Yahoo Finance 5 Things Making the Middle Class Wealthier in 2024
For thousands of middle-class households in America, 2024 was the year their families became rich. The Fidelity Q1 2024 Retirement Analysis examined more than 45 million retirement accounts and found that the country’s number of 401(k) millionaires rose to 485,000 in the first quarter, up by 43% from 340,000 one year earlier.
Find Out: How Much Does the Average Middle-Class Person Have in Savings?
Read Next: 4 Genius Things All Wealthy People Do With Their Money
So, why are the ranks of retirement fund millionaires swelling so rapidly in 2024?
GOBankingRates spoke with a seasoned financial professional who shed light on why this year saw so many average earners transformed into seven-figure players.
The Stock Market Tripled Its Average Gains in the Last Year
The first reason for America’s growing nest eggs is rooted in something no household, rich or poor, can control.
“One major factor driving middle-class wealth growth is the stock market’s sustained performance,” said Ben Klesinger, who has spent 20 years in the finance industry as CEO of Reliant Insurance Group and Helping Hand Financial. “Many 401(k) plans are heavily invested in equities, and the recent bull market has provided substantial growth in these accounts.”
The benchmark S&P 500 index returned hefty 28% gains between last May and late this May, and the tech-heavy Nasdaq did even better with 34% returns over the same time. That’s nearly three times what investors have come to expect — according to Forbes, the average annualized market return since 1971 is 7.58%, or 10.51% with dividends reinvested.
Learn More: 6 Reasons the Poor Stay Poor and Middle Class Doesn’t Become Wealthy
Rising Auto-Enrollment Rates Are Getting More People Invested
A red-hot stock market means nothing if you’re not invested — and the Fidelity report found that record-high contributions mean more people are putting more of their money to work.
“Another crucial factor is increased retirement contributions,” Klesinger said. “Automatic enrollment and employer matching programs in 401(k) plans have encouraged more consistent and substantial employee contributions.”
According to Vanguard, the percentage of its retirement plans with automatic enrollment increased every year over the last decade, from 34% in 2013 to 59% in 2023. Large plans with at least 1,000 participants did even better, growing from 55% with auto-enrollment to 77%.
It’s one of the most consequential factors in retirement saving.
According to Vestwell, retirement plans with auto-enrollment have stellar participation rates of over 90% among new hires compared to just 28% for those with opt-in enrollment.
“These enhancements ensure that individuals leverage compounding interest effectively,” Klesinger said.
Good news — that trend is almost certain to continue and expand starting next year. The bipartisan SECURE Act 2.0 of 2022 requires all retirement plans to adopt auto-enrollment starting in 2025.
The Default Savings Rate Continues To Grow
Vanguard reports that as auto-enrollment rates rose, so, too, did the percentage of income that employees were saving.
In 2013, 50% of plans with auto-enrollment had a default savings rate of 3%, with only around 10% defaulting to 6% or more. However, the number of low-default plans fell as high-default plans rose until they were nearly equal in 2023. Last year, around 30% of plans defaulted to a savings rate of 6% or more and just 35% continued to default to the traditional 3%.
That, according to Fidelity, led to “record-high contribution levels” of 14.2%.
It’s Easier Than Ever Before To Save and Invest
Auto-enrollment in employer-backed retirement plans has helped elevate more middle-class families to millionaire status than anything else, but that’s just one element in a growing trend of hassle-free nest egg building. Even those who don’t have workplace plans, or who work for themselves, can open an IRA or Roth IRA for free with a few clicks and set up automatic recurring investments to secure their own retirements through their bank or a no-fee brokerage.
If they don’t know what they’re doing — or even if they do — anyone on any budget can use dollar-cost averaging to consistently contribute whatever they can to buy fractional shares of a low-cost index ETF for an instantly diversified portfolio.
“Enhanced access to retirement accounts, thanks to financial technology, has simplified investment management,” Klesinger said. “People can now easily track and adjust their 401(k)s online, increasing engagement and participation rates. Additionally, tax incentives for retirement contributions play a significant role in motivating individuals to save more.”
Nothing Is More Important Than Time and Consistency — and More People Are Saving Early and Often
Small, consistent contributions have always been more impactful than large, sporadic contributions, and the most immutable truth in investing is still that compounding needs time to work its magic. The continued rise of 401(k) millionaires shows that more people understand and are abiding by these foundational and effective concepts.
“Consistent long-term savings habits have also improved, likely driven by better financial literacy and awareness of retirement planning benefits,” Klesinger said.
Fidelity reported that “Long-term savers observed the greatest improvement, which is good news, especially for the more than 4.9 million workers that have been in their 401(k) plan for five years or more,” and that “The average balance for 5, 10 and 15-year continuous savers increased this quarter, with 15-year savers seeing a 7% increase in their account balances, demonstrating the value of consistently contributing in the same plan for an extended period of time.”
In short, stick with the fundamentals if you want to get rich.
“More people understand the importance of starting early and maintaining regular contributions,” Klesinger said.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 5 Things Making the Middle Class Wealthier in 2024
