Even investors who understand that the stock market is volatile did not feel good about the losses stocks posted during 2022. The Standard & Poor’s 500 Index dropped by nearly 20% and the average workplace retirement plan balance fell from $144,280 at the start of that year to $111,210 by year’s end. Here’s a breakdown of how much money retirement savers lost from these defined contribution plans.
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Alight’s 2023 Universe Benchmarks Report looked at data from almost three million eligible participants spread across 100 retirement plans. The median plan balance fell to $23,818 — the lowest in a decade. The median annual return was -14.7% during 2022.
Other findings from the study were similarly downbeat: The average participation rate in workplace savings plans dropped slightly, from 84% in 2021 to 83% in 2022, while the average contribution rate slipped from 8.6% to 8.3%.
When considering former employees, the rate of those who kept their money invested in the workplace plan dropped from 61% in 2021 to 55% in 2022. Such withdrawals may indicate workers rolled money from their previous employer’s plan to that of a new employer, or into an individual retirement account; it also can include workers cashing out their accounts to keep money on the sidelines, or used it to meet financial obligations.
Despite Challenges, Workers Focused on Long-Term Savings
Still, most workers saving in 401(k)s and other employer-sponsored plans stayed the course, despite being hit by increased living expenses that resulted from high inflation.
“Most people did not make drastic, knee-jerk reactions to their investments,” Rob Austin, head of research at Alight Solutions, said in a statement. “Only 3% of people stopped contributing, and the number of people who increased contribution rates was more than twice the number who decreased their savings.”
And, the percentage of workers eligible for workplace plans with fewer than two years of service increased by 30% during 2022 – an indication that automatic enrollment plans seem to be getting more workers to save for retirement
So far for 2023, markets have been more encouraging, with the broad S&P 500 index up more than 14% by the end of June. Similarly, balances for defined contribution plans, such as 401(k)s, are up for the year, according to the Investment Company Institute, which reported that plan assets were $9.8 trillion at the end of the first quarter, up 5% percent from the end of 2022.
A tough year for the stock market was difficult for participants in workplace retirement accounts such as 401(k)s, where they contribute money toward retirement. Because of the long time horizon most workers have before retirement, plan participants tend to invest much or all of their contributions in stocks to achieve long-term growth after inflation. But that means they also have to weather the inevitable downturns in the market.
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