401(k) balances fell 23% year-over-year due to market volatility: Fidelity

Months of market fluctuations have weighed heavily on retirement savers.

The average 401(k) balance fell for the third consecutive quarter and is now down 23% from a year ago at $97,200, according to a new report from Fidelity Investments, the largest provider of 401(k) plans. (k) country. The financial services company manages more than 35 million retirement accounts in total.

The average Individual Retirement Account balance also fell 25% year-over-year to $101,900 in the third quarter of 2022.

Yet the majority of retirement savers continue to contribute, Fidelity found. The average 401(k) contribution rate, including employer and employee contributions, held steady at 13.9%, just below Fidelity’s suggested savings rate of 15%.

“The market has taken dramatic turns this year,” Kevin Barry, president of workplace investing at Fidelity, said in a statement. “Retirement savers have wisely chosen to avoid tragedy.”

“One of the most critical aspects of a good retirement savings strategy is contributing regularly enough — in up, down and sideways markets — to help you reach your goals,” Barry said.

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Only 4.5% of savers changed their asset allocation in the last quarter, with most shifting their savings to a more conservative investment option, Fidelity said. Some retirement savers appear to have been spooked after suffering heavy losses amid worries about inflation, interest rates, geopolitical unrest and other factors, the 401(k) administrator also found. ) AlightSolutions.

“Better to take a long-term approach to retirement”

“We encourage people not to make changes to their account based on short-term market events, as this can often do more harm than good,” said Mike Shamrell, vice president of thought leadership at Fidelity.

“It’s best to take a long-term approach to retirement.”

And despite continued inflationary pressure weighing on most households, only 2.4% of plan participants have taken out a loan on their 401(k), Fidelity said.

Federal law allows workers to borrow up to 50% of their account balance, or $50,000, whichever is less. However, many financial experts also advise against operating a 401(k) until you have exhausted all other alternatives, as you will also lose the power of compound interest.

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