Why 401(k), IRA balances fell for some millennial, Gen X investors

Retirement balances for midcareer workers declined between 2019 and 2022, despite gains on financial assets like stocks over that period, according to new research.

However, the loss isn’t necessarily as bad as it may initially seem, financial experts said.

Median combined 401(k) plans and individual retirement account balances for people aged 35 to 44 declined to $50,000 in 2022 from $63,500 in 2019, according to a recent study by the Center for Retirement Research at Boston College, which analyzed triennial data from the Federal Reserve’s recently issued Survey of Consumer Finances.

Savers in the analysis span two generations: older millennials and younger members of Generation X.

The CRR report analyzed balances among working households with a 401(k) plan. The balances aren’t adjusted for inflation — which touched a 40-year high in 2022 and eroded the buying power of that money.

Meanwhile, retirement balances for older age groups increased over the same period: Savings for 45- to 54-year-olds jumped to $119,000 from $105,800, while those for 55- to 64-year-olds increased to $204,000 from $144,000, the study found.

At first glance, falling balances among younger savers doesn’t make sense. U.S. stocks had a nearly 25% return from 2020 to 2022, according to the study — and younger savers tend to be tilted more heavily toward stocks due to their longer investment time horizon.

Investment-grade U.S. bonds lost 6.5% over that period.

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Falling retirement balances for younger households is partly for a good reason, though: The share of Americans age 35 to 44 who have access to a 401(k) plan at work increased by over two percentage points from 2019 to 2022, said Anqi Chen, assistant director of savings research at the Center for Retirement Research and a co-author of the report.

Since new, young savers tend to have small 401(k) balances, they dragged down the median balances for the whole age group, Chen said.

The share of employers that automatically enroll new workers has gradually increased over the years, and some even enroll existing workers. Fifteen states had also created so-called auto-IRA programs as of June 30, according to the Georgetown University Center for Retirement Initiatives; the programs generally require businesses to offer a workplace retirement plan or facilitate automatic enrollment into a state retirement plan.

As more employers adopt retirement plans and auto-enrollment, more people “will be scooped up who wouldn’t otherwise actively participate,” said David Blanchett, a certified financial planner and head of retirement research at PGIM, the asset management arm of insurer Prudential Financial.

Still, nearly half of Americans don’t have access to a workplace retirement plan.

The workers who do save in a 401(k) aren’t representative of the average American, Blanchett said. Such savers are in the top 20% of the income distribution, and are much wealthier than the average person, he said.

Another potential explanation for declining balances among 35- to 44-year-olds: The share of these households holding stocks in non-retirement accounts jumped to 20% from 14%, a “pretty substantial” increase, Chen said.

It’s unclear if that increase cannibalized savings in retirement accounts, Chen said.

That wouldn’t necessarily be bad, since nonretirement money is still a bucket of savings, Chen said.

However, retirement savings is generally locked up for the long term, and people saving in non-retirement accounts may be losing money to taxes that they otherwise wouldn’t in tax-preferred retirement accounts, she said.

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