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Retirement Planning > Saving for Retirement

Retirees Stay the Course in Bumpy Q2: Fidelity

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Despite concerns about higher interest rates, rising inflation and continuing pandemic effects, the vast majority of 401(k) and 403(b) savers did not make any change to their allocation in the second quarter, Fidelity Investments reported this week. 

Of those who did make a change, 85% made only one, and the top one involved shifting savings to more conservative investments.

Although many Americans are understandably concerned about the economy, record-high inflation and markets at this time, it’s encouraging to see the prevailing emotion has been to stay calm and focused on one’s retirement objectives,” Kevin Barry, president of workplace investing at Fidelity Investments, said in a statement.

But concerned they are. A Fidelity Investments survey conducted in April among 1,100 adults found that more than half were highly concerned about the health and stability of the economy. As a result, 19% said they had adjusted their retirement strategy and were taking a more conservative approach to their retirement savings.

Q2 Analysis

In its new report, Fidelity Investments analyzed second-quarter savings behaviors and account balances for some 35 million IRA, 401(k) and 403(b) retirement accounts. 

It found that although average account balances decreased, the decline in average balances was below the S&P’s 16.1% drop in the second quarter and below the decline in the first quarter of 2020, the last period of significant market volatility:

  • IRA: The Q2 average balance was $110,800, down 12.8% quarter over quarter
  • 401(k): $103,800, down 15%
  • 403(b): $93,300, down 13%

Not only that, retirement savers maintained their long-term outlook as total 401(k) savings rates still hovered at record levels. The total savings rate for the second quarter — which reflects a combination of employee and employee 401(k) contributions — stood at 13.9%, just below Fidelity’s suggested savings rate of 15%.

Men continued to save at higher rates than women, pre-retiree baby boomers saved at the highest levels, at 16.6%, and Generation Z participants saved in the double digits, at a 10% rate.

Among Gen Z 401(k) savers who are heavily invested in target date funds, the average account balance fell by only 8% from the first quarter. Eighty-five percent of Gen Z savers have all of the 401(k) savings in a target date fund, according to the analysis.

The analysis further showed that the number of IRAs on Fidelity’s platform increased by 10.6% over the 2021 second quarter, reaching 12.8 million. Gen Z accounts increased by 87%, and millennials’ by 24%.

Outstanding 401(k) loans and average loan amounts continued to decline in the second quarter, with only 2.4% of participants initiating a loan, according to the analysis. Participants with a loan outstanding dropped to 16.7%, down significantly from 18.9% in the second quarter of 2020 at the start of the pandemic. 

To Stay the Course — or Not?

Does staying the course make sense during volatile periods? Fidelity Investments argues that it does.

It noted that when markets rebound, they tend to do so quickly — especially if the market avoids going into recession. During July, the S&P increased by 9.1%, its best month since 2020.

“When it comes to the markets, we often observe that sharp drops are quickly followed by a corresponding rise,” Barry said. “This pattern occurred with the last period of market volatility in 2020, where that first quarter decline was followed by a double-digit rebound across retirement account balances. 

By the end of 2020, retirement balances had hit record highs

Fidelity said staying invested and making steady contributions is also a way to help savings recover from a downturn, and sought to demonstrate what this means in real life. 

It examined three different savings approaches a 401(k) investor could have taken with his or her savings during the global financial crisis of 2007–2009. Each investor started out with $400,000 in 2007, and Fidelity tracked how those savings performed as of February 2012:

  • Investor went to all cash and quit saving: $353,400
  • Investor moved to cash and continued to contribute: $404,709
  • Investor stayed invested and continued to contribute: $524,600

“Saving for retirement is a goal that is decades in the making, and there will naturally be many twists and turns,” Barry said. “However, the best action savers can take to help achieve success is to consistently save and invest.”

(Image: Shutterstock) 


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