Even though average account balances have decreased, given the stock market’s decline in the second quarter, there was also good news to be found in Fidelity’s Q2 2022 Retirement Analysis.
The analysis, which is based on the savings behaviors and account balances for more than 35 million IRA, 401(k) and 403(b) retirement accounts, finds that retirement savers continue to look long-term, as total 401(k) savings rates still hovered at record levels and the percentage of employees with 401(k) loans remained low for the fifth consecutive quarter.
In fact, despite the market volatility of the past two quarters, 401(k) plans continue to see steady contributions from both individuals and their employers. The total savings rate for the second quarter—which reflects a combination of employee and employee 401(k) contributions—continues the positive momentum achieved in the first quarter, with a 13.9% contribution rate, just below Fidelity's suggested savings rate of 15%. Men continued to save at higher rates than women at 14.7% versus 13.7%. Pre-retiree Boomers saved at the highest levels (16.6%), although even Gen Z participants saved in the double digits (10%).
Staying the Course
What's more, the majority of retirement savers did not make changes to their asset allocation. Only 5% of 401(k) and 403(b) savers made a change to the asset allocation in the second quarter, slightly lower than the 5.3% that made a change in the first quarter and consistent with the number of individuals who made a change to their allocation in the second quarter of 2021. Of the savers making a change this past quarter, Fidelity found that 85% made only one change and the top change involved shifting savings to more conservative investments (38%).
Meanwhile, outstanding 401(k) loans and average loan amounts continued to decline. The percentage of 401(k) savers initiating a new loan continues to remain low, with only 2.4% of participants initiating a loan in the second quarter. In addition, the percentage of participants with a loan outstanding also moved downward, dropping to 16.7% for the second quarter—which is a significant drop compared to 18.9% in the second quarter of 2020.
Average Balances
And while average balances dropped across the board, the drops were below the S&P’s decline of 16.1% for the second quarter and below the first quarter of 2020—the last period with significant market volatility, taking place at the very start of the pandemic. Additional findings from the Q2 2022 analysis include that Gen Z 401(k) savers heavily invested in target date funds (TDFs) experienced the smallest declines. Among Gen Z savers, who are heavily invested in TDFs, the average account balance dropped by only 8% from last quarter.
According to Fidelity’s data, the average 401(k) balance dropped to $103,800 in the quarter, down 20% from a year ago and 15% from the first quarter of 2022. The average 403(b) account balance decreased to $93,300, down 18% from a year ago and a decrease of 13% from last quarter. The average IRA balance was $110,800 in the second quarter, which was a 12.8% decrease from last quarter.
| Q2 2022 | Q1 2022 | Q2 2021 | Q2 2012 | |
| 401(k) | $103,800 | $121,700 | $129,300 | $73,300 |
| 403(b) | $93,300 | $107,600 | $113,300 | $56,800 |
| IRA | $110,800 | $127,100 | $134,900 | $73,200 |
Additional findings from the Q2 2022 analysis include that Gen Z 401(k) savers heavily invested in target date funds (TDFs) experienced the smallest declines. Among Gen Z savers, who are heavily invested in TDFs, the average account balance dropped by only 8% from last quarter.
As of the second quarter, 85% of Gen Z savers had all of their 401(k) savings in a TDF. The use of TDFs as a default option continues to increase in popularity, with a 93.2% plan sponsor adaptation rate in the second quarter of 2022, up from 88.1% just five years ago.
The Long Run
Nevertheless, as one might expect, the level of anxiety among American retirement savers is high, given the increasing interest rates, rising inflation and the ongoing impact of the pandemic. According to additional research by Fidelity, more than half of American workers indicate they are “extremely or very concerned” about the health and stability of the economy.
Although the current level of uncertainty may raise questions about the wisdom of taking a “stay the course” approach toward retirement savings, there are strong reasons to suggest this remains the best approach, Fidelity suggests. The firm notes, for example, that when markets rebound, they tend to do so quickly, especially if the market avoids going into a recession, as many experts continue to suggest. In fact, during the month of July 2022, the S&P increased by 9.1%, enjoying its best month since 2020.
“When it comes to the markets, we often observe that sharp drops are quickly followed by a corresponding rise,” notes Kevin Barry, President of Workplace Investing at Fidelity Investments. “This pattern occurred with the last period of market volatility in 2020, where that first quarter decline was followed by a double digit rebound across 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 over-reacting, so you are able to take advantage of any market peaks,” he further emphasizes.
Another important reason is that staying invested and making steady contributions is actually one way to help savings recover from a downturn. To demonstrate, Fidelity recently examined three different savings approaches a 401(k) investor could have taken with their savings during the financial crisis of 2007-2009, with each investor starting out with $400,000 in 2007.
Fidelity tracked how those savings performed as of February 2012, revealing the following results:
- an investor who went to all cash and quit saving had $353,400;
- an investor who moved to cash and continued to contribute had $404,709; and
- an investor who stayed invested and continued to contribute had $524,600.
