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Savers pile money into 401(k), IRA retirement accounts



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Sarah Ackerman of Randolph, New Jersey, has been piling money into her retirement accounts during the coronavirus recession. And it’s paid off. 

Since the shutdown began in March, Ackerman has cut her expenses by $300 to $500 per month by working from home and driving less, providing a boost to her savings. She used to drive two hours a day for work. But she’s only filled up on gas twice during the pandemic, and she negotiated a lower rate on her auto insurance, saving her about 30%.

Since she was sitting on extra cash in the spring, Ackerman started maxing out her Simple-IRA, a retirement-savings vehicle, which her employer matches. In April, she opened up a separate Roth IRA account and maxed out her contributions, and then opened a brokerage account. 

“I felt nervous at first, but it’s been a great opportunity to save more for retirement,” Ackerman, 27, says, who recently received a promotion as a marketing manager at Universal Yums, a snack box subscription company.

“I’m trying to keep a level head, but it does feel good to save when you’re young. The more time you’re in the market is better than trying to time the market.”

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Retirement balances rebound despite COVID 

Stocks have done an about-face and are back near record highs following a coronavirus-fueled sell-off in March. But even during the downturn, workers kept piling money into their nest eggs, according to a new study.

While retirement accounts saw sharp swings in the second quarter due to the economic uncertainty surrounding the outbreak, balances saw double-digit growth from the first three months of the year, according to a quarterly analysis of retirement savings trends from Fidelity Investments.

The gains were driven by renewed optimism about future economic growth after the Federal Reserve and Congress stepped in and provided an unprecedented amount of financial aid to prop up the economy.

To be sure, the stock market has churned higher even as the U.S. economy has struggled to recover following a wave of layoffs and bankruptcies. And employers continue to lay off workers at a historic pace as further outbreaks have forced some states to pause reopenings. More than 55 million Americans have sought jobless benefits since state shutdowns began in mid-March.

But that hasn’t stopped some savers from pushing money into their retirement accounts. Investors boosted their IRA contributions last quarter, including Roth IRAs, resulting in record-breaking flows to retail retirement accounts, according to Fidelity. And contributions to workplace retirement accounts, from both employees and their employers, remained steady. 

In the second quarter, the average IRA balance was $111,500, a 13% jump from the prior quarter and slightly higher than the average balance of $110,400 a year earlier. The average 401(k) balance climbed to $104,400, a 14% rise from the first three months of the year, but down 2% from a year earlier.

“It’s not all gloom and doom during the pandemic,” says Katie Taylor, vice president of thought leadership at Fidelity Investments. “It’s really important to invest in your future, but it’s also important to make sure you have a cushion with an emergency account. Overall, most people are staying the course and have continued to save.” 

Investors maintain contributions

Stacy Hart, 59, is planning to retire next year. And the market downturn pushed her to plow more money into her retirement accounts to help pad her nest egg. 

Hart, who lives in Prineville, Oregon, scooped up stocks during the market’s decline in the spring, sticking to the strategy she used during the global financial crisis in 2008. During this year’s downturn, she continued to max out her company’s 401(k) plan to take advantage of stocks at bargain prices, Hart says. 

This year, her company allowed employees to take advantage of a “mega-backdoor” Roth, where employees could contribute larger after-tax amounts and convert the sums to a Roth IRA. Then she shifted her real estate assets to cash to have a financial cushion in case of another downturn.

“It’s easier to deal with stock market volatility if you have a backup plan,” says Hart, a vice president senior credit analyst at WaFd Bank, a national bank that operates in eight western states. 

Hart isn’t alone. Despite market volatility, retirement savers didn’t pull back on contributions. Almost nine out of 10 individuals (88%) contributed to their 401(k) in the second quarter, a slight drop from the prior quarter’s record high of 89%. 

The second quarter saw record flows into IRAs. Investors continued to leverage IRAs and other retail retirement accounts, including Simplified Employee Pension, Simple and rollover IRAs, as the extended tax season helped contribute to a record $82.1 billion going into these accounts through July.

Employers are still pitching in, for now

Many employers continued to help with their employees’ retirement savings. More than three-quarters of workers received an employer contribution in the second quarter, with the average employer contribution reaching $1,080. And nearly 90% of employers continued to offer matching contributions despite the unsteady business landscape.

Still, more employers have started to suspend their matching contributions to 401(k) accounts to conserve cash and mitigate layoffs during the pandemic and economic downturn. 

Fidelity found that only 11% of employers eliminated or suspended their 401(k) match last quarter. Of those, 32% indicated they plan to reinstate their match in the next year, and 48% plan to reinstate it as soon as financially possible. Only 6% of employers indicated they currently have no plans to reinstate their match.

Employers have typically paused or eliminated matching contributions during previous recessions, including the 2008 financial crisis. But the vast majority of them reinstated their match within a year, according to Taylor.

“A company match is a coveted benefit when considering an employer,” says Taylor, adding that it’s still in an employees’ best interest to stash money away for the future even if their employer doesn’t currently have a company match.

“If you have access to a company 401(k), even without a company match, it makes sense to utilize that benefit because you have the advantage of using pre-tax dollars.”

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