We’re getting a clearer picture of just how much a challenging 2022 impacted 401(k) retirement account balances with today’s news from Fidelity Investments that the average 401(k) account balance for its participants fell by just over 20% over the course of last year.
Fidelity’s 2022 Retirement Analysis revealed the average 401(k) balance at the recordkeeper was $103,900 at the end of Q4 2022, down from $130,700 at the end of 2021.
This comes on the heels of Vanguard’s recent announcement that the average participant account balance at Vanguard was $112,572 at the end of 2022, also down 20% from the close of 2021.
Despite the precipitous declines, both the Fidelity and Vanguard reports stress that retirement savers largely avoided cutting back on contribution rates last year, and average 401(k) balances at Fidelity actually increased by 7% from Q3 2022 ($97,200).
“Given all the stresses in the world today, such as natural disasters and geo-political events, Americans continue to confront challenging times in our economy,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “Fortunately, the data shows that retirement savers understand the importance of saving for the long-term, despite market shift. We are encouraged to see people look past the current volatility and continue to make smart choices for their future.”
Fidelity, one of the country’s leading workplace benefits providers and the top IRA provider, today released its Q4/year-end 2022 analysis of savings behaviors and account balances for more than 43.4 million IRA, 401(k), and 403(b) retirement accounts.
The good news is that account balances are up and retirement savers are continuing to focus on the long-term, despite some immediate-term pressures: total 401(k) savings rates remained steady, the number of IRAs on Fidelity’s platform continued to increase, and the percentage of employees with 401(k) loans at the end of 2022 remained low for a seventh consecutive quarter.
Notable highlights from the Fidelity report include:
• Gen Z 401(k) savers are continuing to increase their balances. Although their balances are relatively smaller, among Gen Z savers, who are heavily invested in target date funds, the average account balance increased by 23% over last quarter—the highest of any group. Gen Z account balances are also up 14% from Q4 2021, which makes them the only group that had positive growth over the last year. As of Q4, 84% of Gen Z savers have all of their 401(k) savings in a target date fund. In the not-for-profit market, almost 70% of participants have invested 100% of their assets in target date funds.
• Total 401(k) savings rates hold steady. The total savings rate for the fourth quarter, which reflects a combination of employer and employee 401(k) contributions, held fairly steady at 13.7% (compared to 13.8% in Q3 2022 and 13.9% in Q2 2022), which is still just below Fidelity’s suggested savings rate of 15%. While pre-retiree Boomers continue to save at the highest levels (16.5%), Gen Z saving levels remain fairly consistent at 10.2% (versus 10.3% last quarter).
Although men continued to save at higher rates than women (14.4% vs. 13.5%) for 401(k)s, the total 403(b) savings rate for women (11.7%) actually exceeds the total savings rate for men (11.5%).
• Contribution rates slightly increased. More than one-third increased their contribution rate over the last year. Among the 401(k) savers that increased their contribution rate, the average increase was 2.6%.
• Outstanding 401(k) loans and average loan amounts continue to trend downward, with 401(k) loans matching the lowest percentage on record. The percentage of participants with a loan outstanding remained at 16.7% for Q4 2022—down from 17% a year ago and 21% five years ago. Only 3.2% of Gen Z workers had an outstanding loan at year-end.
“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 Joanna Rotenberg, president of Personal Investing. “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.”
401(k) millionaire ranks decline
The number of so-called “401(k) millionaires”—those with at least seven-figure retirement account balances—also fell dramatically over the course of 2022. The Fidelity report shows there were 299,000 401(k) millionaires at the end of 2022, compared to 442,000 entering last year—a drop of 32%. At the end of 2020, there were 334,000 401(k) millionaires, and 233,000 at the end of 2019.
For comparison purposes, at the end of 2022 there were 76,889 “TSP Millionaires” in the federal government’s Thrift Savings Plan, a decline of 32% over the course of last year (112,880 at start of 2022).
As far as IRA millionaires at Fidelity, that number decreased from 376,100 at the start of 2022 to 280,320 at the end of last year, a drop of 25%.
IRA balances drop, but number of accounts rising
Speaking of IRAs, the new Fidelity report shows the average IRA balance was $104,000 in Q4 2022, a 2% increase from last quarter and 36% increase from 10 years ago—but down 23% from the start of last year ($135,600).
The number of IRA accounts at Fidelity continues to increase, especially among Gen Z and Millennials. The total number of Fidelity IRA accounts reached 13.6 million, a 10.2% increase over Q4 of last year. Across generations, Roths tend to be the retail retirement savings vehicle of choice, with 61.3% of all contributions going into a Roth in Q4 2022.
The report also shows Gen Z is making major strides with retirement savings, opening 71% more IRA accounts compared to Q4 2021. Millennial accounts increased by 22% since last year; Millennial Roth IRA accounts with a contribution increased by 1.9% year-to-date. IRA account growth for females saw a year-over-year increase of 74% for Gen Z and 23% for Millennials.
403(b) balances down, but savings rates up
The average 403(b) account balance increased to $92,683 in Q4 2022, up 6% from the previous quarter but down 19% over the course of last year ($115,100 at the start of 2022).
The Fidelity report states that members of the not-for-profit workforce have also maintained strong savings rates across genders and generations, with strong improvements in retirement readiness over the last 10 years (average balances up 56% from 10 years ago). Since 2013, the average savings rate has increased to 11.4%, an improvement of 3.3%.
For additional information on Fidelity’s Q4 2022 analysis, click here to access Fidelity’s “Building Financial Futures” overview, which provides additional details and insight on retirement trends and data.
EDITOR’S NOTE: An early version of this story contained an incorrect percentage for the average 401(k) account balance decline over 2022, which has since been corrected.
SEE ALSO:
• Participants Increased Savings Despite Uncertainty in 2022
• Fidelity 401k Report Card: Silver Linings Among More Declines in Q3 2022
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.