Just as you might expect Tom Brady to get right back up after taking a big hit in the fourth quarter on Super Bowl Sunday, retirement investors took the sack but kept to their game plan as stocks slid at the end of 2018.
The average 401k balance dropped a staggering 10 percent in the fourth quarter of 2018 to $95,600 from the record high Q3 balance of $106,500, according to the latest quarterly analysis of retirement savings trends from Boston-based Fidelity Investments, released Jan. 31.
The year-over-year average 401k balance is down just over 8 percent from $104,300 in Q4 2017.
While market volatility in the fourth quarter had a negative impact on account balances, the report says the majority of investors continued to stay focused on long-term retirement savings goals and maintained a consistent approach to saving and asset allocation.
“For many retirement savers, the recent market volatility is the most significant they have seen in several years – and for some of our younger investors, 2018 was the first time in their careers they have experienced a significant down market,” said Kevin Barry, president of workplace investing at Fidelity Investments. “Market corrections like we experienced in Q4 can make investors anxious – however, the good news is that we didn’t see that type of behavior amongst our 30 million retirement savers. Similar to 2008, they stayed the course by maintaining their asset allocation and continuing to add to their accounts, a good discipline that can be beneficial when markets rebound, as we’ve seen in the early part of this year.”
Other highlights from this quarter’s analysis include:
- Average403b and IRA account balances were also down from record highs in Q3 2018. The average IRA balance decreased to $98,400, about an 11 percent drop from last quarter and roughly 7.5 percent drop from $106,300 one year ago. The average tax exempt/403b account balance dropped to $78,700, a 10 percent drop from the Q3 and down 7.5 percent from Q4 2017.
- Investors continued to contribute to their retirement savings accounts. More than 98 percent of 401k savers continued to regularly contribute to their 401k in 2018. For just the fourth quarter, the percentage increased to more than 99 percent, which is the highest quarterly percentage since Q1 2011. In terms of actual dollars contributed to retirement accounts, the average 401k contribution in 2018 was $6,850, which ties a record high, and the average total IRA contribution in 2018 was $4,200, a 10 percent increase over the average total contribution for 2017.
- Despite market swings, investors did not make significant changes to their 401k investments. Only 5.6 percent of 401k investors made a change to their asset allocation in Q4, including investors who have their savings in a target date fund or managed account. Of those investors who made a change to their 401k asset allocation, over two-thirds (67.4 percent) only made one change last quarter. And as of Q4, more than half (50.6 percent) of 401k savers are 100% invested in a target date fund.
- Fewer workers tapping their savings as 401k loan level dropped to 10-year low. The percentage of workers with an outstanding loan from their 401k dropped to 20.3 percent, the lowest level since Q2 2009. In addition, the percentage of workers initiating a new 401k loan dropped to 9.4 percent in 2018, the lowest 12-month percentage since Q2 2009.
- The number of 401k and IRA millionaires declined. The number of people with $1 million or more in their 401k dropped to 133,800 at the end of Q4, while the number of IRA millionaires decreased to 138,800.
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.