Despite 2022 Retirement Accounts Yielding Less, Investments Increased — Will Inflation Continue to Wreak Havoc?

A stack of retirement account statements
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Inflation is continuing to take a toll on Americans’ lives, with soaring food and housing prices making saving difficult, in turn making planning for retirement more stressful. Yet, a new Fidelity Investments report about savings behaviors in the fourth quarter of 2022, account balances are up and retirement savers are continuing to focus on the long-term, despite the immediate-term inflationary pressures.

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“We’re encouraged to see the progress American savers continue to make against long-term goals, even as inflation and a changing economy create headwinds in the near-term,” said Mike Shamrell, VP of Thought Leadership at Fidelity Investments.

Shamrell added that despite the impact that inflation is having on Americans’ budgets, it’s encouraging to see savers continue to prioritize retirement, with savings rates on Fidelity’s platform staying steady with past quarters.

Indeed, despite the uncertain economic landscape, the total savings rate for the fourth quarter, a combination of employer and employee 401(k) contributions, held fairly steady at 13.7%- compared to 13.8% in the third quarter of 2022 and 13.9% in the second quarter of 2022. This is just below Fidelity’s suggested savings rate of 15%.

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In what reflects the financial strain inflation is inflicting on some Americans, hardship withdrawals were on the rise, the report found, up 2.4% in the fourth quarter of 2022 from 1.9% in the fourth quarter of 2021. However, the percentage of individuals with a  401(k)or 403(b) loan outstanding continued to trend downward, with only 16.7% of plan participants having one at the end of 2022.  from their 401(k) at the end of the year, Fidelity said.

Pre-retiree Boomers continue to save at the highest level, with 16.5%, meanwhile, Gen Z saving levels remain the same at 10.2%, compared to 10.3% last quarter.

It’s important to note, however, that while the average 401(k) balance rose, balances ended the fourth quarter of 2022 down to $103,900 from $130,700 in the fourth quarter of 2021. This is a 23% drop, according to CNBC.

In addition, the average IRA balance also dropped to $104,000 in the fourth quarter of 2022 from $135,600, the Fidelity report noted. This is a 20% decrease, according to CNBC.

According to Shamrell, another positive development despite inflationary concerns is that younger generations are taking control of their financial future, with Gen-Z notably opening 71% more IRA accounts than this time last year, and 401(k) account balances for this generation increasing by 23% over last quarter.

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The Fidelity report also noted that IRA account growth for females saw a year-over-year whopping increase of 74% for Gen Z and 23% for Millennials.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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