In the world of retirement savings, younger investors have largely recovered from the market turmoil of 2022. Older investors have not.
By the midpoint of 2023, the average millennial saver had made up all of their losses from the previous year, according to data from Fidelity Investments. The average 401(k) balance for millennials stood at $48,300 through June 30, up from $48,000 at the close of 2021.
Baby boomers, by contrast, remain underwater. The average 401(k) account for boomers held $220,900 at the end of June, compared with $249,700 at the end of 2021.
Catherine Collinson, CEO and president of the non-profit Transamerica Institute and Transamerica Center for Retirement Studies, said that 2018 “was a very hard year for investors.”
Stocks have moved plenty in 2023, if not necessarily up. The Dow Jones Industrial Average is trading in the 33,000 range, near where it started the year.
“There was supposed to be a rally,” said Lili Vasileff, a certified financial planner in Greenwich, Connecticut. “It hasnt happened. If anything, its fizzled. “.
But older investors have faced a unique challenge this year: recovering from last year when both stocks and bonds took a bath.
People who are saving for retirement didn’t have a good year in 2022. If you’ve been nervously watching your 401(k) balance grow, you’re not alone. I’ve been keeping an eye on retirement trends for years, and 2022 stands out as a particularly bad year for all retirement accounts.
The Painful Reality: 401(k) Performance in 2022
Let’s get right to the point: 202022 was a terrible year for retirement accounts. According to Fidelity Investments, which is the largest provider of 401(k) plans in the country, the average 401(k) balance dropped by 103% that year, reaching only $103,900 by the end of the year.
Individual Retirement Accounts (IRAs) didn’t fare much better with the average balance plummeting 20% to $104000 in the fourth quarter of 2022.
As Kevin Barry, president of workplace investing at Fidelity, put it: “Given all the stresses in the world today, such as natural disasters and geo-political events, Americans continue to confront challenging times in our economy.”
Why 2022 Was Historically Awful
What made 2022 so uniquely terrible for retirement accounts? Several factors created what some analysts called “the biggest outlier year in history”:
- Stock market decline: The S&P 500 shed 18.6% of its value
- Inflation impact: After adjusting for inflation, stock losses swelled to 25%
- Bond market collapse: Bonds lost 13.7% of their value (20% after inflation)
- Double whammy effect: Both stocks AND bonds declined simultaneously
This last point is crucial – normally, bonds serve as a hedge against stock market volatility. When stocks go down, bonds typically remain stable or even increase in value. But in 2022, as Jim Reid of Deutsche Bank noted, there was “nowhere to hide.”
Who Got Hit Hardest?
The pain wasn’t distributed equally across all retirement savers. Based on data from Fidelity and news from USA Today, here’s how each generation did:
Baby Boomers
- End of 2021: Average 401(k) balance of $249,700
- Low point in 2022: $197,400 (20% drop)
- Mid-2023 recovery: $220,900 (still 12% below 2021 peak)
Generation X
- End of 2021 to mid-2023: Down 8% to $153,300
Millennials
- End of 2021 to mid-2023: Up 1% to $48,300 (fully recovered)
Generation Z
- End of 2021 to mid-2023: Up 53% to $8,100
The disparity between older and younger investors isn’t a coincidence. It reflects a fundamental principle of retirement investing – asset allocation based on age.
Why Older Investors Suffered More
Conventional wisdom in retirement planning suggests shifting from stocks toward bonds as you approach retirement age. This strategy aims to reduce volatility and protect your nest egg when you no longer have decades to recover from market downturns.
Ironically, this conservative approach backfired in 2022. The bond market experienced its worst performance in nearly a century, with the Vanguard Total Bond Market Index dropping about 15% since fall 2020.
Add to this the fact that many retirees needed to withdraw money in 2022, forcing them to sell assets at depressed values. This “sell low” scenario accelerated the depletion of their savings.
Lili Vasileff, a financial planner, says, “If you take out $5,000 or $7,000 in a bad year, it makes a big difference in how long that money will last.” “.
The Recovery Picture in 2023
So how are 401(k)s doing in 2023? The picture remains mixed:
- Younger investors: Millennials have fully recovered their 2022 losses
- Older investors: Baby boomers remain significantly underwater
- Market performance: Despite predictions of a rally, stock markets have mostly traded sideways in 2023
- Retiree sentiment: 33% of retirees say their finances have worsened since the pandemic began
The anticipated market rally that many hoped would restore retirement balances “hasn’t happened. If anything, it’s fizzled,” according to Vasileff.
The Age Advantage: Young vs. Old Investors
One of the most frustrating aspects of the 2022 downturn is how differently it impacted investors based solely on their age:
Younger Investors
- Can benefit from market downturns by buying assets at lower prices
- Have decades to recover from market volatility
- Continue to add new contributions that boost their overall balance
Older Investors/Retirees
- Must often withdraw money in down markets
- Have limited recovery time before needing the funds
- Miss out on the eventual market recovery for sold assets
Think about it this way – a retiree with $500,000 in savings who needs to withdraw $5,000 monthly ($60,000 annually) would see their balance drop to around $400,000 after market losses and withdrawals in 2022. Once those assets are gone, they can’t participate in future market recoveries.
Are Boomers Making It Worse?
Interestingly, baby boomers might be compounding their problems through investment behavior. Michael Shamrell, VP of thought leadership at Fidelity, describes boomers as “do-it-yourselfers” who are less likely than younger generations to seek professional financial advice.
The Transamerica survey found that fewer than 40% of workers and retirees over 50 work with a financial adviser. Without professional guidance, many may have sub-optimal asset allocations or make emotional investment decisions during volatile markets.
Looking Ahead: A Silver Lining?
Despite the gloomy picture, there may be some positive developments on the horizon. The bond market, which caused so much pain in 2022, could actually provide relief moving forward.
Andy Baxley, a certified financial planner in Chicago, describes it as “short-term pain for a potentially long-term gain.” Rising interest rates, which “decimated” the value of existing bonds, mean new bonds will pay significantly higher interest rates going forward.
The 10-year Treasury yield reached 4.858% in October 2023, the highest since July 2007. These higher yields could help retirement accounts stabilize and grow in the coming years.
What Should You Do Now?
If your 401(k) took a beating in 2022 (and let’s be honest, most did), here are some practical steps to consider:
- Don’t panic sell. Historically, markets recover over time.
- Continue contributing, especially if you’re years away from retirement.
- Review your asset allocation to ensure it’s appropriate for your age and risk tolerance.
- Consider professional advice. A financial adviser can provide objective guidance during volatile times.
- If near retirement, potentially delay major withdrawals if possible to avoid locking in losses.
- Look at tax-loss harvesting opportunities to offset gains elsewhere.
The Good News: Most People Kept Contributing
Despite the financial stress, Fidelity reports that most retirement savers continued contributing to their 401(k)s throughout 2022. The average contribution rate (including employer and employee contributions) held steady at 13.7%, just below Fidelity’s recommended 15% target.
Additionally, only 16.7% of plan participants had outstanding loans from their 401(k)s at the end of 2022, suggesting most savers are taking a long-term view despite short-term volatility.
My Take on the 401(k) Situation
We’ve been through market downturns before, but 2022 was unique in how it impacted both stocks and bonds simultaneously. While younger investors have largely recovered, many baby boomers are still dealing with the consequences.
I believe the most important thing is to avoid making emotional decisions based on short-term market movements. Retirement planning is a marathon, not a sprint, and even severe downturns like 2022 eventually become just another bump in the long-term journey.
For those approaching retirement, this might be the perfect moment to reevaluate your withdrawal strategy and consider working with a financial professional to optimize your remaining investing years.
Remember – market volatility is normal, but abandoning your long-term plan rarely leads to better outcomes. Stay the course, adjust as needed, and focus on what you can control.
Have your retirement accounts recovered from the 2022 downturn? I’d love to hear your experiences in the comments below!
The worst year ever for stocks and bonds?
Stocks shed 18.6% of their value in 2022, as measured by the S&P 500, a loss that swells to 25% after adjusting for inflation, according to a NASDAQ analysis.
Bonds lost 13. 7% of their value, according to the Vanguard Total Bond Market Index. Inflation pushes that figure to 20%, the worst bond return in 97 years, according to NASDAQ.
A quick primer: Companies and governments issue bonds to raise money from investors. Bonds reward buyers with interest payments. The value of a bond rises and falls with its appeal to investors. If the market price goes up, the yield in interest goes down, and vice versa. Bond funds, like the Vanguard index fund, earn money based on both the market price of the bonds they hold and the interest they earn.
Bonds serve as a hedge against stocks. Bond values are comparatively stable, and they tend to rise when stocks fall.
“In a normal year, you would really see bonds serving as ballast in a portfolio when stock prices are falling,” said Andy Baxley, a certified financial planner in Chicago. “There wasn’t anywhere to hide last year, unfortunately.”
Taken together, double-digit losses in stocks and bonds made 2022 “the biggest outlier year in history,” said Jim Reid, head of thematic research at Deutsche Bank, speaking to MarketWatch.
And that is why older investors are suffering.
Common wisdom instructs that retirement savers should gradually pivot from stocks to bonds as they age so that after retirement, their balance won’t waffle dramatically from year to year.
As a result, older investors generally have more bonds in their retirement accounts. And 2022 was a historically bad year for bonds.
Bonds backfired on boomers in 2022
The Vanguard Total Bond Market Index is down about 15% since the autumn of 2020, when it stood near its all-time high, according to Vanguard.
The Dow, by comparison, is trading at roughly 10% below its historic peak, reached in January 2022.
Combined losses in stocks and bonds fed a steep decline in the value of the average boomer’s 401(k), from $249,700 at the end of 2021 to a low of $197,400 in the autumn of 2022, a drop of more than 20%, according to Fidelity.
By mid-2023, the average boomer account had recovered to $220,900, 12% below the 2021 high.
Many retirees feel they are in worse financial shape now than before the pandemic began, even though stocks are trading higher than in 2019.
In an annual Transamerica Retirement Survey, released in September, 33% of retirees said their finances had worsened in those years, while only 9% said they had improved. The Harris Poll conducted the survey, which covered a representative sample of over 50 workers and retirees.
Younger generations have fared better. According to Fidelity data through June 2023, the average Gen X retirement account stands at $153,300, down 8% since the end of 2021. Millennials are up 1%, at $48,300. Generation Z is up 53%, at $8,100.
Fidelity officials caution that those averages are an imprecise tool for measuring gains and losses. Investors come and go, taking their money with them and affecting the value of the average 401(k) account. Some boomers are retired, drawing down their accounts while younger savers build theirs up.
And therein lies another reason why the past year has proven so treacherous for older investors.
What is a 401k!?
FAQ
How much did the average 401k loss in 2022?
Employees felt the sting of persistent economic and market instability in their 401(k)s in 2022, with the average account balance falling roughly 20 percent over the year, according to a pair of recent reports. 401(k) balances ended 2022 down 23 percent from 2021, a report from Fidelity Investments found.
How are 401s doing right now?
Don’t worry just because balances are going down. According to Fidelity, the average 401(k) balance at the end of the first quarter of 2025 was $127,100. That marks a 3% decline from the previous quarter.
What was the best year for a 401k?
While the 2022 plan year was a “down” year in many respects, 2023 was an excellent year for 401(k)s.
What is the average rate of return on a 401k this year?
According to CNBC, there isn’t a single average 401k return this year because it depends on the market conditions and your specific investment choices. However, average returns are in the 5% to 8% annual range, though performance in 202024 and 202025 is still being looked at by firms like Vanguard and Fidelity.
What happened to 401(k) balance in 2022?
The average balance in a 401 (k) plan tumbled 20. 5% in 2022, reducing employee nest eggs to $103,900 at the end of 2022, Fidelity said on Thursday. The average balance in those plans was $130,700 a year ago, according to a financial services company that looked at 22 million retirement plan participants.
How much money can you contribute to a 401K in 2022?
Retirement savers with a 401 (k), 403 (b), most 457 plans and the federal government’s Thrift Savings Plan can contribute up to $20,500 in 2022, a $1,000 increase from the $19,500 limit in 2021. Should I cash out my 401k 2022? In general, you should not cash out your 401 (k). Instead, roll it over into an IRA.
How much is 401(k)/IRA balance in 2022?
The third section reports on 401 (k)/IRA balances. The final section concludes with an assessment of the overall picture. The good news from the 2022 SCF is that 401 (k)/IRA balances for older working households with a plan totaled $204,000 in 2022, compared to $144,000 for comparable households in 2019.
Should I Hold my 401k in 2022?
There are a lot of better choices than holding cash in 2022. Inflation will deteriorate the value of your savings if you decide to stash your cash in a bank account. Over the long run, you’ll be better off investing now, even if expected returns are lower than they’ve been historically. Where should I move my 401k before the market crashes?
What happened to the Dow 401(k) in 2022?
The Dow, by comparison, is trading at roughly 10% below its historic peak, reached in January 2022. Combined losses in stocks and bonds fed a steep decline in the value of the average boomer’s 401 (k), from $249,700 at the end of 2021 to a low of $197,400 in the autumn of 2022, a drop of more than 20%, according to Fidelity.
What happened to the 401(k) in 2021?
Combined losses in stocks and bonds fed a steep decline in the value of the average boomer’s 401 (k), from $249,700 at the end of 2021 to a low of $197,400 in the autumn of 2022, a drop of more than 20%, according to Fidelity. By mid-2023, the average boomer account had recovered to $220,900, 12% below the 2021 high.