Average 401(k) balances plunged 23% year-over-year due to market volatility, Fidelity says

Months of market swings have taken a heavy toll on retirement savers.

The average 401(k) balance sank for the third consecutive quarter, and is now down 23% from a year ago to $97,200, according to a new report by Fidelity Investments, the nation's largest provider of 401(k) plans. The financial services firm handles more than 35 million retirement accounts in total.

The average individual retirement account balance also plunged 25% year-over-year to $101,900 in the third quarter of 2022.

Still, the majority of retirement savers continue to contribute, Fidelity found. The average 401(k) contribution rate, including employer and employee contributions, held steady at 13.9%, just shy of Fidelity's suggested savings rate of 15%.

"The market has taken some dramatic turns this year," Kevin Barry, president of workplace investing at Fidelity, said in a statement. "Retirement savers have wisely chosen to avoid the drama."

"One of the most essential aspects of a sound retirement savings strategy is contributing enough consistently — in up markets, down markets and sideways markets — to help reach your goals," Barry said.

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Just 4.5% of savers changed their asset allocation in the most recent quarter, with most moving their savings into a more conservative investment option, Fidelity said. Some retirement savers seem to have been spooked after suffering big losses amid worries tied to inflation, interest rates, geopolitical turmoil and other factors, 401(k) administrator Alight Solutions also found.

"We encourage people not to make changes to their account based on short-term market events because often that can do more harm than good," said Mike Shamrell, Fidelity's vice president of thought leadership.

"It's best to take a long-term approach to retirement."

And despite ongoing the inflationary pressure straining most households, only 2.4% of plan participants took a loan from their 401(k), Fidelity said.

Federal law allows workers to borrow up to 50% of their account balance, or $50,000, whichever is less. However many financial experts similarly advise against tapping a 401(k) before exhausting all other alternatives since you'll also be forfeiting the power of compound interest. 

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