Workers contributed an average 7.4% of pay to their 401(k) accounts last year, tying 2021’s high despite the tumultuous markets, according to Vanguard’s annual How America Saves report released on Thursday.
During a year marked by market volatility and losses, retirement savers largely stayed the course in 2022, Vanguard found. Last year, the
S&P 500
lost nearly 20%, U.S. bonds dropped about 13%, and most target-date funds, which adjust their mix of stocks and bonds over time, fell somewhere in between. Yet, only 6% of investors in self-directed retirement accounts traded last year, according to the report, which tracks the behavior of nearly five million Vanguard retirement account participants.
What’s more, savers socked away a healthy amount of their income in 401(k) accounts. Including the company match, the total average contribution rate was 11.3%. Vanguard recommends that investors save 12% to 15% of their pay each year for retirement, including employer contributions, if applicable.
The set-it-and-forget-it design of many retirement plans helps savers stay on track. Three quarters of larger plans automatically enroll new workers, and of those, 69% also automatically invested participants into a balanced fund and automatically increased their contribution rates annually.
Market losses are scary but often short-lived, and those who stayed the course are capturing stocks’ recovery and the start of a new bull market. Historically, whenever the S&P 500 closed 20% above the prior bear low, it gained an average of 14.5% over a five-month period, according to Sam Stovall, chief investment strategist at CFRA Research. While past performance is never a guarantee of future results, “things are looking good,” Stovall says.
Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com
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