Months of market volatility have taken a serious toll on retirees.
Average 401(k) According to a new report from Fidelity Investments, the nation’s largest provider of 401(k) plans, the balance declined for the third straight quarter and is now down 23% from last year to $97,200. The financial services firm serves a total of more than 35 million retirement accounts.
In the third quarter of 2022, the average individual retirement account balance also fell 25% year-over-year to $101,900.
Still, most retirement savers continue to contribute, Fidelity found. The average 401(k) contribution rate, including employer and employee contributions, remained steady at 13.9%, just below Fidelity’s suggested savings rate of 15%.
“This year has seen a dramatic turnaround in the market,” Kevin Barry, president of Fidelity’s workplace investing division, said in a statement. “Pension savers wisely chose to avoid the drama.”
“One of the most essential aspects of a smart retirement savings strategy is to contribute consistently enough — in up, down and sideways markets — to help you achieve your goals,” Barry said.
Only 4.5% of savers changed their asset allocation in the last quarter, with most moving their savings to a more conservative investment option, according to Fidelity. Some pension savers seem to have been scared after heavy losses amid worries about inflation, interest rates, geopolitical turmoil and other factors, 401(k) administrator Alight Solutions also found.
“We advise people not to make changes to their account based on short-term market events because it can often do more harm than good,” said Mike Shamrell, Fidelity’s vice president of management.
“It’s best to take a long-term approach to retirement.”
And despite continued inflationary pressures weighing on most households, only 2.4% of plan participants borrowed from their 401(k), Fidelity reported.
Federal law allows workers to borrow up to 50% of their account balance, or $50,000, whichever is less. However, many financial experts also advise against using a 401(k) before exhausting all other alternatives, as you will also lose the power of compound interest.