Average 401k account balances declined for the third consecutive quarter, and the number of 401k millionaires continues to dwindle further from 2021 highs. But there are some silver linings in just-released retirement savings research—akin to a quarterly “report card for 401ks”—from Fidelity Investments.
For instance, 401k savings rates stayed strong despite continued volatility, the percentage of employees with 401k loans remained low for a sixth consecutive quarter, and Gen Z participants actually increased savings levels and managed to raise their average 401k balances during the third quarter of this turbulent year.
This despite the research’s finding that ongoing market swings and concerns about inflation have increased financial stress among retirement savers. The percentage of individuals with negative feelings about their finances (32%) is now greater than those who have positive feelings (30%), which is a stark contrast to just a year ago, when the percentage of workers who felt positive about their finances (45%) was more than twice the percentage of those with negative feelings (22%).
But the negative feelings have not forced employees to cut back on contributions to their 401k.
“The market has taken some dramatic turns this year, including the best month this past October since 1976,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “Retirement savers have wisely chosen to avoid the drama and continue making smart choices for the long-term. This is important, because one of the most essential aspects of a sound retirement savings strategy is contributing enough consistently—in up markets, down markets and sideways markets—to help reach your goals.”
Average balances down over 20% from a year ago
Let’s get to the numbers. Fidelity’s Q3 2022 analysis of savings behaviors and account balances for more than 35 million IRA, 401k, and 403b retirement accounts shows confirms that average retirement account balances decreased for the third consecutive quarter.
The average 401k balance dropped below the six-figure mark to $97,200 this quarter
The average 401k defined contribution balance dropped below the six-figure mark to $97,200 this quarter, down 22.9% from a year ago, 6% from Q2 2022, and a 28% increase from 10 years ago.
The average 403b account balance decreased to $87,400, down 21% from a year ago, a decrease of 6% from last quarter, and a 48% increase from 10 years ago.
The average IRA balance at Fidelity was $101,900 in Q3, a 24.9% decrease from Q3 2021, an 8% decrease from last quarter, and a 33% increase from 10 years ago.
401k millionaire ranks down 41% this year
The number of 401k millionaires is down 41% so far this year
When it comes to 401k millionaires—those with seven-figure 401k account balances at Fidelity—the number of them dropped to 261,000 at the end of Q3 2022. That’s down a remarkable 41% from a record 442,000 401k millionaires entering 2022, 406,000 at the end of Q1, and 294,000 after the dismal stock market performance of Q2 2022.
The stock market’s performance this year has also significantly thinned the ranks of federal government Thrift Savings Plan millionaires. The TSP reported a just 65,494 plan millionaires at the end of Q3 2022, a further drop from 72,241 reported in June and 100,364 in March.
When it comes to IRA millionaires, Fidelity now has 256,000, down from 284,900 at the end of Q2, 346,800 at the end of Q1 and 376,100 at the end of 2021.
Gen Z 401k balances increase
Fidelity reports that Gen Z savers actually increased their balances slightly during the third quarter. Although their balances are relatively smaller, among Gen Z savers, who are heavily invested in target-date funds, the average account balance increased by 1.2% over last quarter. As of Q3, 85% of Gen Z savers have all of their 401k savings in a target-date fund. The use of target-date funds as a default option continues to increase in popularity, with a 93.2% plan sponsor adoption rate in Q3 2022, up from 88.3% in Q3 2017, just 5 years ago.
401k contribution rates hold strong
The new report found total 401k savings rates continue to hold strong. The total savings rate for the third quarter, which reflects a combination of employer and employee 401k contributions, remained fairly steady at 13.8% (compared to 13.9% in Q2 2022 and 14.0% in Q1 2022), which is just below Fidelity’s suggested savings rate of 15%.
In fact, the majority of workers (86%) kept their savings account contributions unchanged; 7.8% actually increased their contribution rate. Men continued to save at higher rates than women (14.5% vs. 13.5%), while pre-retiree Boomers saved at the highest levels (16.5%). Gen Z participants increased their savings levels this quarter, moving from 10% to 10.3%.
Few asset allocation changes
The majority of retirement savers still aren’t making changes to their asset allocation. Only 4.5% of 401k and 403b savers made a change to the asset allocation in the third quarter, less than the 5.0% that did so in Q2 and those who made a change in Q3 2021 (4.8%). Of the savers that made changes in Q3, about 85% only made one; the top change involved shifting savings to more conservative investments (29%).
401k loans declining
Outstanding 401k loans and average loan amounts continue to decline. Despite inflationary pressures, the percentage of 401k savers initiating a new loan continues to remain low, with only 2.4% of participants doing so in Q3. In addition, the percentage of participants with a loan outstanding remained at 16.7% for Q3 2022—a significant drop, compared to 18.7% in Q3 2020 in the early days of the pandemic.
More IRA accounts
The number of IRA accounts at Fidelity continues to increase, especially among Gen Z and Millennials. The total number of Fidelity IRA accounts continues to climb, reaching 13.2 million, an 11.2% increase over Q3 of last year. The number of accounts reporting a contribution also increased by 2.3% year-to-date between Q3 2021 and Q3 2022. Across generations, Roths tend to be the retail retirement savings vehicle of choice, with 61% of all contributions going to a Roth in Q3 2022.
Final facts
• Nearly 9 out 10 (88.2%) of 401k savers on Fidelity’s workplace platform receive some type of contribution to their workplace savings account, including profit sharing and matching contributions.
• Making continuous contributions over even a relatively short period of time can have a profound impact on one’s retirement readiness. For example, if you contributed the 2021 maximum $6,000 IRA contribution at age 25 and keep it going all the way to age 70, you would have amassed $1,440,5928 by retirement.
• Even shorter term, according to Fidelity’s analysis, the average 401k balance for individuals who have been in their same plan with the same employer for just a 5-year continuous period is more than double the average retirement account balance.
For additional information on Fidelity’s Q3 2022 analysis, click here to access Fidelity’s “Building Financial Futures” overview, which provides additional details and insight on retirement trends and data.
SEE ALSO:
• Fidelity Q2 Analysis Shows Just How Hard Stock Losses Hit 401ks
• TSP Millionaire Ranks Fall Off for Third Straight Time in 2022
• Q2 Market Losses Hard on Self-Directed 401k Balances
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.