Despite market turmoil that has eaten away at retirement account balances and left workers feeling worse off financially, the majority of retirement savers have kept their contributions steady, and Gen Z savers have actually increased. their contribution rates, according to new data from Fidelity Investments.
Although average account balances have declined, the data suggests that retirement savers have continued to focus on the long term: 401(k) total savings rates have remained high, the number of IRAs at Fidelity continued to rise and the percentage of employees with 401(k) loans remained low for a sixth consecutive quarter, the company found.
“The market has taken some dramatic turns this year, including last October’s best month since 1976,” said Kevin Barry, president of workplace investing at Fidelity Investments. “Retirement savers have wisely chosen to avoid tragedy and continue to make smart long-term choices. This is important because one of the most essential aspects of a good retirement savings strategy is to contribute consistently enough – in up, down and sideways markets – to help you reach your goals.
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Total 401(k) savings rates remained stable. The total savings rate for the third quarter, which reflects a combination of employer and employee 401(k) contributions, remained relatively stable at 13.8%, compared to 13.9% in the second quarter and 14.0% in the first quarter of the year. This was slightly below Fidelity’s suggested savings rate of 15%.
The majority of workers (86%) kept their savings account contributions unchanged and 7.8% even increased their contribution rate. Men continued to save at higher rates than women (14.5% versus 13.5%), while pre-retired baby boomers saved at the highest levels (16.5%). Gen Z participants increased their level of savings this quarter from 10% to 10.3%.
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“Generally, retirement savings rates weren’t an initial option for people when they wanted to make changes to their financial situation. We also haven’t seen people dipping into the loans,” said Mike Shamrell, vice president of thought leadership at Fidelity. “A lot of people realize that saving for retirement is a marathon, not a sprint. And over the long term, you will encounter many market scenarios. Staying the course and adopting a long-term perspective is truly the strongest path.
The majority of retirement savers are still not making changes to their asset allocation. Only 4.5% of 401(k) and 403(b) savers changed asset allocation in Q3, fewer than the 5.0% who did so in Q2 and those who changed asset allocation in the third quarter a year ago (4.8%). Among savers who made changes in the third quarter, about 85% made just one, with the main change involving the shift in savings towards more conservative investments (29%).
401(k) outstanding loans and average loan sizes continue to decline. Despite inflationary pressures, the percentage of 401(k) savers initiating a new loan remains low, with only 2.4% of participants having done so in the third quarter. In addition, the percentage of participants with an outstanding loan remained at 16.7% in the third quarter, a significant drop, compared to 18.7% in the third quarter of 2020 at the start of the pandemic.
In contrast, the percentage of people with negative feelings about their finances (32%) is now higher than those with positive feelings (30%), which contrasts sharply with just a year, when the percentage of workers who were positive about their finances (45%) was more than double the percentage of those with negative feelings (22%).
In addition, average retirement account balances declined for the third consecutive quarter.
The average IRA balance was $101,900 in the third quarter, down 24.9% from a year ago, down 8% from last quarter and up 33% from last quarter. compared to 10 years ago.
The average 401(k) balance fell below the six-figure mark at $97,200 this quarter, down 22.9% from a year ago, 6% from the second quarter and a 28% increase from 10 years ago. For baby boomers, the average 401(k) balance was $197,400, while Gen X had $126,800. Millennials’ average balance was $36,900 and Gen Z’s was $4,900.
The average 403(b) account balance decreased to $87,400, down 21% from a year ago, a decrease of 6% from last quarter and an increase of 48% from last quarter. 10 years ago.
Even so, Gen Z 401(k) savers actually increased their balances slightly this quarter, Fidelity said. Although their balances are smaller, among Gen Z savers, who are heavily invested in term funds, the average account balance actually increased 1.2% from last quarter.
“Gen Z really sees the positive benefits of auto services such as automatic enrollment in company plans,” Shamrell said. “Retirement is many years away, but they seem to be the group staying the course, which is probably the best approach they can take.”
In the third quarter, 85% of Gen Z savers have all of their 401(k) savings in a target date fund. Using target date funds as the default option continues to grow in popularity, with plan sponsor adoption of 93.2% in Q3 2022, up from 88.3% in Q3 2017. just five years ago.
The number of IRA accounts continues to grow, especially among Gen Z and Millennials.
The total number of Fidelity IRA accounts continues to climb, reaching 13.2 million, an increase of 11.2% from the third quarter of last year. The number of accounts reporting a contribution also increased by 2.3% year-to-date between the third quarter of last year and this year.
Across generations, Roth accounts tend to be the retirement savings vehicle of choice, with 61% of all contributions going to a Roth in the third quarter of 2022.
Younger generations continue to lead the way, with the number of Gen Z accounts increasing by 83% from the third quarter of last year and the number of Gen Y accounts increasing by 25%. In particular, contributing millennial Roth IRA accounts are up 5.8% year-to-date. Additionally, younger generations (Gen Z and millennials) now make up about half (45%) of the tax-exempt workforce, Fidelity said.
Fidelity said its third-quarter analysis of savings behaviors and account balances included data from more than 35 million IRA, 401(k) and 403(b) retirement accounts.