401(k) balances grow, despite economic hardship

New York (CNN) Despite higher prices, endless discussions about a possible recession and falling markets, 401(k) participants managed to keep their savings rate relatively stable in the fourth quarter of last year, which helped stabilize their nest egg and increase their overall average balance.

That’s according to new data from Fidelity Investments, one of the largest providers of workplace retirement plans, which together account for $2.8 trillion in assets on its platform.

“Fortunately, the data shows that savers understand the importance of saving for the long term, despite market changes. We are encouraged to see people looking past the current volatility and continuing to make smart choices for their future,” said Kevin Barry, president of Workplace Investing at Fidelity.

By this, Barry means that the average 401(k) savings rate (including employee contributions and employer contributions) remained roughly flat at 13.7%, down from 13.8% in the third quarter and 13.9% in the second quarter.

Among the working generations, baby boomers had the highest savings rate as a percentage of their income (16.5%). The youngest cohort – Gen Z workers – saved 10.2%.

A third of participants have actually increased their contribution rate over the past year, according to Fidelity. But the average rate among this group is still very low – at just 2.6%.

The average 401(k) balance of plans administered by Fidelity, meanwhile, rose 7% from the third quarter, to $103,900. That said, thanks to the poor performance of stocks and bonds last year, the average is still 23% below the $135,600 recorded at the end of 2021.

In terms of 401(k) loans, the percentage of active plan participants with outstanding loans remained at 16.7%. That’s down from 17% a year earlier and 21% five years ago, Fidelity said.

The average loan outstanding was $10,200. Among the different age groups, Generation X had the highest average, followed by Baby Boomers. And even though they’re just starting out in their careers and haven’t had much time to amass savings, 3.2% of Gen Z workers also had outstanding 401(k) loans, but their average amount ($3,000) was the lowest among all age groups.

401(k) hardship withdrawals—money withdrawn when a participant is under some kind of financial stress (for example, to avoid eviction, pay funeral expenses, or to cover a short-term school bill)— stood at 2.4% for the year, up from 1.9% in 2021. The average amount withdrawn was $2,200. Unlike a 401(k) loan, a hardship withdrawal does not need to be repaid and will be taxed. Also, in some cases, he may be subject to a 10% penalty if you have less than 59-1/2.

The new retirement law, Secure 2.0, includes a provision that will make it easier and cheaper for 401(k) participants to withdraw money from their account for emergency needs up to $1,000 per year .

In addition to its workplace retirement plans, Fidelity reported a 10.2% annual increase in the number of IRAs on its platform, noting that 61% of IRA contributions made in the fourth quarter of last year went to Roth IRA.

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