Boom in 401(k) Millionaires as Stock Market Soars
In an astonishing financial rally that characterized 2023, American retirement accounts have witnessed significant growth, marking a notable increase in the number of 401(k) millionaires. Sources from Fidelity reveal a 20% year-over-year surge in individuals boasting at least $1 million in their retirement accounts during the fourth quarter of 2023. This period also saw average account balances reaching their zenith in two years, underscoring the market's bountiful returns.
However, amid soaring optimism and record-breaking market performance, investing experts issue a word of caution for those contemplating accessing their retirement funds prematurely to finance their post-employment life.
Experts unanimously agree that considering early retirement based on market success alone overlooks critical factors such as longevity and market volatility.
Brian Spinelli, co-chief investment officer at wealth advisory firm Halbert Hargrove, emphasizes the increased life expectancy in modern times. This, he suggests, could lead to individuals outliving their retirement savings if they choose to retire prematurely based on current market fortunes.
Aaron Anderson, senior vice president of research at Fisher Investments, further highlights the misjudgment of longevity and financial needs by many, pointing out that taxes on 401(k) contributions necessitate higher withdrawals. Anderson also dismisses the expectation of unending high market returns, stressing the historic annual average gain of approximately 10% for the S&P 500, against the backdrop of typical market volatility.
The financial instability and unpredictability of future market performance present what Anderson describes as a "sequence of returns risk," particularly for early retirees. The potential financial impact on those choosing early withdrawal from their retirement plans versus those allowing their investments to compound is substantial.
Moreover, the growing trend of baby boomers cashing in on their gains could pose a risk of inducing a market sell-off, further destabilizing the market. The urgent need for retirees to perform a "stress test" on their retirement strategies is emphasized, taking into consideration variables such as market corrections, life expectancy, inflation, and spending plans.
In conclusion, while the market rally of 2023 has indeed fattened the nest eggs of many American retirees, the wisdom of forward planning, comprehensive understanding of market cycles, and considering longevity is paramount in safeguarding one's financial future post-retirement.
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