(Photo: Shutterstock)Many people begin to internalize the idea of volatile markets, inflation and the prospect of recession. A new Fidelity Investments Third Quarter Retirement Analysis shows that the percentage of individuals with negative feelings about their finances stands at 32%, which is higher than those with positive feelings at 30%.
A year ago, the numbers were quite different when workers who felt positive about their finances (45%) were more than double the percentage of those who felt negative (22%). Average 401(k) balances fell from $126,100 at the end of Q3 2021 to $97,200 in Q3 2022, down 22.9%.
“The market has taken some dramatic turns this year, including last October’s best month since 1976,” says Kevin Barry, President of Workplace Investing at Fidelity Investments. “Retirement savers have wisely chosen to avoid tragedy and continue to make smart long-term choices. This is important because one of the most essential aspects of a good retirement savings strategy is contributing regularly enough – in up, down and sideways markets – to help you reach your goals.
Although average account balances have declined, the data suggests that retirement savers continue to focus on the long term: 401(k) total savings rates have remained high, the number of IRAs on the platform form of Fidelity continued to rise and the percentage of employees with 401(k)(k) loans remained low for a sixth consecutive quarter.
Additionally, the analysis notes, Gen Z 401(k) savers increased their balances this quarter by 1.2% from last quarter. In Q3, 85% of Generation Z savers have all of their 401(k) savings in target date funds.
But some of these investors are experiencing inflation and recession for the first time. “It’s important to keep in mind that younger generations have experienced deep uncertainty in a relatively short time,” notes Michael Shamrell, vice president of thought leadership, Fidelity Investments. “Beyond inflation, they have also been impacted by the pandemic as well as great uncertainty in the markets. Indeed, according to a recent study we conducted on the State of retirement planning, nearly half (45%) of under-36s said they saw no point in saving for retirement until things got back to normal. Perhaps that’s why 39% of the ‘next generation’ (21-36 year olds) also say they plan to retire later than planned.
The majority of retirement savers are still not making changes to their asset allocation. Only 4.5% of 401(k) and 403(b) savers changed asset allocation in Q3, less than the 5.0% who did so in Q2 and those who changed in Q3 2021 (4.8%). Among savers who made changes in the third quarter, about 85% made only one; the main change was to shift savings to more conservative investments (29%).
As expected, a third straight quarter of market volatility has impacted account balances, but the encouraging news is, despite growing negative overall consumer sentiment, one area where people have yet to rein in concerns the pension saving. Additionally, this quarter’s analysis includes new Viewpoints Data and some internal Fidelity data on the impact that continued contributions can have, even over a relatively short period of time.