Retirement Planning: Average 401(k) Balances Fell 20% in 2022 — Will It Be a Trend?

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At the start of the Great Recession in 2008, 401(k)s and IRAs lost roughly $2.7 trillion in value, down 31% from their peak in 2007.

Between the end of 2021 and the end of 2022, 401(k) accounts fell by 20%, according to new research from Vanguard. In the preview to the investment firm’s “How America Saves 2023” study, Vanguard indicated that the average 401(k) at the end of 2022 held $112,572 across its record-keeping business. The median account held $27,376, showing 23% in losses.

A number of factors led to the bearish stock market and subsequent falling 401(k)s:

  • Record-high inflation.
  • Mortgage rates at a 20-year high.
  • The war in Ukraine.

In spite of this, Vanguard remained optimistic for the future. The study showed that “participant behaviors mostly remained positive,” the preview reported.

Retirement plan participants continued to defer withdrawals at similar rates as they did in the past. Nearly 4 in 10 participants increased their deferral rate, and close to 70% of plans enrolled employees into an annual escalation feature to increase their deferral percentage.

Additionally, more participants joined a plan with professionally managed allocations this year — and only 6% of non-advised participants traded in this heavily volatile market. “Given the uncertainty in the economy, it is remarkable that 94% of participants did not make an exchange throughout the entire year,” the report read.

This inactivity could help stabilize the market and potentially prevent further dips if people keep their funds where they are until the stock market begins to rebound.

Are You Retirement Ready?

Many financial advisors will tell you to leave your 401(k) alone in a down market, unless you plan to increase contributions. Watching your retirement savings tank can cause unnecessary stress, perhaps leading you to make a hasty withdrawal, or make unnecessary changes to your plan.

The best course of action right now is to leave your plan alone, increase contributions if you can, and aim for a 15% savings rate, which is the target set for workplace retirement plans by the SECURE 2.0 Act.

Overall, the Vanguard report preview showed general optimism. “While there were signs of financial stress, overall, participants’ behavior in retirement plans remained in line with previous years, and most continued to maintain a long-term view,” the report stated.

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