The average 401(k) fell 20% in 2022, despite 39% of Americans increasing their contributions

The average 401(k) balance plunged 20 percent in 2022 despite many Americans increasing their contributions as stocks suffered one of the worst years on record.

A report from Vanguard, one of the world’s largest investment companies, reveals that the average 401(k) account balance of its clients was $112,572 at the end of last year, a fifth less than in 2021.

But through 2022, 39 percent of clients increased their deferral rate, the amount of their paycheck that is transferred to their 401(k) account.

The contrast between rising contributions and falling balances lays bare the beating markets took last year amid a combination of record inflation and big interest rate hikes.

Dave Stinnett, head of strategic retirement consulting at Vanguard, said it was reassuring that savers remained committed to their accounts despite economic challenges.

The Nasdaq index, which is made up mostly of technology companies, fell 33.89% in 2021

The S&P 500, another of America’s most followed stock indexes, also fell nearly 20%.

“Despite the economic setbacks, we were pleased to see that the behavior of retirement plan participants remained in line with previous years, with most participants continuing to take a long-term view,” he said.

Major US stock indices ended 2022 with their biggest annual losses since 2008 amid the fastest pace of Fed rate hikes since the 1980s.

The benchmark S&P 500 Index lost 19.4 percent last year, marking a decline of about $8 trillion in market capitalization, while the tech-heavy Nasdaq fell 33.1 percent.

The Dow Jones Industrial Average declined 8.8 percent.

Vanguard’s analysis reveals that 2.8% of 401(k) account holders made hardship withdrawals last year, compared to 2.1% in 2021.

Stinnett said it “may have been driven by people’s personal financial situations, as American households face some tough economic challenges in 2022.”

Skyrocketing inflation hit many Americans last year and remains worryingly high, recent figures reveal.

New figures released Tuesday showed consumer inflation held high at 6.4 percent last month, while a Labor Department report Thursday showed the number of Americans filing new jobless claims unexpectedly fell last week. pass.

Goldman Sachs and Bank of America said they expect the US Federal Reserve to raise interest rates three more times this year, raising their estimates after data pointed to persistent inflation and a resilient job market.

Markets had been forecasting two more quarter-point rate hikes, in March and May, but the latest forecasts suggest the Fed could implement a third hike at its June meeting, before stabilizing.

Inflation hit 9.1% last year, adding to the economic hardship Americans are facing.

But the two banking giants pointed to recent data showing the fight against inflation may be stalling as the job market remains red-hot, putting upward pressure on wages.

January’s 6.4 percent annual increase in the consumer price index was the lowest rate of inflation since October 2021, but also represented a smaller-than-expected drop from December’s figure.

In June last year, the inflation rate reached 9.1 percent.

Meanwhile, wholesale inflation accelerated in January by the largest margin in seven months, according to data on Thursday, and retail sales rose more than expected last month.

“In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis point) rate hike in June to our Fed forecast, for a top funds rate of 5.25%. -5.5%”, Goldman Sachs economists led by Jan Hatzius. he said in a note dated Thursday.