After a tough year for U.S. equity markets in which the S&P 500 dropped 19.4% from the end of 2021, the average 401(k) balance also took a double-digit dive in 2022 according to analysis by Fidelity. The average account value dropped 20.5% to $103,900 by the end of the year, from $130,700 a year ago. IRA balances fared even worse, losing about 23% of their value over the same period.
Investor sentiment and optimism tumbled along with account values in 2022. However, there were some silver linings for younger investors, with Gen Z accounts surging in number and posting gains for the year, on average.
Key Takeaways
- Average 401(k) and IRA account balances lost over 20% of their value in 2022, a Fidelity analysis found.
- Gen Z investors bucked the trend with accounts posting a 14% gain on average.
- New IRA accounts held by Gen Z investors jumped 71% and those held by millennials were up 22%.
- Young women also invested in greater numbers, with the number of IRA accounts held by women jumping 74% for Gen Z investors and 23% for millennials.
Average Retirement Account Balances Fall Double Digits From 2021
Comparing Q3 and Q4 of 2022, Fidelity found the average 401(k) balance actually rose 7% to $103,900 to close out the year, after falling below $100,000 in the third quarter.
IRA balances ended Q4 at $104,000 on average, a 2% increase from the prior quarter but a 23% decline from the prior year. 403(b)s also gained 2% in the fourth quarter at $92,683, though that was down 24% from a year ago.
With account balances down double digits last year, Americans are feeling less optimistic when it comes to the year ahead, according to Fidelity’s 2023 New Year’s Financial Resolutions Study. Only 65% of those surveyed said they believe they’ll be better off financially this year than the last, down from 72% in Fidelity’s last study. Over one-third of respondents also said they’re worse off financially this year than last year, in part due to rising prices.
Stress related to saving for retirement has climbed, with half of investors surveyed by Nationwide saying they are “terrified” about their retirement finances. Just under half or 43% say they are checking their retirement account balances more than three times a week.
About one-third or 34% of financial advisors surveyed by Nationwide say their recently retired and pre-retirement clients are either canceling or delaying retirement, with just 17% of advisors indicating these clients are prepared for weathering market downturns.
Some Silver Linings for Younger Generations
Breaking down savings by generation, however, Fidelity’s research did reveal some notable sources of growth in 2022, particularly for younger generations of investors.
While overall account balances declined in 2022, the average 401(k) balance actually increased 14% for Gen Z participants, and was up 23% over the fourth quarter.
The number of IRA accounts held by Gen Z savers also climbed, up 71% compared to 2021. Accounts held by millennials were up 22%. Accounts held by women jumped dramatically from a year ago, rising 74% for Gen Z investors and 23% for millennials.
The report noted that 84% of Gen Z savers had all of their 401(k) savings in a target-date fund, the default option for many plans.
Gains Over Time
While average account balances took a hit in 2022, contribution rates increased 2.6%, and investors who made steady contributions illustrated how much those savings can grow over time. Compared to 10 years ago, the average IRA balance was up 36%, with 401(k) balances up 34%, and 403(b)s up 56%.
Overall savings rates, which reflected a combination of employer and employee 401(k) contributions, dipped slightly in the fourth quarter, but stayed close to record highs reached earlier in the year. The total savings rate for the fourth quarter was 13.7%, down from 13.8% in the third quarter but not far from a record high of 14% in the first quarter of 2022. Pre-retirement Boomers had the highest saving rate at 16.5%, compared to 10.2% for Gen Z investors.
“Year over year, the trends are consistent – if you start saving earlier and avoid reacting to market volatility, you will be better off in the long run,” said Fidelity President of Personal Investing Joanna Rotenberg in a release.
“This analysis shows that younger generations are sticking to their plans and working on building good savings habits—from budgeting daily expenses and automatically increasing contributions to taking advantage of an employer match. This is especially important during periods of inflation when the money you’re accumulating needs to go further.”
