The average 401(k) balance plunged by 20 percent in 2022 despite many Americans increasing their contributions as stocks suffered one of the worst years ever.
A report by Vanguard, one of the world’s largest investment companies, reveals its average customer 401(k) account balance was $112,572 at the end of last year – down one fifth on 2021.
But throughout 2022, 39 percent of customers increased their deferral rate – the amount of their paycheck which is moved into their 401(k) account.
The contrast between rising contributions and falling balances lays bare the battering that markets took last year, amid a mixture of record inflation and big hikes in interest rates.
Dave Stinnett, head of strategic retirement consulting at Vanguard, said it was reassuring that savers remained committed to their accounts despite the economic challenges.
‘Despite economic headwinds, we were pleased to see that participant behavior in retirement plans remained in line with previous years, and most participants continued to maintain a long-term view,’ he said.
The main US stock indexes ended 2022 with their steepest annual losses since 2008 against the backdrop of the Fed’s fastest pace of rate hikes since the 1980s.
The benchmark S&P 500 shed 19.4 percent last year, marking a roughly $8 trillion decline in market cap, while the tech-heavy Nasdaq fell 33.1 percent.
The Dow Jones Industrial Average declined by 8.8 percent.
Vanguard’s analysis reveals that 2.8 percent of 401(k) account holders made hardship withdrawals last year, compared to 2.1 percent in 2021.
Stinnett said that ‘may have been driven by individuals’ personal finance situations, with U.S. households facing some tough economic challenges in 2022.’
Soaring inflation hammered many Americans last year and remains worryingly high, recent figures reveal.
New figures out Tuesday showed consumer inflation remained high at 6.4 percent last month, while a Labor Department report Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
Goldman Sachs and Bank of America said they expect the US Federal Reserve to raise interest rates three more times this year, lifting their estimates after data pointed to persistent inflation and a resilient labor market.
Markets had been predicting two more quarter-point rate hikes, in March and May, but the latest forecasts suggest the Fed could implement a third increase at its June meeting, before leveling off.
But the two banking giants pointed to recent data showing that the fight against inflation could be stalling, as the job market remains red-hot, putting upward pressure on wages.
January’s 6.4 percent annual increase in the consumer price index was the lowest inflation rate since October 2021, but it also represented a smaller drop than expected from December’s number.
In June last year, the inflation rate hit 9.1 percent.
Meanwhile, wholesale inflation accelerated in January by the biggest margin in seven months, according to data on Thursday, and retail sales surged hotter than expected last month.
‘In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%,’ Goldman Sachs economists led by Jan Hatzius said in a note dated Thursday.
