Despite 39% of Americans increasing their 401(k) contributions in 2022, the average balance plummeted 20%. This was due to the stock market having one of its worst years, as well as inflation reaching record highs. According to Bank of America, the average contribution rate decreased from 6.6% in December 2021 to 6.4% in December 2022.
Vanguard revealed that the average participant account balance at the end of 2022 was $112,572 – a 20% decrease from the previous year. The median balance was $27,376, a 23% decrease. While the top range of accounts skewed this picture, Vanguard also looked at the median account, which decreased 23%.
In spite of the decrease in balances, 39% of participants increased their deferral rate – the amount of their paycheck which is moved into their 401(k) account. More than half of the increases were due to the plan's annual automatic escalation, while many others were initiated independently.
The market was hit hard by record-high inflation, economic uncertainty, and aggressive interest rate hikes from the Federal Reserve. All three of the major indexes had their worst year since 2008 – with the S&P 500 Index dropping 19.4%, the Dow Jones Industrial Average sinking 8.8%, and the Nasdaq Composite Index losing 33.1%.
Despite the negative market performance, Vanguard's report showed that participant behavior in retirement plans remained in line with previous years. Hardship withdrawals still remained a small share of all participants, with 2.8% taking a withdrawal in 2022 compared to 2.1% in 2021. Additionally, the proportion of participants in professionally managed allocations increased to 66%, and 79% of participants maintained a balanced strategy, up slightly from 78% in 2021.
The 25 states with the lowest cost of living in 2022 were also revealed, using data Stacker culled from the Council for Community and Economic Research.
0. “Average 401(k) dropped 20% in 2022 – despite 39% of Americans increasing their contributions” Daily Mail, 17 Feb. 2023, https://www.dailymail.co.uk/news/article-11764683/Average-401-k-dropped-20-2022-despite-39-Americans-increasing-contributions.html
1. “401(k) Contribution Rates Are Down. Here's Why That's a Problem” The Motley Fool, 12 Feb. 2023, https://www.fool.com/retirement/2023/02/12/401k-contribution-rates-are-down-heres-why-thats-a
2. “Average 401(k) balances dropped 20% in 2022 — but few investors flinched, Vanguard research shows” msnNOW, 17 Feb. 2023, https://www.msn.com/en-us/money/markets/average-401-k-balances-dropped-20-in-2022-but-few-investors-flinched-vanguard-research-shows/ar-AA17CSDf
3. “The Average 401(k) Fell By an Obscene Amount in 2022” News-Daily.com, 18 Feb. 2023, https://www.news-daily.com/arena/the-average-401-k-fell-by-an-obscene-amount-in-2022/article_69941f58-6a5c-57f6-9419-4271b2373e6d.html