BOSTON–(BUSINESS THREAD)–What is the level of anxiety among American retirement savers as a result of rising interest rates, rising inflation and the continued impact of the pandemic? Understandably high. In fact, according to recent Loyalty investments® research2, more than half of American workers say they are “extremely or very concerned” about the health and stability of the economy, and as a result, nearly 1 in 5 (19%) say they have adjusted their retirement strategy and are taking a more conservative approach to their retirement savings.
And the reality? Fidelity Investments, one of the nation’s leading providers of employee benefits3 and the No. 1 IRA provider in the U.S.4, today released its Q2 2022 analysis of savings behaviors and account balances for more than 35 million of IRA, 401(k) and 403(b) retirement accounts. , and while average account balances have declined — unsurprisingly, given the stock market slump in Q2 — there’s good news, too. The decline in average balances was below the S&P’s 16.1% decline for the second quarter of 2022 and below the first quarter of 2020, the last period with significant market volatility. Additionally, retirement savers remain similar over the long term, as total 401(k) savings rates remain at record levels, the number of IRAs on Fidelity’s platform continued to increase, and the percentage of ’employees with 401(k) loans remained low for the fifth consecutive quarter.
“While many Americans are understandably worried about the economy, record inflation and the markets right now, it’s encouraging to see that the prevailing sentiment has been to stay calm and focus on retirement goals,” he said. Kevin Barry, president of Workplace Investing at Fidelity Investments. “Saving for retirement is a goal that is decades in the making, and naturally there will be many twists and turns. However, the best action savers can take to help achieve success is to save and invest consistently.”
Findings from Fidelity’s Q2 2022 analysis include:
Average retirement account balances declined, but less than the market’s decline5 in the second quarter, and less than the last significant period of market volatility. The average IRA6 balance was $110,800 in the second quarter, a 17.9% decrease from the second quarter of 2021 and a 12.8% decrease from the previous quarter. The average 401(k)7 balance fell to $103,800 in the quarter, down 20% from a year ago and down 15% from the first quarter of 2022. The average 403(b)8 account balance decreased to 93,300 dollars, 18% less than a year ago and a decrease. of 13% compared to the last quarter. However, all of these declines were less than the last period of high market volatility, 1st quarter of 2020that took place at the start of the pandemic, when the average 401(k) balance declined 19% and IRA balances declined 14%.
Gen Z 401(k) savers who are heavily invested in target-date funds experienced the smallest declines. Interestingly, among Gen Z1 savers, who are heavily invested in target-date funds, the average account balance only dropped 8% from last quarter. As of the second quarter, 85% of Gen Z savers have all of their 401(k) savings in a target date fund. The use of target date funds as a default option continues to grow in popularity, with a plan sponsor adaptation rate of 93.2% in the second quarter of 2022, up from 88.1% in the second quarter of 2017. just five years ago. There was significant growth in IRA accounts6, especially among Gen Z and millennials1. The total number of Fidelity IRA accounts continues to increase, reaching 12.8 million, up 10.6% from last year’s second quarter. Younger generations continue to lead the way, with Gen Z account numbers up 87% compared to Q2 2021 and Millennial accounts up 24%. Account growth for women, who make up 45% of total IRA accounts, saw a year-over-year increase of 92% for Gen Z and 24% for Millennials. These accounts remain active, with the number of contributing accounts up 4.1% year-to-date over the second quarter of 2021, and in particular the number of Millennial Roth IRA accounts contributing more than 7.8% year-to-date. Total 401(k) savings rates continue to hit record levels. Despite market volatility over the past two quarters, 401(k) plans continue to see steady contributions from both individuals and their employers. The second-quarter total savings rate, which reflects a combination of employee and employee 401(k) contributions, continues the positive momentum achieved in the first quarter, with a contribution rate of 13.9%, just below Fidelity’s suggested savings rate of 15%. Men continued to save at higher rates than women (14.7% vs. 13.7%), while pre-retired boomers saved at the highest levels (16.6%), although even the Generation Z participants saved in double digits (10%). Most retirement savers did not make changes to their asset allocation. Only 5.0% of 401(k) and 403(b) savers made a change in asset allocation in the second quarter, slightly lower than the 5.3% who made a change in the first quarter and consistent with the number of individuals who made a change to their allocation in 2Q 2021. Of the savers who made a change this past quarter, 85% made just one, with the largest change being the displacement of savings to more conservative investments (38%). Outstanding 401(k) loans and average loan amounts continued to decline. The percentage of 401(k) savers starting a new loan remains low, with only 2.4% of participants starting a loan in the second quarter. In addition, the percentage of participants with an outstanding loan also declined, falling to 16.7% in 2Q 2022, which is a significant drop compared to 18.9% in 2Q 2020 at the start of the pandemic
Staying committed to saving can pay off in the long run with your retirement savings
While the current level of uncertainty may raise questions about the wisdom of taking a “stay the course” approach to retirement savings, there are strong reasons to suggest that this remains the best approach. For example, when markets rebound, they tend to do so quickly, especially if the market avoids going into recession, as many experts continue to suggest. In fact, during the month of July 2022, the S&P rose 9.1%, enjoying its best month since 20209.
“When it comes to the markets, we often see that sharp declines are quickly followed by a corresponding rise,” Barry said. “This pattern occurred with the last period of market volatility in 2020, where this first quarter decline was followed by a double digit rebound between retirement account balances and, by the end of 2020, retirement balances had reached record highs. This speaks to the importance of looking long-term and not overreacting, so you can take advantage of market spikes.”
Another important reason is that staying invested and making consistent contributions is actually a way to help recover your savings from a crisis. To demonstrate what this means in real life, recently Fidelity examined three different savings approaches a 401(k) investor could have taken with their savings during the 2007-2009 global financial crisis. Each investor started with $400,000 in 2007, and Fidelity tracked the performance of those savings as of February 2012:
For additional information on Fidelity’s Q2 2022 analysis, click here to access Fidelity’s “Building Financial Futures” overview, which provides additional details and insight into retirement trends and data.
About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better results for the clients and businesses we serve. With assets under management of $9.9 trillion, including discretionary assets of $3. 7 trillion by June 30, 2022, we focus on meeting the unique needs of a diverse set of customers. Privately owned for more than 75 years, Fidelity employs more than 58,000 associates focused on the long-term success of our clients. To learn more about Fidelity Investments, visit www.fidelity.com/aboutfidelity/our-company.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may make or lose money.
Past performance is no guarantee of future results.
The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen by market size, liquidity and industry group representation to represent US stockholders.
Target date funds are a mix of assets in stocks, bonds and other investments that automatically become more conservative as the fund approaches your target retirement date and beyond. The invested capital is not guaranteed.
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1 Generations as defined by Pew Research: Gen Z (born between 1997 and 2012), Millennials (1981-1996), Gen X (1965-1980), and Boomers (1946-1964).
2 The Fidelity Investments Q2 Participant Wellbeing Survey, conducted by Ipsos, polled 1,100 adults between April 18-26, 2022.
3 Based on PLANSPONSOR Magazine’s June 2021 “Recordkeeping Survey 2021” and the “Plan Administration Guide, Part 1,” which provides information on the provider market for benefit administration defined (DB), share plan and health savings account (HSA), May 2018.
4 Based on “Top 10 IRA Providers by AUA, 4Q 2019 – 4Q 2021” by Cerulli Associates.
5 Based on S&P performance from April 1 to June 31, 2022.
6 Fidelity business analysis of 12.8 million IRA accounts as of June 30, 2022.
7 Analysis based on 24,000 corporate defined contribution plans and 21.7 million participants as of June 30, 2022. These figures include the advisor sales market but exclude the tax-exempt market. Non-qualified defined contribution plans and plans for Fidelity’s own employees are excluded from behavioral statistics.
8 Based on Fidelity’s analysis of 10,260 tax-exempt plans and 7.6 million plan participants as of June 30, 2022. Considers the average balance of all active plans for 5.7 million unique individuals employed in the tax-free market.
9 SOURCE: The S&P 500 had its best month since November 2020. – The New York Times (nytimes.com)
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