401-Pain: Average Retirement Savings Continue To Plummet

Average retirement savings declined for the third consecutive quarter amid a volatile stock market and pervasive economic pressures, according to research from Fidelity Investments.

The financial services company reported that the average IRA balance was $101,900 in the third quarter, marking a 25% year-over-year decline from $135,700, while the average 401(k) balance was $97,200, constituting a decline of roughly 23% year-over-year from $126,100.

“The market has taken some dramatic turns this year, including the best month this past October since 1976,” Fidelity Workplace Investing President Kevin Barry said in a press release. “Retirement savers have wisely chosen to avoid the drama and continue making smart choices for the long-term.”

Supply chain bottlenecks, persistently high inflation, and recent actions from the Federal Reserve to quell rising price levels have contributed to market volatility. The S&P 500 index has declined over 17% since the beginning of the year.

Despite lower average retirement account balances, members of Generation Z managed to slightly increase their savings in the third quarter, while the overall number of IRA accounts continues to rise, especially among younger savers. Most account holders are not making changes to their asset allocations even amid the volatility.

Market conditions and inflationary pressures are contributing to increased financial stress. The proportion of individuals with negative sentiment regarding their finances now surpasses the proportion of individuals with positive feelings, marking a significant reversal since last year, according to Fidelity.

The analysis recommended that workers continue to make retirement account contributions even through volatile times to benefit from employer matching programs, as well as various tax deductions. As many workers change jobs at an elevated pace amid labor shortages, which have produced higher demand for employees among businesses, Barry added that many individuals who switch employers may neglect to transfer their retirement account balances.

“Job changing participants in this position often take no action to transfer their balances to a new service provider, meaning the account could simply be forgotten or prematurely cashed out and subject to taxes and penalties,” he remarked. “Auto-portability can play a crucial role in increasing retirement security for these Americans by automating the movement of an inactive retirement account seamlessly into the active account of a new employer’s plan, potentially preserving trillions of dollars in future savings.”

Price levels rose 7.7% year-over-year as of last month, according to a report from the Bureau of Labor Statistics, showing that headline inflation has begun to diminish amid the Federal Reserve increasing target federal funds rates. President Joe Biden has nevertheless insisted that his policies are responsible for the easing price pressures.

“Today’s report shows that we are making progress on bringing inflation down, without giving up all of the progress we have made on economic growth and job creation,” he said in a statement. “My economic plan is showing results, and the American people can see that we are facing global economic challenges from a position of strength.”

The total level of consumer loans increased from $1.5 trillion at the beginning of Biden’s tenure to $1.8 trillion as of two months ago, according to data from the Federal Reserve. The personal savings rate has dropped from 20% to slightly more than 3% over the same period, according to data from the Bureau of Economic Analysis, marking a significant decline from typical rates witnessed before the lockdown-induced recession.