At a time of the disappearing pension, the 401(k) is for most workers the main source of old age security. Almost any financial planner will be on you to start putting away as much as possible early and resist temptation to take anything out prematurely (even if a recently-signed retirement bill will soon waive the 10% penalty for those who need to withdraw $1,000 a year due to economic hardship.)
But while saving is always better than not saving, one's financial situation also hinges heavily on the economy at the exact moment one needs to start tapping into those funds. According to the latest data released by Fidelity Investments, 2022 was so turbulent that the number of people with over $1 million in its accounts dropped by 32% from 442,000 in 2021 to 299,000 in 2021.
The Average 401(k) Fell By an Obscene Amount in 2022
While so-called "401(k) millionaires" make up only 1.4% of the 21.5 million people with Fidelity accounts, the average value of a Fidelity plan dropped by 20.5% as the S&P 500 (^IN) tumbled 19.4% in 2022 amid a year of everything from war, energy uncertainty and widespread inflation.
Here's Why The Number Of 401(k) Millionaires Dropped So Dramatically
An earlier report from Vanguard found the same 20% drop for accounts held with the other investing giant. The average Vanguard balance was $112,572 while the median uninfluenced by the top and bottom one percent of savers was just $27,376 and a 23% decrease from 2021.
At Fidelity, the average account balance in 2022 was $103,900. The 442,000 millionaire mark in 2021 was a peak since the first 401(k) plan was first established in 1978 but the year that followed was a very uncertain one and so many people saw significant drops to their accounts.
The number of individual retirement account (IRA) millionaires also dropped by 25% to 280,320 in 2022.
People for whom retiring is still a very distant concept will largely be unaffected by these ups-and-downs -- over the course of 20 years, an average portfolio with 60% invested in stocks and 40% in bonds generates between 5% to 8% annually even if that number is higher in sound years and lower in economically turbulent news.
Despite Turbulent 2022, People Are Still Stowing Money Away At Record Rates
Amid inflation, having more stowed away is always a good strategy -- an annual study by Northwestern Mutual estimated that the average retiree now needs $1.25 million to retire comfortably next year.
Seeing the state of things, most savers understand this pressure and respond by stowing away more. The Vanguard survey found that almost four out of every 10 savers increased their deferral rate in 2022 while 97% of those below retirement age did not make any early withdrawals.
This last number is just a slight bump of those withdrawing prematurely due to economic hardship -- from 2.1% in 2021 to 2.8% in 2022. The numbers of holders with broadly diversified portfolios also rose to 79% by the end of 2022 as many moved savings around to ensure that they did not have too many eggs in one basket in the case of economic uncertainty.
"The hope is that [savers] continue to stay on track and, as market conditions improve, more retirement savers should rise above that millionaire threshold," Mike Shamrell, Fidelity's VP of workplace thought leadership, told the Washington Post.
