Although increasing numbers of workers are fretting over the state of their finances as the market remains volatile and inflation stays high, a recent study from Fidelity Investments suggests that employees' retirement savings have generally stayed healthy during the third quarter of 2022.
Fidelity's research indicated that 32% of workers are worried about their current finances, while 30% have positive feelings about them — a stark turnaround from a year ago when 45% were optimistic about their finances and only 22% had negative feelings, according to a news release Thursday about the study.
However, the Fidelity study — which examined the savings behaviors and account balances of more than 35 million IRA, 401(k) and 403(b) retirement accounts, all Fidelity clients, a spokesman said — found that while average account balances have been decreasing, total 401(k) savings rates have "held strong," the number of IRAs on Fidelity's platform has continued to increase, and the percentage of participants with 401(k) loans outstanding has remained low.
Specifically, average retirement account balances have fallen for the third consecutive quarter. The average IRA balance as of Sept. 30 was $101,900, an 8% decline from June 30 and a 24.9% drop from Sept. 30, 2021.
Similarly, the average 401(k) balance amounted to $97,200 at the end of the third quarter, down 6% from the end of the second quarter and 22.9% lower than the end of the year-earlier quarter.
Meanwhile, the average 403(b) account balance totaled $87,400 as of Sept. 30, a 6% slide from three months earlier and down 21% from a year earlier.
Despite these ongoing declines in account balances, Fidelity's research uncovered pockets of strength in the overall retirement savings picture.
For example, younger 401(k) savers from Generation Z actually increased their balances in the third quarter by 1.2% from the second quarter. These Gen Z savers are heavily invested in target-date funds, the study indicated — indeed, 85% of this cohort of savers have all of their 401(k) savings in a target-date fund. Moreover, the use of these funds as a default option continues to rise in popularity, with a 93.2% plan sponsor adoption rate in the third quarter, up from 88.3% in third quarter of 2017.
Moreover, the number of IRA accounts continues to rise, especially among Gen Zers and millennials. The total number of Fidelity IRA accounts reached 13.2 million at the end of the third quarter, an 11.2% increase from the end of the year-earlier quarter.
In addition, the number of Roth accounts held by Gen Zers surged by 83% between the third quarter of 2021 and the third quarter of 2022, while the number of such accounts held by millennials jumped by 25% over that time span.
"While it is certainly true that this growth is due to Gen Z-ers 'coming of age' and making their presence known in our numbers, it's also our observation they appear to be more active and financially aware than previously generations," the spokesman said in an email.
The study noted that younger generations of workers — comprising both Gen Zers and millennials — now make up almost one-half (45%) of the workforce with tax-exempt retirement plans.
(Fidelity defines millennials as those born between 1981 and 1996, and Gen Z as those born between 1997 and 2012, according to study).
With respect to 401(k) accounts, the total savings rate for the third quarter (reflecting a combination of employer and employee 401(k) contributions) 13.8%, down slightly from 13.9% in both the second quarter and year-earlier quarter. Moreover, some 86% of workers kept their savings account contributions unchanged, while 7.8% actually increased their contribution rate.
The study also found that the majority of retirement savers are not making changes to their asset allocations. Only 4.5% of 401(k) and 403(b) savers made a change to their asset allocation in the third quarter, compared with 5% that made changes in the second quarter and 4.8% in third quarter of 2021.
Also, despite "inflationary pressures," the percentage of 401(k) savers initiating new loans continues to remain modest, with only 2.4% of such participants doing so in the third quarter. Moreover, the percentage of participants with a loan outstanding amounted to 16.7% for third quarter 2022 — vs. a figure of 18.7% in the third quarter of 2020 during the early days of the COVID-19 pandemic.
"The market has taken some dramatic turns this year," said Kevin Barry, president of workplace investing at Fidelity, in the release. "Retirement savers have wisely chosen to avoid the drama and continue making smart choices for the long term. This is important, because one of the most essential aspects of a sound retirement savings strategy is contributing enough consistently — in up markets, down markets and sideways markets."
Fidelity had $9.6 trillion in assets under administration, including discretionary assets of $3.6 trillion, as of Sept. 30.
