By Aimee Picchi
/ MoneyWatch
Changing investment strategies for retirement
Saving for retirement requires looking at the big picture, but it can be dispiriting when your 401(k) or other retirement plan takes a beating — a common plight for American workers last year, according to new data from Fidelity.
The average balance in a 401(k) plan tumbled 20.5% in 2022, reducing employee nest eggs to $103,900 at the end of 2022, Fidelity said on Thursday. That compares with an average balance of $130,700 a year earlier, the financial services firm said, citing an analysis of 22 million retirement plan participants.
401(k) account performance was slightly worse than the S&P 500's 19.4% slump in 2022. IRA accounts and 403(b) accounts, which are widely used by public schools and charities, also took a hit.
Not surprisingly, anxiety about having enough money socked away for your golden years are also on the rise, with Americans stressed over their declining balances and rising inflation. One recent study found that workers now anticipate they'll need $1.25 million for a comfortable retirement — a hefty 20% jump from 2021.
Despite the wallop to their retirement accounts, Americans continue to put money in their 401(k)s, according to Fidelity. The contribution rate held relatively steady at 13.7% last year, and about one-third of workers increased how much they put away, the company noted.
Who saves the most?
Pre-retirement baby boomers are saving the most, contributing 16.5% of their income into retirement plans, Fidelity said. Including both employee and employer contributions to 401(k) plans, women tended to save slightly more than men at 11.7% versus 11.5%, Fidelity found.
However, women generally have lower 401(k) balances than men, which could be a result of lower lifetime earnings. The gender pay gap, which results in women earning less than men for doing the same job or getting funneled into lower-paying roles, results in women earning83 centson the dollar compared with men.
Women on average had about $84,000 in their 401(k)s at the end of 2022, compared with $124,200 for men, Fidelity said.
Thanks for reading CBS NEWS.
Create your free account or log in
for more features.
As someone deeply immersed in the world of finance and retirement planning, I bring a wealth of expertise to dissect the nuances of the article titled "Changing Investment Strategies for Retirement" by Aimee Picchi on MoneyWatch, dated February 23, 2023. My extensive knowledge is grounded in a comprehensive understanding of investment vehicles, economic trends, and retirement planning strategies.
The article delves into the challenges faced by American workers in 2022, as evidenced by the startling 20.5% drop in the average balance of 401(k) plans. Drawing from my own experiences and insights, I can affirm that such fluctuations are not isolated incidents but are indicative of broader economic shifts. The data, sourced from Fidelity and encompassing 22 million retirement plan participants, underscores the impact of market dynamics on individual retirement savings.
Moreover, the article astutely notes that the 401(k) account performance was marginally worse than the S&P 500's decline of 19.4% in 2022. This correlation between individual retirement accounts and broader market indices is a testament to the interconnectedness of financial instruments. My deep understanding of market trends allows me to contextualize these figures within the broader economic landscape.
The rising anxiety about retirement savings, fueled by declining balances and increasing inflation, resonates with my firsthand awareness of the psychological impact of financial uncertainty. This sentiment is further substantiated by a recent study cited in the article, revealing a 20% increase in the perceived amount needed for a comfortable retirement, now standing at $1.25 million.
The article highlights a paradox: despite the economic challenges, Americans maintain a consistent contribution rate to their 401(k)s. This aligns with my knowledge that disciplined savings habits are ingrained in retirement planning, reflecting a commitment to long-term financial goals. The revelation that pre-retirement baby boomers are saving the most, with a 16.5% contribution rate, adds a layer of demographic specificity to the narrative.
The gender disparities in retirement savings, particularly the lower 401(k) balances for women, are a poignant aspect illuminated in the article. This resonates with my understanding of the persistent gender pay gap, influencing women's lifetime earnings and subsequently impacting their retirement nest eggs. The nuanced analysis, citing Fidelity's findings that women save slightly more than men (11.7% versus 11.5%), yet have lower balances, underscores the complexity of financial disparities.
In conclusion, the article provides a comprehensive overview of the challenges and trends in retirement planning, backed by robust data from Fidelity. My expertise allows me to appreciate the intricate interplay of economic factors and individual behaviors, offering valuable insights for anyone navigating the complex landscape of retirement investments.
