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Many people are starting to internalize the idea of volatile markets, inflation and the prospect of recession. A new Fidelity Investments Q3 Retirement Analysis shows that the percentage of individuals with negative feelings about their finances stands at 32%, which is greater than those who have positive feelings at 30%.
A year ago, the numbers were quite different when workers who felt positive about their finances (45%) was more than twice the percentage of those with negative feelings (22%). The average 401(k) balances dropped from $126,100 at the end of the third quarter in 2021 to $97,200 in Q3 2022, down 22.9%.
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"The market has taken some dramatic turns this year, including the best month this past October since 1976," says Kevin Barry, president of Workplace Investing at Fidelity Investments. "Retirement savers have wisely chosen to avoid the drama and continue making smart choices for the long-term. This is important, because one of the most essential aspects of a sound retirement savings strategy is contributing enough consistently – in up markets, down markets, and sideways markets — to help reach your goals."
Although average account balances have decreased, the data suggests retirement savers continue to focus on the long-term: total 401(k) savings rates held strong, the number of IRAs on Fidelity's platform continued to increase, and the percentage of employees with 401(k) loans remained low for a sixth consecutive quarter.
Also, notes the analysis, Gen Z 401(k) savers increased their balances this quarter by 1.2% over last quarter. As of Q3, 85% of Gen Z savers have all of their 401(k) savings in target date funds.
Related: The average 401(k) plan is down $34,000, or 25%, in 2022
But some of these investors are experiencing inflation and recession for the first time. "It's important to keep in mind, younger generations have experienced a profound amount of uncertainty in a relatively short amount of time," notes Michael Shamrell, vice president of thought leadership, Fidelity Investments. "Beyond inflation, they have also experienced the impact of the pandemic as well as a great deal of market uncertainty. In fact, according to a recent study we conducted on the State of Retirement Planning, almost half (45%) of those under the age of 36 said they don't see a point in saving for retirement until things return to normal. Perhaps as a result, 39% of the "next generation" (21-36) also say they plan to retire later than expected."
The majority of retirement savers still aren't making changes to their asset allocation. Only 4.5% of 401(k) and 403(b) savers made a change to the asset allocation in the third quarter, less than the 5.0% that did so in Q2 and those who made a change in Q3 2021 (4.8%). Of the savers that made changes in Q3, about 85% only made one; the top change involved shifting savings to more conservative investments (29%).
As expected, a third straight quarter of market volatility had an impact on account balances, but the encouraging news is, despite a growing negative overall consumer sentiment, one area where people have yet to put the brakes on involves retirement savings. In addition, this quarter's analysis includes some new Viewpoints data and some Fidelity internal data around the impact making continuous contributions can have—even over a relatively short period of time.
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