The financial markets in the past year presented challenges for investors, leading to concerns about retirement savings among many Americans. The combination of market volatility and persistent inflation prompted worries about the stability of retirement funds. However, despite the downturn, there were positive signs of resilience among investors. This article provides an overview of the average American’s retirement savings and examines the market performance in 2022 and the first quarter of 2023.
Retirement Savings Report
According to Alight’s 2023 Universe Benchmarks Report, the average balance of defined contribution retirement plans decreased from $144,280 at the beginning of 2022 to $111,210 by the end of the year. Furthermore, the median plan balance dropped to $23,818, the lowest value observed in over a decade. Investors experienced a shocking median return of -14.7% in 2022.
Despite these setbacks, Alight’s report revealed some positive trends. Only 3% of plan participants stopped contributing, while the number of individuals increasing their contribution rates exceeded those who decreased their savings. The report highlighted that most participants resisted making hasty investment decisions during this challenging period.
Current Market Outlook
The markets have shown signs of improvement in 2023. As of July 10, the S&P 500 has gained 15% year-to-date, while the NASDAQ has surged by 30%, according to MarketWatch. This positive momentum has contributed to a rise in total U.S. retirement assets, which reached $35.4 trillion as of March 31, 2023. This represents a 3.5% increase from the end of 2022, as reported by the Investment Company Institute.
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Breakdown of Retirement Assets
Individual retirement accounts (IRAs) accounted for $12.5 trillion in assets by the end of the first quarter of 2023, reflecting a 4.3% increase from the previous quarter. Meanwhile, defined contribution (DC) plan assets reached $9.8 trillion, indicating a 5% growth from December 31, 2022. Government-defined benefit (DB) plans, including federal, state, and local government plans, held $7.7 trillion in assets by the end of March 2023, representing a 0.5% increase from the previous quarter.
Conclusion
While the past year’s market challenges led to a decline in average retirement savings balances, there are positive indications of resilience among American investors. Despite a shocking median return of -14.7%, most plan participants remained committed to their retirement contributions.
Furthermore, the current year has shown promising market performance, with the S&P 500 and NASDAQ experiencing significant gains. As retirement assets continue to rebound, it will be interesting to observe whether workers return to saving at higher rates, given falling inflation rates and the gradual return to pre-pandemic life.
