Retirement savings plunge 20% amid market volatility

Retirement savings plunge 20% amid market volatility

The average 401(k) retirement account at the end of June was down 20 percent from a year earlier as market volatility hurts workers’ savings.

Fidelity Investments reported Wednesday that its average 401(k) savings account at the end of the second quarter was $103,800, compared to $121,700 in April and $129,300 a year ago.

The trend was similar for IRA savings accounts, with an average IRA balance of $110,800 at the end of June, down 12.8 percent for the quarter and 17.9 percent year-on-year.

The number of people with at least $1 million in their 401(k) accounts fell 29 percent in the second quarter, and the number of IRA millionaires fell 17 percent year-over-year.

Together, 401(k) and IRA millionaires made up only about 1.7 percent of the 35 million savings accounts included in the study — but they’re likely workers nearing retirement, which means you Saving level is paramount.

Average balances for IRA (green), 401(k) (red), and 403(b) (yellow) retirement accounts are shown from one year ago through the end of the second quarter

The number of people with at least $1 million in their 401(k) accounts fell 29 percent to 294,000 in the second quarter

The number of people with at least $1 million in their 401(k) accounts fell 29 percent to 294,000 in the second quarter

The decline in savings mirrored the broader fall in stock markets in the first six months of the year, with the S&P 500 suffering its worst first half in 52 years, falling almost 20 percent.

However, markets rallied in the third quarter and the S&P is up more than 13 percent since late June, meaning disciplined investors have recovered a good chunk of their losses.

According to Fidelity, despite the volatility, many workers have continued to invest regularly to increase the size of their nest egg, and total 401(k) savings are at record highs.

The investment giant also said the number of IRAs on its platform continued to grow and the percentage of employees who took out emergency loans from their 401(k) accounts remained low for the fifth straight quarter.

The total savings rate for the second quarter, which reflects a combination of employee contributions and 401(k) employee contributions, was 13.9 percent of income, just below Fidelity’s proposed savings rate of 15 percent.

The S&P 500 lost almost 20% in the first half of the year, but has been able to catch up significantly since June

The S&P 500 lost almost 20% in the first half of the year, but has been able to catch up significantly since June

Average retirement account balances are shown for different demographic groups, for those who have saved consistently for five, 10, and 15 years

Average retirement account balances are shown for different demographic groups, for those who have saved consistently for five, 10, and 15 years

“While many Americans are understandably concerned about the economy, record high inflation and markets right now, it’s heartening to see that the prevailing emotion is to remain calm and focus on your retirement goals,” said Kevin Barry, President of Workplace investing at Loyalty Investments.

“Saving for retirement is a decade-long goal, and of course there will be many twists and turns. However, the best action savers can take to be successful is to save and invest consistently,” he said.

Fidelity announced that the total number of IRA accounts reached 12.8 million, a 10.6 percent increase over the previous year.

It’s no surprise that younger generations starting to save led the growth in IRAs, with Gen Z accounts up 87 percent year over year and Millennial accounts up 24 percent.

Boomers saved the highest percentage of income at 16.6 percent, although even Gen Z workers saved double digits at 10 percent.

Fidelity, one of the largest retirement investment firms, recommends investing 15% of income in a tax-advantaged retirement account

Fidelity, one of the largest retirement investment firms, recommends investing 15% of income in a tax-advantaged retirement account

According to Fidelity, men continued to save at higher rates than women, investing 14.7 percent of their income in retirement accounts versus 13.7 percent for women.

For anyone at least a few years away from retirement, financial experts say the best way to build a nest egg even in times of wild volatility is to stay on track and invest regularly through retirement accounts.

“When it comes to the markets, what we often see is that sharp falls are quickly followed by a corresponding rise,” Barry said.

“This pattern emerged during the final phase of market volatility in 2020, when that first-quarter decline was followed by a double-digit rebound in retirement account balances — and by the end of 2020, retirement balances had reached record highs,” he said.

‘This speaks to the importance of thinking long-term and not over-reacting to capitalize on market spikes.’