IRA balances dropped nearly 25% amidst market volatility: Here's how to protect your retirement savings
High inflation and other economic concerns have Americans worried about their retirement savings
IRA and 401(k) balances dropped in the third quarter of 2022.
IRA and 401(k) balances took a hit due to recent market volatility, according to Fidelity Investments’ Q3 2022 Retirement Analysis.
The average IRA balance was $101,900 in the third quarter of 2022, down 24.9% from the third quarter of 2021, according to the report. The average 401(k) balance also decreased to $97,200 in the third quarter, down 22.9% from the year before. Fidelity also noted that the average 403(b) account balance dropped to $87,400, down 21% from the previous year.
The news comes as many Americans are not feeling optimistic about their financial future. In fact, 32% of retirement savers have negative feelings about their finances and only 30% have positive feelings, the report said. A year ago, 45% of Americans felt positive about their finances, while only 22% felt negative feelings.
"Not surprisingly, ongoing market swings and concerns about inflation continue to cause financial stress among retirement savers," Fidelity said in its report.
If you are looking to prepare for retirement in today's economy, consider paying down high-interest debt with a personal loan to lessen your monthly expenses. Visit Credible to compare offers from multiple lenders without affecting your credit score.
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Why you should keep contributing to your retirement savings in volatile markets
Even in unstable market conditions, financial advisors recommend people keep contributing to their retirement plans. Investing when stocks go down may give investors the benefit of dollar-cost averaging. This allows people to buy more shares when prices are low and less when they are higher.
And even bear markets, or declines of 20% or more in a major stock market index, tend to be short-lived. Since 1928, there have been only 26 bear markets in the S&P 500 index, a common stock market benchmark, according to research by investment management firm Hartford Funds. And the average length for a bear market is 9.6 months, while the average bull market when stocks are rising lasts 2.7 years, Hartford Funds said in its report.
In addition, investors who stop contributing to their IRAs or 401(k)s during market downturns would miss out on significant tax benefits. Contributions to a traditional IRA or a traditional 401(k) are tax deductible. This means it lowers your taxable income, potentially resulting in a smaller tax bill. And some companies match employee contributions. Workers would miss out on this benefit if they stop investing in their workplace retirement plans.
One form of investment that has been hot over the past year is real estate, which has seen home values soar as demand continues to rise for homes. Homeowners who are struggling can consider tapping into that equity through a cash-out refinance. Visit Credible to speak with a mortgage expert to see if this option is right for you.
What are the IRA contribution limits for 2023?
The 401(k) contribution limit for 2023 is $22,500, according to the Internal Revenue Service (IRS). That’s up from $20,500 in 2022. Those aged 50 or older can contribute an additional $7,500 in 2023, up from $6,500 in 2022. The contribution limits to IRAs in 2023 is $6,500, up from $6,000 in 2022. Those age 50 or older can make additional catch-up contributions of $1,000.
Fidelity recommends people contribute 15% of their income each year toward a tax-advantaged retirement fund such as an IRA or 401(k). But while not everyone can contribute this amount, even starting small and increasing when possible can go a long way.
For some, monthly expenses such as student loan payments could get in the way of your retirement savings. You can consider refinancing your private student loans in order to lower your lower interest rate. Visit Visit Credible to find your personalized interest rate in minutes without affecting your credit score.
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