Despite balances decreasing slightly, there was some good news contained in Fidelity’s first quarter 2022 analysis of participant accounts maintained by the firm.
The firm’s analysis of more than 35 million IRA, 401(k) and 403(b) retirement accounts found that while average account balances decreased, the total 401(k) savings rate reached record levels, as both individuals and their employers maintained steady contributions. The total savings rate for the first quarter—which reflects a combination of employee and employer 401(k) contributions—reached a record 14% in the first quarter, which is just below Fidelity’s suggested savings rate of 15%.
Moreover, very few employees or employers decreased savings rates. According to the analysis, only 8.3% of participants contributing to their 401(k) plan decreased their deferrals during the first quarter, up from 7.5% the year before and 7.6% in the fourth quarter of 2021. In addition, 68% of deferral increases were due to auto-increase programs in the first quarter of 2022.
Most retirement savers also did not make any changes to their allocation. Only 5.6% of 401(k) savers made a change to the allocation within their 401(k) account in the first quarter, slightly higher than the 5.3% who made a change in the fourth quarter, but nearly a full percentage point lower than the 6.4% of individuals who made a change to their allocation in the first quarter of 2021. Of the 401(k) savers who made a change to their allocation in the quarter, 82% made only one change.
Among 403(b) savers, only 4.4% made a change, which was flat from the fourth quarter of 2021 and about a half percentage point lower than the 4.8% who made an allocation change at the beginning of 2021. Among 403(b) savers who made a change to their allocation in the first quarter, 87% only made one change.
“During periods of economic uncertainty, it's important for retirement savers to stay focused on their long-term savings goals and not make knee-jerk reactions to short-term market events,” said Kevin Barry, President of Workplace Investing at Fidelity Investments. “Encouragingly, Fidelity’s analysis found that the majority of retirement savers continued to demonstrate positive savings behavior, which will help keep them on track to reach their goals.”
Leakage Easing?
Additionally, the potential for plan leakage may be tapering off, as the initiation of new loans and withdrawals decreased this quarter, as did the average outstanding balance, Fidelity notes.
In fact, the percentage of 401(k) savers initiating a new loan continued to trend downward for the third consecutive quarter, with only 2% of participants initiating a loan in the first quarter. In addition, the percentage of participants with a loan outstanding also continued a downward trend, dropping for the fourth consecutive quarter to 16.6%.
Average Balances and Long-Term Savers
And in what may come as no surprise given the current market volatility, the average 401(k) balance dropped to $121,700 in the quarter, down 2% from a year ago and 7% from the fourth quarter of 2021.
Among Gen Z savers, who are heavily invested in target date funds but who also likely have smaller balances, the average account balance dropped only 0.4% from last quarter. As of the first quarter, 85% of Gen Z savers had all their 401(k) savings in a TDF.
The average 403(b) account balance decreased 7% to $107,600, slightly higher than the first quarter of 2021 and a decrease of 6% from last quarter.
Average Retirement Account Balances
|
|
|
Q1 2022 |
|
Q4 2021 |
|
Q1 2021 |
|
Q1 2012 |
|
IRA |
|
$127,100 |
|
$135,600 |
|
$130,000 |
|
$75,300 |
|
401(k) |
|
$121,700 |
|
$130,700 |
|
$123,900 |
|
$74,900 |
|
403(b) |
|
$107,600 |
|
$115,100 |
|
$107,300 |
|
$58,000 |
Yet, while average balances decreased in the near term, Fidelity also found that long-term savers saw significant growth in retirement savings, demonstrating the benefits of taking a long-term approach.
In its analysis of 401(k) account balances for individuals who have been participating in the same 401(k) plan, with the same employer over a multi-year period, Fidelity found the following for 5-, 10- and 15-year periods:
- For 5-year continuous savers, the average balance grew to $257,400, up from $115,000 in the first quarter of 2017.
- For 10-year continuous savers, the balance has grown to $383,100, up from $85,100 in 2012.
- For 15-year continuous savers, the account balance has grown to $482,900, up from $64,900 in 2007.
Roths Rising
Fidelity also found that the offering of Roth options continues a steady climb. In just the last five years, the percentage of plans offering Roth 401(k)s has increased by 26%. According to the firm’s data, 77.5% of plans offered a Roth 401(k) as of the first quarter 2022, up from 61.4% in 2017. Additionally, 30% of plans which offer a Roth allow employees to convert pre-tax assets to Roth, twice the number that offered this option in 2017.
And with this option being increasingly popular with younger participants, contributions are also on the rise. Gen Z are the most likely generation to be contributing to Roth, increasing to 14% in 2022 compared with 12% in the first quarter of 2021.
