Little surprise, retirement savers who were saving at an adequate rate prior to the 2008 global financial crisis—and who continued to save throughout the crisis—saw the best outcomes.
The 67% of retirement savers who practiced this behavior were able to weather the volatility and stay on track with their savings, a recent study by T. Rowe Price found.
Meanwhile, 44% of individuals who lacked retirement savings prior to the crisis and increased their savings in response to it, still had to consider delaying their retirement 10 years after the downturn.
Both statistics reinforce the importance of developing healthy savings behavior early because making up the lost financial ground can be difficult.
“Looking back, the data suggest that market volatility can induce decisions that are often not in retirement savers’ longer-term financial best interest,” Joshua Dietch, vice president of retirement thought leadership at T. Rowe Price, said in a statement.
He added that 21% of those surveyed claimed to have moved money from equity funds to safer investments in their 401k plans in 2008 and “interestingly, the primary differences in behavior seem to stem from the size of one’s retirement balance. Those with the largest accounts were three times more likely to trade from equity funds to safer investment options (35%) than those with the smallest accounts (11%). Additionally, in 2008, nearly one in five workers recalled taking a loan or hardship withdrawal from their 401k plan.”
And today …
Meanwhile, T. Rowe Price’s 2020 401k recording keeping data shows that investor behavior during the current financial crisis is muted compared to the 2008 behavior featured in the survey.
Less than 2% of investors who solely invest in target-date funds had changed their investment allocations compared to 19% of all other investors.
Further, while two-thirds of T. Rowe Price’s larger clients have adopted at least one of the CARES provisions to date, only 6% of the participants used at least one of the provisions.
“However, today’s savers have benefited from the automation of retirement savings brought on by the Pension Protection Act in ways that savers could not in 2008,” Dietch continued. “If there is a silver lining to this crisis, this may be it: that automated contributions can help people save for retirement, regardless of market conditions.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
