Workers Weather Market Uncertainty to Save for Retirement

In 2022’s second quarter, average retirement plan balances dropped less than the S&P, which was down 16.1% for the period.

Workers are continuing to save for retirement despite 2022’s economic uncertainty, decreased account balances and market volatility, new research shows.

Fidelity Investments’ second-quarter 2022 analysis of savings shows that while average retirement account balances dropped, losses were less severe than the market’s declines in Q2. The losses were similarly outstripped by those in the last period of high market volatility that investors experienced, the first quarter of 2020.   

Average 401(k) balances dropped to $103,800 in Q2, down 20% from a year ago and 15% from Q1 2022; average 403(b) account balances decreased to $93,300, down 18% from a year ago and 13% from the last quarter. Meanwhile, average individual retirement account balances slipped to $110,800 in Q2—a 17.9% decrease from a year ago and a 12.8% decrease from last quarter, Fidelity found.

Investor headwinds came from market losses, including Q2’s 16.1% decline in the S&P 500. But the Fidelity research shows that retirement plan participants are still making the effort to follow a retirement roadmap by saving sufficiently, said Kevin Barry, president of workplace investing at Fidelity Investments, in a statement.   

“Although many Americans are understandably concerned about the economy, record-high inflation and markets at this time, it’s encouraging to see the prevailing emotion has been to stay calm and focused on one’s retirement objectives,” he said. “Saving for retirement is a goal that is decades in the making, and there will naturally be many twists and turns. However, the best action savers can take to help achieve success is to consistently save and invest.”

Fidelity found that Gen Z experienced the smallest account balance declines. For Gen Z retirement savers who are invested in target-date funds, the average account balance dropped by 8% from Q1. Among Gen Z retirement plan participants, in Q2, 85% of savers had their entire their 401(k) savings in a target-date fund.

The research shows that despite the challenges to saving, 95% of retirement savers did not make any changes to their asset allocations, while 5% of 401(k) and 403(b) savers did so in Q2, which is slightly lower than the 5.3% who made a change in Q1 and is consistent with the share of individuals who made a change to their allocation in Q2 2021. Among participants who made allocation changes in Q2, 85% made a single change, the most frequent of which was a shift of savings to more conservative investments (38%).

Fidelity research also found—by comparing account balances—that plan participants who quit deferring to a retirement plan after an economic shock, down market or recession do so to their detriment, as they end up within smaller amounts of accumulated savings. A Fidelity thought experiment to study the impact on participant savings of staying the course after the Great Recession has investors start with a $400,000 retirement balance, and then examines the plan balances five years later.

According to Fidelity, an investor who invested assets in all cash and quit saving in a retirement plan after the Great Recession would have $353,400; an investor who moved to cash and continued to contribute accumulated $404,709; and an investor who stayed invested and continued to contribute achieved $524,600.

Barry emphasized that it’s important for retirement investors to remain committed to their investment strategy to not miss out on market gains. 

“When it comes to the markets, we often observe that sharp drops are quickly followed by a corresponding rise,” Barry said in the statement. “This pattern occurred with the last period of market volatility in 2020, where that first quarter decline was followed by a double digit rebound across retirement account balances—and by the end of 2020, retirement balances had reached record highs. This speaks to the importance of looking long-term and not over-reacting, so you are able to take advantage of any market peaks.”