Fidelity Finds Retirement Account Growth in Q2, Better Outcomes for Nonprofit Workers

In its second quarter retirement analysis, Fidelity Investments found that retirement savers experienced a third consecutive quarter of growth across individual retirement, 401(k) and 403(b) account balances. Fidelity attributed the rising retirement account balances to positive market conditions, as well as strong contribution levels.

Based on data through June 30, the end of the second quarter, the average IRA balance in Q2 was $129,000, the average 401(k) balance was $127,100 and the average 403(b) balance was $114,700.

In particular, Fidelity noted that Generation X participants made strong gains in their retirement savings, with current IRA contributions at the highest observed in the last five years.

Mike Shamrell, vice president of thought leadership at Fidelity, says 14% of Gen Xers took advantage of catch-up contributions in Q2, which may explain the improved account balances for this cohort.

By comparison, Shamrell says the youngest Baby Boomers turned 60 this year, and it is likely that a large percentage of this population is already in retirement. He says their balances will likely begin to taper, as many are not contributing anymore and are starting to draw down.

Data from Fidelity’s analysis is based on savings behaviors and account balances for more than 48 million IRA, 401(k) and 403(b) retirement accounts.

Fidelity also found significant strides made in retirement plans offered by nonprofit organizations, revealing improved participation and savings rates in its biannual study, “Better Outcomes for Nonprofit Organizations.”

After studying 2,500 nonprofit retirement plans, Fidelity revealed that the average plan participation rate in 2023 was 83%, and the total average savings rate was 11.2%—consisting of 7.4% in employee contributions and 3.8% in employer contributions.  

“As organizations within the nonprofit sector continue to add features to their plan to make it easier for their employees to save, I think we’re going to continue to see positive results as we as we go forward,” Shamrell says.

Shamrell adds that more nonprofits are using features like automatic enrollment and automatic escalation, which have helped participants contribute more. According to the survey, 43% of plans offered auto-enrollment in 2023, and 33% enhanced their enrollment communications.

In addition, 23% of nonprofit plans had auto-escalation in 2023, and 84% had Roth deferrals. Fidelity found that 87% of active participants with a balance are contributing to their account. Another positive finding was that 43% of participants in nonprofits’ plans are deferring at least 6% of their compensation to retirement savings.

Shamrell says Fidelity recommends at least a 15% savings rate, when the employee and employer contributions are combined, and notes that many nonprofit workers are inching toward that rate.

Meanwhile, Fidelity’s survey found that 11.5% of nonprofit participants have at least one loan outstanding, while Gen X workers have the highest loan utilization of any cohort at 17.2%.

“The loan data really helps underscore the need to help workers set up an emergency fund,” Shamrell notes.

Fidelity found that the number of nonprofit workers taking hardship withdrawals has grown annually since the COVID-19 pandemic, with 1.9% of nonprofit workers taking a distribution in 2023, up from 1.6% in 2022 and 1.3% in 2021. The top three reasons for nonprofit workers taking a distribution were foreclosures/eviction, medical reasons and for education.

Shamrell says in some instances, taking a hardship withdrawal might be a better option than a plan loan.

“What we try to tell people when they take out a loan is: Bear in mind, you’re going to have to start paying that loan back … and your loan payments are going to be automatically deducted from your paycheck, so your take-home pay is going to go down,” he says. “If you are really on a tight budget, it’s important to bear that in mind.”

Nonprofit employees also reported having higher levels of credit card debt, lower rates of emergency savings and lower confidence in their financial situations in 2023 than in previous years.

Fidelity recommended that employers share information with workers on how to build emergency savings, promote educational videos and webinars to help build financial literacy and promote strategies to help participants with student debt.

Fidelity analyzed data for nonprofit managed plans as of December 31, 2023 in its report.