- The stock market's impressive returns have increased Americans' retirement account balances.
- The number of 401(k) millionaires has increased, and the average account balance is the highest it's been in two years.
- Officials are warning those considering retirement not to become complacent and to plan ahead if they want to maximize their benefits.
The soaring stock market has created a slew of 401(k) millionaires.
The remarkable market recovery since the beginning of 2023 has seen a 20% year-over-year increase in the number of people with at least $1 million in retirement accounts in the fourth quarter of 2023, with average account balances at record levels. It rose to . Two years, according to Fidelity.
While it may be tempting for bullish workers to start withdrawing money to fund their retirement or prepare for retirement, the market is breaking records and optimism is rising. However, investment experts caution against such considerations.
Experts say people need to consider whether the market's incredible run of gains may tempt them to consider early withdrawal or withdrawal of funds. Let me introduce some of the things that are said.
people are living longer
Brian Spinelli, co-chief investment officer at wealth advisory firm Hulbert Hargrove, told Business Insider that just because people are living longer these days, people are no longer retiring early based on market performance. He said it was irrational.
“The number of years you have to take out of your own money is now wider and wider, so if you retire too early you could end up depleting your portfolio as you live longer than you expected,” he said. Told.
Early retirees can overlook the simple fact that they may live longer than expected, underestimating the funds they need for their desired lifestyle, and tax-free 401(k) contributions allow them to save money on taxes. You may need more withdrawals to cover.
“The biggest risk we see is that most investors are not well-educated and therefore underestimate their longevity, duration, and opportunity costs, increasing the risk of short-term losses. At the same time, it increases the risk of poverty in later life,” said senior Aaron Anderson. Fisher Investments' vice president of research told Business Insider in an email.
“If they need $100,000 net, they need to withdraw $120,000 to $130,000 a year from their $1 million 401(k) to cover taxes and get that $100,000. “There will be,” Spinelli said, adding that with 30 years of property taxes. Given the average life expectancy, it is unrealistic to expect stable annual growth of much more than 12% or 13% without a recession.
market is volatile
Investment experts also caution against the idea that the market will continue to generate high returns year after year. Stocks rose nearly 25% in 2023, an outlier that, with normal ups and downs, has flattened out returns over time, leaving the benchmark S&P 500 with an average annual increase of only about 10%.
“The average long-term return of stocks is about 10% per year. However, that average is subject to a wide dispersion of annual returns. The market is either significantly up (+20%) or negative nearly two-thirds of the time. “However, 'average' means returns (0-20%) occur only about one-third of the time,” Anderson wrote.
Future uncertainty poses a “chain of return risk” that is often overlooked by early retirees.
“The difference between investors who withdraw from their retirement savings early and those who continue to benefit from compound growth can be enormous,” Anderson added.
Baby boomers looking to cash out their profits could also cause a sell-off, pushing down the overall market. Some argue that increasing stock ownership among older Americans is risky. They can't afford to wait for a recession, which could lead to panic selling and a correction that could spur further declines.
Stakeholders emphasized the need for retirees to “stress test” their retirement plans, taking into account market corrections, life expectancy, inflation, asset withdrawals and expected spending.
“Can you survive this until you recover and still not go overfunded? And if the answer is no, you probably need to work more hours,” Spinelli said.
