Credit to MarketWatch, Fidelity Investments, and Chris Chow/USA Today for their data and insights.
According data from Fidelity Investments, Baby boomers are “underwater” in recovering retirement account balances compared with millennials.
The 401k account balances of baby boomers were nearly $30,000 lower in June 2023 than they were by the end of 2021, showing that those in or near retirement are having a harder time recovering financial losses than younger generations. This is according to data from Fidelity Investments, as reported by USA Today.
“By the midpoint of 2023, the average millennial saver had made up all of their losses from the previous year,” the report said. “The average 401K balance for millennials stood at $48,300 through June 30, up from $48,000 at the close of 2021.”
However, baby boomers’ average 401K balances stood at $220,900 by June 30, compared with $249,700 at the end of 2021, the data showed.
Part of the challenge comes from a relatively flat stock market. The Dow Jones Industrial Average is trading at around 33,000, which is comparable to its place at the beginning of 2023. In addition to a “fizzled” stock market according to one financial planner who spoke to USA Today, the bond market is also struggling.
“Bonds lost 13.7% of their value, according to the Vanguard Total Bond Market Index,” USA Today reported. “Inflation pushes that figure to 20%, the worst bond return in 97 years, according to Nasdaq.”
In a “normal” market, bonds can serve as a stabilizer when stocks take a hit, but that was not the case in 2022, according to Andy Baxley, a Chicago-based financial planner who spoke to the outlet.
Double-digit losses in both stocks and bonds made 2022 a historical outlier year, according to a Deutsche Bank analyst who spoke to MarketWatch this past January.
“And that is why older investors are suffering,” the USA Today reported. “Common wisdom instructs that retirement savers should gradually pivot from stocks to bonds as they age so that after retirement, their balance won’t waffle dramatically from year to year.”
Since older investors typically have a higher share of bonds in their portfolios, a historically bad year for bonds translates into a historically bad year for older investors, on average.
“Combined losses in stocks and bonds fed a steep decline in the value of the average boomer’s 401K, from $249,700 at the end of 2021 to a low of $197,400 in the autumn of 2022, a drop of more than 20%, according to Fidelity,” the report said. “By mid-2023, the average boomer account had recovered to $220,900, 12% below the 2021 high.”
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