It would more than fair to say that 2022 was a tough year for investors. Recession fears and inflation drove the stock market into several downward spirals, and that's had a large impact on retirement savers in particular.
As of the fourth quarter of 2021, the average 401(k) plan balance was $130,700, reports Fidelity. But as of the fourth quarter of 2022, the average 401(k) balance had shrunk to $103,900. That's a difference of almost $27,000.
Image source: Getty Images.
If your 401(k) plan has taken a large hit over the past year, you may be feeling overwhelmingly discouraged. But it's important to think long term when it comes to your 401(k) balance -- and not get too thrown by the events of the past year.
It's not you, it's market conditions
Seeing your retirement savings balance take a plunge can be disheartening. But one thing you must remember is that if your 401(k) is down right now, it's most likely not because you made a bad call on an investment or did something wrong.
Rather, when the broad market takes a dive, retirement plans across the board tend to follow suit. So if you're sitting on a lower balance, take some comfort in the fact that you're not alone.
It's also important to realize that the stock market is apt to have some pretty lousy years within the grand scheme of your total investing window. But hopefully, that window is lengthy. And if you're many years away from retirement at this point, then there's really no reason to panic over a lower balance in your 401(k). Chances are, if you don't make changes to your existing investments, they'll regain the value they lost in 2022 over time.
In fact, it's important to continue to fund your 401(k), even with the market still being fairly volatile. It's easy to see why you may be inclined to cut back on 401(k) plan contributions this year. And to be clear, if inflation is making it difficult to cover your basic expenses, you might have to scale back in your 401(k) to ensure that your immediate needs are met.
But if you can afford to keep pumping money into your 401(k), do so. Not only might that snag you a tax break (assuming you're participating in a traditional 401(k) plan, not a Roth), it can also set the stage for a solid wealth-building opportunity.
That's because the money you contribute today can be put to work in the form of the various funds you invest in. And the more time you give your money to grow, the better.
Will 401(k) balances increase in 2023?
There's a good chance they will. The average 401(k) balance is already up from the third quarter of 2022, when it sat at just $97,200.
That said, we may be in for another volatile year as far as the stock market goes, so it also won't be shocking to see 401(k) balances take another tumble in the course of 2023. But once again, that shouldn't be something that sends you into a panic.
Saving and investing for retirement is something you'll ideally do over many, many years. And if 2023 doesn't end up being a great one for your 401(k), you can always look to 2024 and beyond.
