IRA balances drop nearly 25% amid market volatility: Here’s how to protect your retirement savings

IRA and 401(k) balances fell in the third quarter of 2022. (istock)

According to Fidelity Investments’ Q3 2022 Retirement Analysis, IRA and 401(k) balances have been hit by recent market volatility.

According to the report, the average IRA balance in the third quarter of 2022 was $101,900, down 24.9% from the third quarter of 2021. The average 401(k) balance also fell 22.9% year-over-year to $97,200 in the third quarter. Fidelity also noted that the average 403(b) account balance fell 21% year-over-year to $87,400.

The news comes as many Americans do not feel optimistic about their financial future. In fact, 32% of pensioners have negative feelings about their finances, while only 30% have positive feelings, according to the report. A year ago, 45% of Americans thought positively about their finances, while only 22% had negative feelings.

“Unsurprisingly, continued market fluctuations and concerns about inflation continue to cause financial stress among retired savers,” Fidelity said in its report.

If you want to prepare for retirement in today’s economy, consider paying off subprime debt with a personal loan to reduce your monthly expenses. Visit Credible to compare offers from multiple lenders without affecting your credit score.

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Why should you continue to contribute to your retirement savings in volatile markets?

Even in unstable market conditions, financial advisors advise people to continue contributing to their retirement plans. Investing when stocks fall can give investors the advantage of dollar-to-cost averaging. This allows people to buy more shares when prices are low and less when prices are high.

Even bear markets or drops of 20% or more in a major stock 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. The Hartford Funds report said the average duration of a bear market is 9.6 months, while the average bull market, when stocks rise, lasts 2.7 years.

Additionally, investors who stop contributing to their IRAs or 401(k)s during market downturns will 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 miss out on this advantage if they stop investing in workplace retirement plans.

One type of investment that was hot last year is real estate, where home values ​​are rising as demand for homes continues to rise. Struggling homeowners may consider tapping into this equity through cash out refinancing. Visit Credible to speak with a mortgage professional to see if this option is right for you.

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What are the IRA contribution limits for 2023?

According to the Internal Revenue Service (IRS), the 401(k) contribution limit for 2023 is $22,500. That increased from $20,500 in 2022. Those aged 50 or older can contribute from $6,500 in 2022 to an additional $7,500 in 2023. Contribution limits to IRAs range from $6,000 in 2022 to $6,500 in 2023. Those 50 years old or older can make additional compensation contributions of $1,000.

Fidelity advises people to invest 15% of their income each year in 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 whenever possible can go a long way.

For some, monthly expenses like student loan payments can get in the way of your retirement savings. You may want to consider refinancing your private student loans to lower your low interest rate. Visit Visit Credible to find your personalized interest rate in minutes without affecting your credit score.

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