Between soaring inflation, rising interest rates, and declines in the bond and equity markets, many Americans' finances took a beating in 2022. So much so that the average retirement account balance fell by 20% compared to 2021, according to a report from Vanguard. Still, many investors remained "resilient" through the uncertainty, the company contends.
Average account balances fell from a record-high of $141,542 at the end of 2021 to around $112,572 last year, while the median balance fell from $35,345 to $27,376, according to Vanguard's How America Saves report for 2023. The report analyzes trends among over 5 million defined contribution plans (such as 401(k)s) that Vanguard manages.
Of course, the figures vary significantly depending on factors like age, profession, income, etc. The average is skewed by a small percentage of older accounts held by wealthier workers, making the median balance more representative of the typical worker.
"Not only does income, on average, tend to rise somewhat with age, making saving more affordable, but older participants generally save at higher rates," Vanguard's report notes. "Also, the longer an employee’s tenure with a firm, the more likely they are to earn a higher salary, participate in the plan, and contribute at higher levels."
The average balance is highest, then, for those aged 65 or older, at $232,710 (the median is $70,620). Here's how it breaks down for other ages:
- Age 55 to 64: Average balance $207,874; median balance $71,168
- Age 45 to 54: Average balance $142,069; median balance $48,301
- Age 35 to 44: Average balance $76,354; median balance $28,318
- Age 25 to 34: Average balance $30,017; median balance $11,357
- Age 25>: Average balance $5,236; median balance $1,948
There is also a difference between how much men and women are saving. Though women tend to save more than men at every income level, they earn less on average than men. So male investors—which make up 56% of Vanguard participants—had an average account balance of $136,977 at the end of 2022, compared to $95,570. The median account balance for men was $34,961, compared to $24,714 for women.
Investors stay strong despite uncertainty
Despite those bleak headline numbers, there are some promising trends in the report. The average participation rate, or the share of employees actually contributing to their retirement account, is the highest it's been in the 22 years Vanguard has been publishing the report at 83%, meaning more and more people are saving for retirement.
The deferral rate, or how much participants are contributing, stayed relatively stable compared to the previous few years, with the average Vanguard participant investing 7.4% of their income in their retirement account, and the median participant saving 6.4%. Compared to 2013, the deferral rate has increased slightly.
And thanks to ongoing contributions, account balances are still up compared to a few years ago. For those who had an account in both December 2017 and December 2022, the median account balance was 70% higher in the latter.
A report from Alight that analyzed around 3 million investors' retirement accounts found similar trends. Account balances were down, but "most participants resisted the temptation to make knee-jerk reactions when it came to their investments," the report reads. But only 3% of participants paused their contributions.
That's the right move, experts say. Investing for retirement is a long game—one year of declining value doesn't matter as much as ensuring you stay invested for a long time. That way, your investments have the chance to rebound and compound.
"The people who struggle with investing often make mistakes when they chase returns, jump from one investment to another based on the performance of the year before," Faron Daugs, a certified financial planner at Harrison Wallace Financial Group, previously told Fortune. "It’s really about being disciplined and continuing to invest in all different types of markets, not trying to time the market."
