There Are Now More 401(k) Millionaires Than Ever

More and more clients are starting to feel like a million bucks. Literally.

The number of 401(k) millionaires at Fidelity totaled 654,000 as of the third quarter, the highest level in records going back to the early 2000s. The figures point to increased usage of 401(ks) among working professionals as the retirement planning vehicle of choice, replacing the private pension, as well as the role high employer matching rates can play. But for advisors, larger 401(k) balances also means their clients have greater exposure to the stock market.

“Most advisors are not thinking about risk enough,” said Stephen Dissette, an advisor with Horter Investment Management. “You want to protect your wealth from market risk because [with] one big market downturn, all of a sudden that seven-figure 401(k) becomes a 201(k).”

Who Wants to Be a Millionaire?

Several factors have facilitated the rise of 401(k) millionaires, including high employer matching contributions, strong market growth and the steady decline of Social Security as a reliable source of retirement income. The 401(k) is now a critical part of any client’s portfolio, said Matt Mormino, managing director of Brighton Jones’s retirement planning service. “I talk to 401(k) populations quite often, and I tell them it’s the ‘get rich slowly’ scheme,” he said. “Not just from an investment standpoint, but from a tax standpoint, too.” More 401(k) providers are expanding their individual services as part of their overall offering, he added, with a push to roll over assets — once someone is in retirement — to a platform’s own advisory solutions. “I expect we’ll continue to see a lot of that because there is just a tremendous amount of wealth concentrated in these plans,” Mormino said.

The Fidelity report also found:

• The average 401(k) balance was $144,400, up 9% from the third quarter of last year.
• The average contribution rate remained consistent at 14.2% for the second quarter in a row, with an average employee contribution of 9.5%.

It’s part of an advisor’s job to make sure their clients are actually living off of the money they’ve saved, Dissette said. This is because many clients, having saved up a robust nest egg through the years, are hesitant when it comes to actually spending the money. “[Advisors are] not putting together plans for people, they’re not rolling over these 401(k)s into IRAs enough. They’re not doing raw conversions,” he added. “There are a lot of issues out there.”

Capture the Dollar. So how should advisors secure those sweet, sweet 401(k) bucks? Mormino said thinking about it as early as possible is key. “Even if you’re not managing those dollars today, by adding value to your clients and … helping them think about it, when it does come time for those dollars to come out of the 401(k), it’s not going to go anywhere else.”