Retirement Account Balances Dipped 20% in 2022, Trading Lowest in 20 Years

Economic and market challenges may have coalesced for workers in 2022, but retirement plan participants were persistent saving for retirement and trading in their accounts was at the lowest levels in 20 years, new Vanguard Group data finds. Vanguard defined trading, or exchanges, as moving account assets from one plan investment option to another.

Although inflation spiked to 40-year highs and equity and bond markets sagged—effecting historic drawdowns for retirement-plan account balances—workers’ retirement-plan behaviors were largely unaffected, the data showed.

“While there were signs of financial stress, overall, participants’ behavior in retirement plans remained in line with previous years, and most continued to maintain a long-term view,” Vanguard stated in previewing the firm’s upcoming How America Saves 2023 report.

Data for How America Saves is sourced from 5 million defined contribution retirement plan participants in 1,700 Vanguard recordkept plans. As of December 31, 2022, Vanguard’s defined contribution recordkeeping business had $552 billion in assets under management.

Workers were able to continue contributing to their retirement accounts, data showed:

• 2% reduced payroll deferrals to 0;
• 9% decreased retirement contributions;
• 15% increased retirement contributions;
• 24% increased retirement deferral from an annual automatic increase; and
• 50% made no change.

“These behaviors are very much in line with previous years,” Vanguard stated.

Generally, workers remained fairly consistent in their approach last year: 6% of nonadvised participants traded or exchanged assets from their retirement accounts, compared to 8% in 2021 and 15% in 2002, according to the Vanguard data.

“Participants who are pure target-date fund investors benefit not only from continuous rebalancing during volatile markets but are also far less likely to trade when compared with all other investors,” the data preview stated. “Through 2022, only 2% of all pure TDF investors made an exchange, a rate five times lower than all other investors.”

A pure TDF investor is a participant whose entire portfolio is invested in a single TDF.

“We attribute the reduced trading to the increase in pure TDF investors, as only 2% of them traded,” a Vanguard spokesperson said in an email.

With equity and bond markets down in 2022, the average participant account balance decreased by 20% from year-end 2021, data showed. Vanguard also found the average participant account balance was $112,572 at year-end 2022, and the median account balance was $27,376, a 23% decline from the end of 2021.

Vanguard credited workers’ resilience to employers’ increased adoption of automatic enrollment over the last two decades and the prevalence for participants’ allocations to TDFs, which are increasingly used for employers’ qualified default investment alternative.

Among plans that used automatic enrollment, 59% defaulted employees into the plan at a rate of 4% or higher, and nearly 70% of plans automatically enrolled employees into an auto-escalation feature that increased their deferral percentage annually.

As of year-end 2022, 58% of Vanguard plans had adopted automatic enrollment, up from 56% in 2021 and compared to 32% in 2012, the earliest year for which Vanguard provided data, according to the preview. Larger plans of 1,000 or more participants were more likely to implement automatic enrollment, with 76% of plans with at least 1,000 participants using the feature, Vanguard found.

“From both a savings and investment perspective, using thoughtful plan designs and automatic solutions has improved participant outcomes,” Vanguard stated.

The entire Vanguard retirement research report, How America Saves 2023, will be published in June, the firm said.