Average 401(k) balance dropped in Q3: Fidelity

401(k) accounts at Fidelity got smaller by an average of 2% during the third quarter, the company announced Thursday.

That decrease coincided with slightly lower equity market values at the end of the quarter, but there’s more to the story. The average value in an individual retirement account at Fidelity went from $134,900 to $135,700, a 0.6% increase, while the value of 403(b) accounts dipped by more than 2%, going from $113,300 to $110,800. By comparison, 401(k) accounts represented an average of $129,300 at the end of the second quarter and went down to $126,100 at the end of the third, according to Fidelity.

Investment performance alone was not responsible for the changes, a company spokesperson said in an email.

“Workplace savings plans have a more fluid customer base than IRAs, with new employees … regularly joining the platform while other participants may leave,” the spokesperson said.

New accounts often have no assets, which drags down the average, and larger accounts that take distributions when they leave can have the same effect.

Collectively, the company has about 30 million 401(k), 403(b) and IRA customers. The number of accounts in each category went up during the quarter, and the company has added about 400,000 Gen Z account owners over the past year.

The slight drops in average defined-contribution account values aside, the figures were up considerably compared to this time last year, the company noted. A year ago, the average 401(k) held $109,600, the average 403(b) $96,100 and the average IRA $117,700. As of the end of September, the average balance for each of those account types was 15% higher.

During the latest quarter, about 5% of 401(k) account owners made allocation changes, and 97% either maintained or increased their contribution rates, Fidelity stated. In 401(k) plans, the average contribution rate was 9.4%, marking the fifth quarter in a row that the figure increased, according to the firm.

The company pointed out that the number of young retirement savings is growing. There are about 1.4 million Gen Z clients that hold those account types at the company, according to the release. That generation represents people born between 1997 and 2012.

“Gen Z retirement savers with an IRA overwhelming utilize Roth IRAs for their savings, with contributions to Roth IRAs making up 95% of total contributions in the third quarter,” the Fidelity release stated.

Despite that, savers across the country could be underestimating how much money they need to have saved to retire and maintain their standards of living.

A recent MagnifyMoney survey of more than 2,000 U.S. residents conducted by Qualtrics found that 31% said they would need $500,000 to retire. Another 17% pegged the necessary savings at $750,000, and 22% said it would be $1 million. Thirty-one percent indicated they would require more than that, according to MagnifyMoney.

Those assumptions people have about savings could change in the future, as the conventional wisdom of the 4% rule continues to be challenged. That rule is a guide that uses a 4% withdrawal rate that is adjusted for inflation annually, allowing people to spend more as time goes on.

However, some of the assumptions in financial planner William Bengen’s 1994 demonstration that the 4% rule worked for retirees holding portfolios of 50% stocks and 50% fixed income have changed, according to a report Thursday from Morningstar.

A more appropriate starting rate is now 3.3%, authors Christine Benz, Jeffrey Ptak and John Rekenthaler wrote. That figure assumes a time horizon that exceeds most lifespans, a withdrawal schedule that doesn't change in relation to market returns and a projected success rate for 90% of people who use it, according to the paper.

“Because of the confluence of low starting yields on bonds and equity valuations that are high relative to historical norms, retirees are unlikely to receive returns that match those of the past,” they wrote. “Given this, many of today’s retirees will have to be more resourceful to support their income needs.”