of up to $ 100,000 from retirement plans in 2020, only about 3% of Fidelity participants withdrew the CARES Act, and the average distribution was $ 7,600.
Thus, millions of Fidelity investors of all ages have increased their savings rates; have stepped up their contributions to the retirement plans of companies and Roth IRAs; they saw that their account balances had reached new highs; they generally avoided withdrawing difficulties and maintained diverse portfolios based on automatic investment in targeted funds.
Obviously, there is no such thing as a “good” pandemic because of it heavy human and economic costs, but COVID-19 has left millions of Americans in a better financial position to retire than they were before.