401k savings rates remain near record highs, Fidelity says

Despite higher inflation, rising interest rates and falling stock markets, the average pension plan outperformed the S&P 500 in a volatile second quarter, the 401(k)s, 403(b) s and individual retirement accounts that beat the index by an average of nearly 250 basis points, according to Fidelity Investments.

Fidelity’s second-quarter analysis of savings behaviors and account balances also found that despite economic headwinds, 401(k) savings rates remained near record highs.

While many Americans are understandably concerned about the economy, record inflation and the markets right now, it’s encouraging to see that the overriding emotion has been to stay calm and focused on your retirement goals,” Kevin Barry , president of Workplace Investing at Fidelity Investments, said in a statement. “The best action savers can take to succeed is to save and invest consistently.”

For the second quarter, which ended June 30, the average 401(k) balance decreased 14.71% to $103,800, while the average 403(b) and IRA lost 13.29% and 12.82% to lower their average account balances to $93,300 and $110,800, respectively. . However, during this period, the S&P 500 fell 16.1%. Fidelity’s analysis also notes that declines in retirement accounts have not been as steep as during the last period of comparable volatility, i.e. during the first quarter of 2020, and that the percentage of employees with 401(k) loans remained low for the fifth straight quarter.

Economic concerns do not appear to have affected savings rates for 401(k) account holders, as the plans continue to see regular contributions from individuals and their employers, according to Fidelity.

“The total savings rate for the second quarter, which reflects a combination of employee and employer 401(k) contributions, continues the positive momentum achieved in the first quarter,” Fidelity’s analysis said. He also notes that men continued to save at higher rates than women, 14.7% versus 13.7%, while pre-retired baby boomers saved the most, at 16.6%.

Generation Z retirement account holders, i.e. investors born between 1997 and 2012, weathered the volatility the best, with their average account balance falling just 8% over the course of the year. trimester. Fidelity’s analysis indicates that 85% of Gen Z savers have all of their 401(k) savings in a target date fund, which it attributes to the growing use of target date funds as the default option. citing a 93.2% adoption rate by plan sponsors during the quarter.

Market volatility also did not have a major impact on account holders’ asset allocation, as only 5.0% of 401(k) and 403(b) savers changed asset allocation. assets during the quarter, compared to 5.3% during the first quarter. trimester. And, among savers who made a switch in the last quarter, 85% made only one; According to Fidelity, the main change was to reallocate savings to more conservative investments.

“When it comes to the markets, we often see big declines quickly followed by a corresponding rise,” Barry said, noting that this trend occurred following market volatility during the first quarter of 2020. “It speaks to the importance of looking long-term and not overreacting, so you are able to take advantage of any spikes in the market.”

Meanwhile, the percentage of 401(k) savers originating new loans remains low, according to the analysis, with just 2.4% of participants opening a loan during the quarter. At the same time, the percentage of participants with an outstanding loan fell to 16.7%, from 18.9% in the second quarter of 2020 at the start of the pandemic.

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