Understanding Retirement Saving Trends and Strategies

Ongoing economic uncertainty and an evolving labor market drove change across the benefits landscape in 2022, Fidelity Investments conducted a study that gives us some insight to evaluate and make plans.

Here are some key insights and tips to help consumer investors navigate their retirement savings journey:

Positive Market Conditions and Contributions: Average workplace savings account balances increased in Q4 2022, driven by improving market conditions and continued contributions from both employers and employees. Despite concerns about the rising cost of living, total savings rates (employee contributions + employer match) remained solid.

Long-Term Savings Benefits: Individuals who have been in the same plan with the same employer for an extended period saw positive impacts on their account balances due to long-term market performance. Those who have been in their plan continuously for at least 15 years experienced a 46% increase in average account balance influenced by market trends.

Responsible Asset Allocation: Despite ongoing economic concerns, retirement savers did not make significant changes to their asset allocation in 2022. This indicates a level of consistency and discipline among investors. Furthermore, over a third of savers increased their contribution rate over the past year.

Enhanced Plan Design: Employers are actively exploring plan design features to improve savings efforts. The percentage of plans offering auto-enrollment, workplace-managed accounts, and Roth options increased in 2022. These features can simplify and enhance retirement savings for employees.

Industry-Specific Insights: Different industries exhibit varying savings behaviors and plan designs. For example, more than half of 401(k) plans in the airline industry offer a managed account option, while employees in the retail, construction, and media/entertainment industries showed an increased savings rate in Q4 2022.

IRA Accounts and Retirement Savings: Approximately 10.6 million people are saving and investing for retirement through 13.6 million IRA accounts. While the number of accounts has grown by 10.2% between Q4 2021 and Q4 2022, total assets have experienced a 15.4% drop. The number of accounts with contributions remained relatively stable during this period.

To tackle the challenges posed by inflation and alleviate financial stress, Fidelity suggested considering the following tips:

Be Intentional with Spending: Identify essential and non-essential expenses to make informed choices about where to spend your money. Cutting out unnecessary expenses can help improve your financial situation.

Manage Credit Card Usage: Avoid relying too heavily on credit cards for purchases that exceed your budget. Accumulating excessive credit card debt can be burdensome. Use credit responsibly.

Adapt Your Budget: If your current budget is not working effectively, don't hesitate to make necessary adjustments. Budgeting should be an ongoing process that evolves with your financial goals and circumstances.

Prioritize Retirement Savings: While it may be tempting to reduce retirement contributions to address immediate financial needs, remember that continuing to save for retirement is crucial in combating inflation over the long term.

Build an Emergency Fund: Start by setting aside what you can afford and aim for at least 5% of your paycheck. Having an emergency fund provides a financial safety net during unexpected challenges.

Diversify Your Investments: Ensure your investment plan is diversified and aligns with your retirement goals. For those nearing retirement, consider appropriate insurance and estate planning strategies to address concerns related to rising prices, lifestyle changes, and leaving a legacy.

Seek Expert Guidance: Don't hesitate to seek help from financial professionals.

By staying informed about trends, practicing responsible financial habits, and seeking guidance when needed, consumer investors can make informed decisions and work towards a secure and fulfilling retirement.