Retirement Savings Tips When 401(k) Drops 23%

As society gets back on its feet after the pandemic lockdown and the economy going through massive inflation, the average 401(k) balance has performed much weaker than last year. 

Based on Fidelity Investments data, the average 401(k) balance dropped 23% from $126,100 in the third quarter of 2021 to $97,200 in the same period this year. Similarly, individual retirement accounts (IRAs) also saw a 25% decrease from $135,700 to $101,900.

Although Americans have been saving less money recently, Fidelity reports that those saving for retirement have managed to stay on track. In fact, 86% of savers kept their contribution rate unchanged, while 7.8% increased their 401(k) contribution. 

The data also showed that only 4.5% of savers in 401(k)s and 403(b)s changed the investment of their assets. Overall, retirement savers have kept their contributions steady, averaging 13.8% of their savings rate — slightly below Fidelity Investment’s recommendation of 15%.

Many financial advisors agree that having a retirement savings plan is crucial to ensure a comfortable retirement. Kevin Barry, president of workplace investing at Fidelity Investments, believes this methodical approach to planning for retirement is the key to success. Although there have been some big market changes in the past year, October was better than it has been since 1976.

Instead of fearing market volatility and succumbing to panic early withdrawals, retirement savers should stay on course and avoid the chaos for long-term success. One of the most critical components to having successful retirement savings is contributing regularly, even during bad market periods.

Barry pointed out that a crucial key to successful retirement savings is a consistent contribution rate throughout different markets. Putting all the eggs in one basket is never a good idea, as no one can predict the outcome of individual stocks or funds. Instead, having a diversified portfolio and knowing when to move assets can make a world of difference. 

To illustrate this point, Fidelity calculated that if someone contributed the 2021 maximum IRA contribution of $6,000 at age 25 and kept contributing until age 70, they would have accumulated an amazing amount of retirement savings: $1,440,592.

For the modern retirement saver, a key to success is doing your research to make informed decisions on investment. Even though financial advisors can assist and guide you through the process, no one knows your assets better than you. Instead of waiting for your advisors to make decisions, take the initiative to be proactive and stay on top of your retirement savings.

If you have never considered taking a more active role in your retirement savings, now is a perfect time. Regular contributions, diversification, and proper management of assets are all essential components for success. 

Although we have been through some tough times this past year, there are still great opportunities ahead for those who take control of their retirement goals. And it is never too late to start. By investing wisely, you can ensure your retirement savings will last a lifetime.

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