Savings Rates Stay Strong

Despite ongoing market volatility and growing financial concerns, one area in which many plan participants have yet to put the brakes on involves saving for retirement. 

Although average account balances decreased, data from Fidelity’s third quarter, 2022 retirement analysis suggests that retirement savers continue to focus on the long term. In fact, total 401(k) savings rates held strong and the percentage of employees with 401(k) loans remained low for a sixth consecutive quarter according to the analysis, which looks at the savings behaviors and account balances for more than 35 million IRA, 401(k) and 403(b) retirement accounts.  

According to Fidelity’s data, the total savings rate for the third quarter — which reflects a combination of employer and employee 401(k) contributions — remained steady at 13.8%, compared to 13.9% in the second quarter and 14% for the first. This is just below Fidelity's suggested savings rate of 15%, the analysis notes.  

What’s more, most workers (86%) kept their savings account contributions unchanged, while 7.8% actually increased their contribution rate. Men continued to save at higher rates than

women, at 14.5% versus 13.5%, while pre-retiree Boomers saved at the highest levels (16.5%). Gen Z participants increased their savings levels this quarter, moving from 10% to 10.3%.

Outstanding 401(k) loans and average loan amounts continue to decline. Despite inflationary pressures, the percentage of 401(k) savers initiating a new loan continues to remain low, with only 2.4% of participants doing so in the third quarter. In addition, the percentage of participants with a loan outstanding remained at 16.7% for the third quarter—dropping from 18.7% in the third quarter of 2020 and the early days of the pandemic.

Most retirement savers still are not changing their asset allocation. Here, Fidelity found that only 4.5% of 401(k) and 403(b) savers changed the asset allocation in the third quarter. This is less than the 5% who did so in the second quarter, as well as those who made a change in the third quarter of 2021 (4.8%). Of the savers who made changes in Q3, about 85% only made one, with the top change involving shifting savings to more conservative investments (29%).

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

Average Balances 

And unless you have been hiding under a rock for the past year, it will come as no surprise that average retirement account balances decreased for the third consecutive quarter. 

The average 401(k) balance dropped below the six-figure mark to $97,200 this quarter, down approximately 23% from a year ago and 6% from the second quarter of 2022. Yet, compared to 10 years ago, the average balance represents a 28% increase. 

Similarly, the average 403(b) account balance decreased to $87,400, down 21% from a year ago and 6% from last quarter, but it’s a 48% increase from 10 years ago. 
 
Average Retirement Account Balances
 
 

Account	Q3 2022	Q2 2022	Q3 2021	Q3 2012
IRA	$101,900	$110,800	$135,700	$76,800
401(k)	$97,200	$103,800	$126,100	$76,100
403(b)	$87,400	$93,300	$110,800	$59,200

 
 
Meanwhile, Gen Z 401(k) savers actually increased their balances this quarter. Although their balances are smaller, the average balance for Gen Z savers, who are heavily invested in target date funds, increased by 1.2% over last quarter. As of the third quarter, 85% of Gen Z savers have all their 401(k) savings in a TDF. 

The use of TDFs as a default option continues to increase in popularity, with a 93.2% plan sponsor adoption rate in the third quarter of 2022, up from 88.3% in the third quarter of 2017. 

Roths Rule Retail

Interestingly, Roth IRAs tend to be the retail retirement savings vehicle of choice across generations, with 61% of all contributions going to a Roth in the third quarter. 

Younger generations continue to lead the way, with the number of accounts for Gen Z increasing by 83% compared to Q3 2021 and the number of Millennial accounts increasing by 25%. In particular, Millennial Roth IRA accounts with a contribution increased by 5.8% year-to-date. In addition, younger generations (Gen Z and Millennial) now make up nearly half (45%) of the tax-exempt workforce.

Account growth for females — who make up 45% of total IRA accounts—saw a year-over-year increase of 87% for Gen Z and 25% for Millennials.

Long-Term Impact 

For retirement savers concerned about the impact of market volatility, there are important arguments for looking to the long-term and not making changes based on short-term economic swings, Fidelity notes.  

For instance, making continuous contributions over even a relatively short period can have a profound impact on one’s retirement readiness. If someone contributed the 2021 maximum $6,000 IRA contribution at age 25 and keeps it going all the way to age 70, they would amass $1,440,592 by retirement. In comparison, for someone who didn’t start contributing the $6,000 max to their IRA until the age of 35, they would only amass $757,609. 

Even shorter term, according to Fidelity’s analysis, the average 401(k) balance for individuals who have been in their same plan with the same employer for just a five-year continuous period is more than double the average retirement account balance.