Fidelity’s average retirement account balances dropped — the reason why may surprise you
Retirement account balances at Fidelity Investments dipped in the last three months of 2018, but investors weren’t to blame.
The average 401(k) balance was $ 95,600 in the fourth quarter of last year, down from a record $ 106,500 in the third quarter of 2018. Market volatility was mostly the reason for the 10% drop in 401(k) balances, and not because savers were pulling their money out of their accounts. Balances, for the most part, just naturally decreased because of volatility, the company said. Other reasons for the lower balances include retirees using their funds for their intended purposes and the introduction of accounts from new and young employees starting to save from scratch.
Individual retirement accounts fell 11% from the last quarter, to $ 98,400, and 403(b) and tax exempt accounts dropped 10% during the same period to $ 78,700. About a fifth of workers had outstanding 401(k) loan balances, the lowest level since the second quarter of 2009. Fewer workers (9.4%) initiated loans as well.
This is a far cry from just one year ago when retirement account balances had been on an upward run and investors were boasting on social media when their balances hit $ 1 million.
In fact, the number of these IRA and 401(k) millionaires tracked by Fidelity were down at the end of the fourth quarter.
See: Should you have your entire 401(k) in a target-date fund?
The report has a silver lining. Not only did a majority of investors keep their portfolio as is — only 5.6% made changes to their investments during the fourth quarter — but more than 99% of workers (the highest quarterly percentage in eight years) continued contributing to their 401(k) plans. “We are seeing less panic set in when there are downturns in the market,” said Meghan Murphy, vice president of Fidelity Investments.
Although market declines are a normal part of investing, they scare investors (especially after a decadelong bull market, as the U.S. has just experienced). Young savers need not think too much about the roller coaster their portfolios are on, but near-retirees do have reason to be concerned, considering they’ll need that money within the next few years. Without the proper asset allocation or a strategy in place, soon-to-be retirees could risk losing thousands of dollars of their nest egg, which could force them to keep working and delay their retirement date.
Retirement accounts will be mostly affected by market volatility when much of their portfolios are invested in equities. With proper diversification, however, where they’re invested in various types of equities as well as bonds, they wouldn’t be hit as hard (although they’d likely still see an impact). 6
Also see: 5 questions worried Americans will ask during the Dow’s wild ride
Market volatility is not going away. Analysts have mixed expectations for the next few years, with some who are cautiously optimistic of a gainful market, and others anticipating a bear market soon.
Investors who scare easily can take a few precautions, including putting aside a year’s worth of living expenses (or two) and not obsessively checking their balances. One of the best strategies is to continue contributing to the account when possible.