Americans’ retirement savings took a hit last year, a troubling sign for workers, according to a new report from investment firm Vanguard.
The average 401(k) account balance of Vanguard participants in 2022 was $112,572, down 20 percent from the average of $141,542 in 2021, the company said in a Thursday report.
The average balance was much lower at $27,376, a 23 percent drop from the 2021 average. The wide gap between mean and median balances reflects the small number of very large accounts that skew the average higher.
Retirement accounts declined in 2022 largely because of a broad decline in the stock and bond markets last year, but the good news for workers is that markets have made some gains in the first half of 2023, boosting retirement accounts.
More recent data from Fidelity Investments showed that average 401(K) and IRA balances rose 4 percent and 5 percent, respectively, in the first three months of this year.
Vanguard said that despite significant market uncertainty last year, nearly a quarter of participants saved at least 10 percent of their income for retirement, and the average savings rate remained at an all-time high of 7.4 percent.
Combined with employer contributions, the average amount of total contributions was 11.3 percent, the company said.
Vanguard also said that participation rates in 401(k) plans reached an all-time high last year, with 83 percent of those eligible to participate in plans through an employer taking advantage of tax-deferred savings accounts.
“It’s encouraging to see a record number of US plan participants saving to secure their financial future,” Vanguard President and CEO Tim Buckley said in a statement.
A separate report released this month from Fidelity showed that the average 401(k) balance in the first quarter of 2023 was $108,200, up from $103,900 at the end of last year.
The increase reflected a broader rally in stock and bond markets this year.
Analysts say the trend is also driven by increased employer contributions and by Generation Z, 11 to 26-year-olds who are more cautious about their savings than older generations.
Gen Z saw their savings grow 34 percent this year compared to the same period in 2022, meaning their average 401(k) balance is now $7,100.
Millennials, ages 27 to 41, have about $44,900 in their accounts, and Gen Xers, ages 42 to 58, have $145,500.
Meanwhile, Boomers, ages 59 to 77, had an average of $215,000 in their 401(K).
The increase in Gen Z savings is because younger people typically have smaller savings, so any increase causes a larger percentage change.
Moreover, it has long been documented that this younger group is financially better off than their elders.
This is partly because they grew up during the economic crash of 2008, which made them more fiscally conservative.
Separately, research by the CFA Institute and the Financial Industry Regulatory Authority (FINRA) found that cryptocurrencies have fueled interest in investing and saving among the generation.
However, the data also revealed a gap between average and median retirement baskets. For example, while Gen Zs’ average 401(K) balance was $7,100, the median was $2,500.
The disparity suggests that a few well-paid savers push the average up.
Kevin Barry, president of workplace investing at Fidelity Investments, said: “We are encouraged to see positive benefits for retirement savers, evidenced by increased account balances, improved savings rates and employer commitment, including helping employees prepare for the future.”
IRAs and 401(K)s are both tax-advantaged retirement accounts, but the former is opened individually by the account holder. A 401(K) is opened and managed by an individual’s employer.
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