Retirement account balances decreased slightly during Q3 2022 while hardship withdrawals and loans increased, according to the latest data from Fidelity Investments’ Q3 2023 retirement analysis, released this morning.
Average retirement account balances decreased slightly from the previous quarter but are up double digits over the long term and from one year ago. The average 401(k) balance at Fidelity decreased to $107,700, down 4% from Q2 2023 ($112,400), but an 11% increase from a year ago ($97,200) and a 27% increase from 10 years ago ($84,600).
The number of “401(k) millionaires”—those with seven-figure balances in their retirement accounts—dropped from 378,000 in Q2 2023 to 349,000 in Q3. There were 340,000 401(k) millionaires at the end of the first quarter of the year.
The average 401(k) balance at Fidelity decreased to $107,700, down 4% from Q2 2023 ($112,400), but an 11% increase from a year ago ($97,200)
The average IRA balance was $109,600 in Q3 2023, a decrease of 4% from last quarter ($113,800), but an 8% increase from a year ago ($101,900) and 28% increase from 10 years ago ($85,300). For 403(b)s, the average account balance decreased to $97,200, down 5% from last quarter ($102,400), but up 11% from last year ($87,400), and a 46% increase from 10 years ago ($66,700).
Fidelity’s quarterly analysis of savings behaviors and account balances for more than 45 million IRA, 401(k), and 403(b) retirement accounts.
While market volatility and inflation are largely behind the regressions, Fidelity noted the report shows many silver linings: retirement balances being up over a year ago, young investors making great strides with the long-term, and savings rates remain steady and strong this quarter. But juggling the short-term has become a persistent problem, as Fidelity research shows 8 in 10 Americans say inflation and the cost-of-living are causing stress, with most U.S. adults (57%) unable to afford even a $1,000 emergency expense.
“Americans have become accustomed to riding the economic waves of the past several years, and this quarter is no different,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “They are learning how to stay afloat in very challenging financial conditions—including having enough money set aside should an emergency arise. Through it all, we are pleased to see retirement savers continue to stay the course with steady savings rates and continued commitment to their futures.”
Withdrawals vs. loans
One potential cloud on the horizon: despite consistent contribution levels, many individuals increasingly have been tapping their retirement savings through in-service withdrawals, hardship withdrawals, or loans.
The increasing use of hardship withdrawals and loans underscore the need to help retirement savers develop emergency savings, which Fidelity has found to be the No. 1 savings goal among employees, after retirement. To help ease this burden for employees, the Fidelity report said many leading employers are working with the company to add workplace emergency savings programs to their growing roster of financial wellness benefits.
• Hardship withdrawals: In Q3, 2.3% of workers took hardship withdrawal, up from 1.8% in Q3 2022. The top two reasons behind this uptick were avoiding foreclosure/eviction and medical expenses.
• 401(k) loans: Inflation and cost of living pressures have resulted in increased loan activity over the last 18 months. In Q3, 2.8% of participants took a loan from their 401(k), which is flat from Q2 and up from 2.4% in Q3 2022. The percentage of workers with a loan outstanding has increased slightly to 17.6%, up from 17.2% last quarter and 16.8% in Q3 2022.
• In-service withdrawal: Depending on an employer’s plan guidelines, an individual may choose an in-service withdrawal rather than a loan if they prefer to assume taxes and penalties and not have to repay the amount they withdraw. In Q3, 3.2% of participants took an in-service withdrawal, up 2.7% from a year ago.
Managed accounts growing in popularity
Employers continue to explore plan features to help improve the retirement planning efforts of their workforce, especially during periods of market volatility. One feature growing in popularity: workplace managed accounts, an option for retirement savers looking for personalized, professional help to keep their investment strategy aligned with their retirement goals.
Here are a few statistics highlighting the growth of managed accounts at Fidelity:
• A 60% increase in the percentage of plans offering a workplace managed account in the last five years alone.
• More than 10,000 plans on Fidelity’s platform offer a workplace managed account.
• 80% of participants enrolled in a Fidelity managed account are on track to cover retirement expenses.
• 93% of participants enrolled in a managed account have stayed actively engaged in retirement planning.
More report highlights
• Total 401(k) and 403(b) savings rates remain steady. The total savings rate for the third quarter, reflecting a combination of employee and employer 401(k) contributions was 13.9%, consistent with Q2 and up slightly from a year ago. The savings rate remains just below Fidelity’s suggested savings rate of 15% (including both employee and employer contributions). Boomers in the workforce continue to save at the highest levels (16.7%).
The Plan Sponsor Council of America (PSCA) recently reported that the combined employer and employee 401(k) contribution rate fell to 12.1% in 2022—down notably from the record high 15.3% percent in 2021. That research found 401(k) participants contributed an average of 7.4% of pay, and companies contributed 4.8% on average for the employer match.
• Continued growth in IRA accounts, particularly for Gen Z investors. The total number of IRA accounts rose to 14.6 million, an 11% leap over this time last year (Q3 2022). Total assets also increased 19% in the last year. Gen Z investors continue to make huge strides with retirement savings, with a 63% increase in IRA accounts year-over-year and overall dollar contributions increasing 51%. The third quarter also saw a 69% increase for females in this age bracket. Across generations, Roth IRAs continue to be the preferred retail retirement savings vehicle, with 61.2% of all IRA contributions going to Roth.
• Average long-term balances for 5, 10 and 15 year continuous savers dropped this quarter, but increased from a year ago. The balance for Gen Z workers who have been in their 401(k) plan for 5 years straight, however, reached $29,100 in Q3, showing the power of staying in the same plan, with the same employer, for an extended period of time.
“It’s impressive to see Gen Z entering the workforce and prioritizing retirement savings,” said Rita Assaf, head of Retirement Products. “While market conditions are constantly changing, the benefit of making consistent contributions over the long-run is clear—a more secure retirement.”
For additional information on Fidelity’s Q3 2023 analysis, as well as a deeper dive into withdrawals versus 401(k) loans, click here to access Fidelity’s “Building Financial Futures,” which provides additional details and insight on retirement trends and data.
SEE ALSO:
• Gen Z 401(k) Balances Spike in Past Year, Fidelity Data Shows
• 401(k) Contribution Rates Slip in 2022: PSCA
• Fidelity Expanding TDF Lineup with CITs
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
