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There's no question 2022 was a rough year for investors.
With record-high inflation, economic uncertainty and aggressive interest rate hikes from the Federal Reserve to combat rising prices, stocks took a beating. All three of the major indexes had their worst year since 2008: The S&P 500 Index dropped 19.4%, the Dow Jones Industrial Average sank 8.8% and the Nasdaq Composite Index lost 33.1%.
Yet most 401(k) plan participants rode out the storm — and many increased their contributions, according to a new analysis from Vanguard that's a preview of its annual How America Saves report.
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As of year-end 2022, the average participant account balance at Vanguard was $112,572, down 20% from a year earlier, the research shows. The median balance — half were above, half below — was $27,376 at the end of the year, a 23% decrease.
At the same time, though, 39% of participants' deferral rate — the portion of their paycheck directed to their 401(k) account — climbed higher, compared with 9% of investors who decreased their contributions. While many initiated the increase on their own, more than half of the boosts came from the plan's yearly automatic escalation.
"Despite economic headwinds, we were pleased to see that participant behavior in retirement plans remained in line with previous years, and most participants continued to maintain a long-term view," said Dave Stinnett, head of strategic retirement consulting at Vanguard.
Trading remained low among 401(k) investors
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Additionally, just 2% of the investors in target-date funds made any exchanges (59% of participants are in those funds). Among those not in target-date funds or other professionally managed allocations, only 6% did any trading, the lowest point in 20 years, according to Vanguard.
And, although hardship withdrawals ticked up, they remain a small share of all participants. Last year, 2.8% took such a withdrawal, compared with 2.1% in 2021.
"The uptick … may have been driven by individuals' personal finance situations, with U.S. households facing some tough economic challenges in 2022," Stinnett said. "Several government moves since 2018 have also loosened the rules for taking the distributions, so we believe that may have also been a factor in the increase."
Inflation, at 6.4% over the last year, remains a problem
Meanwhile, economic headwinds remain. The latest inflation reading showed a 6.4% increase over the last 12 months — which remains far above the Fed's target rate of 2%. This suggests additional rate hikes are on the way, which makes the cost of borrowing more expensive for consumers and businesses.
"The big question around inflation is can the Fed get that under control without costing people their jobs and causing further declines in the market," said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.
While all three of the major stock indexes have trended upward since early January, it's impossible to know with certainty whether the higher momentum will continue. Through midday Friday, the S&P has risen about 6% in 2023, the Dow has climbed 1.7% and the Nasdaq has gained nearly 13%.
"We're starting out the year on a positive note … which is a nice reprieve from the carnage that was 2022," Boneparth said.
FAQs
Average 401(k) balances dropped 20% in 2022 — but few investors flinched, Vanguard research shows. The average participant account balance at Vanguard was $112,572 at the end of 2022, down 20% from the close of 2021. The median balance was $27,376 at the end of last year, an annual drop of 23%.
How much did the average 401k lose in 2022? ›
Bonds backfired on boomers in 2022
Combined losses in stocks and bonds fed a steep decline in the value of the average boomer's 401(k), from $249,700 at the end of 2021 to a low of $197,400 in the autumn of 2022, a drop of more than 20%, according to Fidelity.
Why is my Vanguard 401k losing money? ›
There can be several reasons your 401(k) lost money, including a recession or stock market correction, your portfolio not being diversified enough, or investing too aggressively for your risk tolerance.
How much has the average investor lost in 2022? ›
Contributor. I share strategies for a financially secure and healthy long life. The S&P 500 lost 18.11% during 2022, when you include the return from dividends.
Why is my 401k dropping so much? ›
401(k) losses can happen for all kinds of reasons, from short-term market fluctuations to events like a recession. Market volatility is a normal part of investing. What matters most is staying invested and maintaining a diversified portfolio.
How much did the average 401k lose under Biden? ›
The stratospheric inflation, brought on by government spending, borrowing, and printing too much money, has further eroded the value of 401(k) plans by $16,200 on average, for a real (inflation-adjusted) loss of around $33,200, or 24.8%.
Are 401ks doing good right now? ›
The average 401(k) balance rose to $107,700 by the third quarter of 2023, up 11% from the year before, according to the latest update from Fidelity Investments, one of the largest retirement plan providers in the nation.
Why are investors pulling money from Vanguard? ›
Johnson says it could be clients pulling out money because they're retiring, or because they're negatively affected by the pandemic. Perhaps some are opting for active management as the markets become more volatile.
Why did the money in my 401k disappear? ›
When you quit or leave for another job, your former employer can decide to cash out, force transfer, or retain your 401(k) money. If your 401(k) balance is below $1000 when you leave, the employer will force cash out and send you a check with your balance with taxes taken out.
Can I lose my 401k if the market crashes? ›
What Happens to My 401(k) If the Stock Market Crashes? If you are invested in stocks, those holdings will likely see their value fall. But if you have several years until you need your retirement account money, keep contributing, as you may be able to buy many stocks on sale.
In 2022, a 60/40 portfolio returned -18.1% on a nominal basis, which is the second worst year (2008) since the inception of the Bloomberg US Aggregate Bond Index in 1976. “Long-term” returns reference the last 45 years dating to the inception of the Bloomberg US Aggregate Bond Index.
How much have shares dropped in 2022? ›
The DJIA fell 18.78% since its January 4 high, while the Nasdaq Composite fell 33.70% from its November 19 high. On September 13th, 2022, the S&P 500 experienced its largest single-day drop since June 2020.
Why the average investors return is so low? ›
The Dalbar study attributes this underperformance to bad timing. Investors tend to buy when markets are high and sell when markets are low. They buy after a period of good performance (called chasing returns) and sell after a period of bad performance (called panic selling).
Should I panic if my 401k is losing money? ›
Don't Panic
Investing for retirement is a long-term venture, and while the financial markets can experience significant volatility in the short term, they tend to rise in value over the long term. Even if you're nearing retirement age, rash decisions can make it more difficult for your portfolio to recover.
How much does the average 401k lose? ›
401(k) Account Balances in 2023
The average 401(k) balance decreased in the third quarter of 2023 to $107,700 from $112,400 in the second quarter, according to November data from brokerage Fidelity.
Why is my 401k return so low? ›
Investing too conservatively for your age, time horizon, and goals could result in 401(k) underperformance. Generally, the younger you are, the more risk you can afford to take, as you have a longer window in which to recover from market downturns or periods of increased volatility.
What is the average IRA performance in 2022? ›
Key Takeaways. Average 401(k) and IRA account balances lost over 20% of their value in 2022, a Fidelity analysis found.
What is the average return on 401K after retirement? ›
Many retirement planners suggest the typical 401(k) portfolio generates an average annual return of 5% to 8% based on market conditions. But your 401(k) return depends on different factors like your contributions, investment selection and fees.
Why is my 401K rate of return so low? ›
Investing too conservatively for your age, time horizon, and goals could result in 401(k) underperformance. Generally, the younger you are, the more risk you can afford to take, as you have a longer window in which to recover from market downturns or periods of increased volatility.
How much did the average 401K loss in 2008? ›
Indeed, the nation's 401(k)s and IRAs lost about $2.4 trillion in the final two quarters of 2008, and the average loss that year for workers who had been on the job for 20 years was, according to one estimate, about 25 percent.
