401(k) balances are rising despite economic challenges

New York (CNN) Despite higher prices, endless talk of a possible recession and falling markets, 401(k) participants managed to keep their savings rate relatively stable in the fourth quarter of last year, which helped stabilize their nest eggs and increase their overall average balances.

That’s according to new data from Fidelity Investments, one of the largest providers of workplace retirement plans, which collectively represent $2.8 trillion in assets on its platform.

“Fortunately, the data shows that retirement savers are recognizing the importance of saving for the long term despite market shifts. We are encouraged to see people looking past current volatility and continuing to make smart choices for their futures,” said Kevin Barry, president of Workplace Investing at Fidelity.

By that, Barry means that the average 401(k) savings rate (including both employee contributions and employer matches) remained roughly stable at 13.7%, compared to 13.8% in the third quarter and 13.9% in the second quarter.

Among generations in the labor force, baby boomers had the highest savings rate as a percentage of their income (16.5%). The youngest cohort – Gen Z workers – saved 10.2%.

According to Fidelity, a third of participants have even increased their dues in the past year. But the average rate among this group is still very low – only 2.6%.

The average 401(k) balance in Fidelity-managed plans, meanwhile, rose 7% from the third quarter to $103,900. That said, thanks to the poor performance of both stocks and bonds last year, the average is still 23% below the $135,600 recorded at the end of 2021.

In terms of 401(k) loans, the percentage of active plan participants with outstanding loans remained at 16.7%. That’s down from 17% a year earlier and 21% from five years ago, Fidelity said.

The average outstanding loan amount was $10,200. Among the various age groups, Generation Xers had the highest average, followed by Baby Boomers. And even though they’re just starting out in their careers and haven’t had much time to save yet, 3.2% of Gen Z workers also had outstanding 401(k) loans, but their average amount ($3,000 ) was the lowest among all age groups.

Difficult withdrawals from 401(k)s — money taken when a participant is under financial strain (for example, to avoid eviction, pay for funeral expenses, or cover a short-term college bill) — amounted to 2.4 % for the year, up from 1.9% in 2021. The average amount withdrawn was $2,200. Unlike a 401(k) loan, a hardship withdrawal does not have to be repaid and is taxed. In addition, there may be a 10% penalty in some cases if you are under 59-1/2.

The new retirement law, Secure 2.0, includes a provision that makes it easier and less expensive for 401(k) members to withdraw money from their account for emergency needs up to $1,000 a year.

Aside from its workplace retirement plans, Fidelity reported a 10.2% annual increase in the number of IRAs on its platform, noting that 61% of IRA contributions made in the fourth quarter of last year went to Roth IRAs went.






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