Americans have added $7,250 to their 401(K) balances since late last year, according to new data from Bank of America.
In the first half of this year, the typical retirement fund rose 9.6 percent to a balance of $82,300, the report said.
In the first half of this year, more participants also increased the contribution rate to their plan – 10.2 percent of people increased the amount they paid for later in life, while just 2.2 percent decreased the contribution.
At the same time, however, more and more people are taking “hardship resignations” from their plans. Year over year, the number of participants withdrawing money from their 401(K) accounts has increased 36 percent.
“The data from our report tells two stories – one about savings growth, younger employees’ optimism and retention of contributions, versus a trend of increasing plan withdrawals,” said Lorna Sabbia, head of retirement and personal wealth solutions at the Bank of America.
Average 401(K) balances are up nearly 10 percent since late last year, while more people are taking “hard” withdrawals.
In the first half of this year, more participants increased the contribution rate to their plan — 10.2 percent of people increased the amount they paid for later in life, compared with just 2.2 percent who decreased the amount
The increase in posts was led by Gen Z — those aged 18-26 — and Millennials, aged 27-42, according to the report.
In the second quarter of this year, 19.3 percent of Gen Z participants increased their contributions, while 11 percent of Millennials increased their contributions to their plans.
In contrast, according to the data, just 2.6 percent of Gen Z and Millennial workers reduced their contributions by the end of June this year.
“Younger generations are leading the way in terms of contributions as the economy stabilizes post-pandemic,” a Bank of America spokesman told .
“In the first half of the year, employees who are eligible for a bonus often receive their bonus, which can increase their contribution,” the spokesman added.
Meanwhile, the number of people claiming hardship payments from their plan because of financial difficulties increased 12 percent in the second quarter of this year compared to the first quarter, with the average person withdrawing $5,050.
The number of Americans taking out loans from their company pension schemes has also increased every year.
About 2.5 percent of participants took out a loan from their 401(K) in the second quarter of this year — with an average value of $8,550 — up from 2.3 percent of people in the second quarter of last year.
“This year, understandably, more employees are prioritizing short-term spending over long-term savings,” said Sabbia. “However, it is critical that employees continue to invest in the greatest expense of their lives – retirement.”
This comes after a landmark report last week revealed that wealthy households saved nearly 10 times more money for retirement than middle-income households.
An analysis by the Government Accountability Office (GAO) shows that the gap between the retirement plans of rich executives and ordinary workers has widened exponentially over the past two decades.
A high-income household saved about $605,000 for retirement — compared to $64,300 for a middle-income household.
In 2007, those numbers were $330,000 and $86,800, respectively.
Recent Bureau of Labor Statistics (BLS) figures show that the average retiree spends $52,141 a year — or $4,345 a month.
According to figures from the Government Accountability Office, wealthy households have saved nearly 10 times more money for retirement than middle-income households
According to the Bureau of Labor Statistics (BLS), the average retiree earns a pre-tax income of $55,335 — and spends about $52,141 of that annually. But 75% of that spending is in four key areas
But current workers will not be able to afford that lifestyle in retirement.
The GAO report highlights that the pension participation of the country’s poorest workers is declining rapidly. The agency analyzed the retirement savings of workers aged 51-64 in 2007 and 2019 – the latest available data.
Today, only one in ten low-income households has money saved for later life, down from one in five in 2007.
The data also revealed large differences in retirement savings across racial groups. About 63 percent of white households had an account, compared to 41 percent of other races.
GAO officials also found that higher-income households were much more likely to benefit from the tax breaks associated with their plans.
Top corporate executives often receive “deferred compensation plans” — also known as “top hat” plans, which come with numerous tax benefits.
While most employees have strict limits on the amount they can save into their 401(K) tax-free, such “top hat” plans have no contribution cap.
These offerings also allow executives to defer payment of any taxes on accumulated earnings until they are paid out in retirement. It gives them time to take advantage of rising investment returns and amass vast amounts of wealth before they have to pay a penny in taxes.