By Andrew Welsch
Nov. 18, 2022
Retirement account balances fell during the third quarter, a sign of how market turmoil has taken a toll on Americans’ nest eggs, according to new data from Fidelity Investments. But there’s good news, too: Savings rates remain strong, underscoring many investors’ resiliency.
“Retirement savers have wisely chosen to avoid the drama and continue making smart choices for the long-term,” Kevin Barry, president of Workplace Investing at Fidelity Investments, said in a statement. “This is important, because one of the most essential aspects of a sound retirement savings strategy is contributing enough consistently—in up markets, down markets, and sideways markets—to help reach your goals.”
Investors have certainly faced headwinds this year, particularly inflation, in trying to reach their retirement goals. The S&P 500 is down approximately 17% so far this year. Tech stocks, previously among the past decade’s biggest winners, have fared poorly, with the Nasdaq tumbling nearly 30% in 2022.
Unsurprisingly, retirement assets have also fallen. Data from Fidelity, the nation’s largest provider of individual retirement accounts, show the average IRA balance was $101,900 for the third quarter, a 24.9% decrease from the previous year. The average 401(k) balance was $97,200 this quarter, down 22.9%.
Yet despite the year’s bad news, investors continued to contribute to their accounts and even opened news ones. Fidelity said the total 401(k) savings rate—representing employer and employee contributions—was 13.8%, virtually unchanged from the prior quarter. Fidelity’s suggested savings rate is 15%. The vast majority of workers, 86%, kept their contribution rates unchanged.
Among different age groups, preretiree baby boomers had the highest contribution rate: 16.5%. Gen Z investors stepped up their savings slightly, to 10.3% from 10%.
More investors, particularly younger ones, are opening IRAs. Fidelity said its number of IRAs increased 11.2% year over year to 13.2 million. The majority of IRA contributions, 61%, went into Roth accounts, according to Fidelity. Investors can contribute after-tax dollars to Roth accounts and withdraw the funds tax free in retirement.
The IRS recently announced higher contribution limits in 2023 for 401(k) accounts and IRAs to account for inflation.
Write to Andrew Welsch at andrew.welsch@barrons.com
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