Why are people losing money in their 401k?
Why your 401(k) might be losing value. There are several reasons a 401(k) can lose money. Disruptions to an industry or a recession could hurt stock share prices. If other investors are worried about an economic downturn, they might rush to sell their stocks, sending share prices plummeting.
Stock markets are inherently volatile, and your 401K, which is likely invested in a mix of stocks and bonds, can fluctuate in value depending on market conditions. Example: If the stock market experiences a downturn, the stocks within your 401K portfolio may lose value, reflecting in a lower 401K balance.
If you want to safeguard your retirement portfolio against future recessions or market declines, consider allocating some of your 401(k) toward target-date funds (TDFs) when things are more stable. TDFs are a class of mutual funds whose holdings become more conservative as they approach the target date.
The odds are the value of your retirement savings may decline if the market crashes. While this doesn't mean you should never invest, you should be patient with the market and make long-term decisions that can withstand time and market fluctuation.
A 401(k) usually limits you to investment options your employer selects. This isn't always a bad thing. If you're not sure how to choose the right investments for yourself, a few preselected options can make your decision a lot easier. But a 401(k) isn't worth it if none of the investments appeal to you.
Does a 401(k) recover after a recession? Your 401(k) can recover after a recession if you give it enough time to regain losses. Historically, the stock market has always recovered from recessions to eventually reach new highs. In fact, your 401(k) may begin to recover before the recession ends.
Combined losses in stocks and bonds fed a steep decline in the value of the average boomer's 401(k), 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. By mid-2023, the average boomer account had recovered to $220,900, 12% below the 2021 high.
If the dollar collapses, your 401(k) would lose a significant amount of value, possibly even becoming worthless. Inflation would result if the dollar collapsed, decreasing the real value of the dollar when compared to other global currencies, which in effect would reduce the value of your 401(k).
Money saved in a qualified retirement account, such as a 401(k) plan, is typically protected from private creditors as long as the money remains within the account. The IRS, however, may come after retirement funds to pay back taxes or other federal obligations.
| Age range | Average balance | Median balance |
|---|---|---|
| 25-34 | $30,017 | $11,357 |
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
Should I panic if my 401k is losing money?
If your 401(k) is losing money, consider how much time you have before you plan to retire. If you're closer to retirement, you may want to talk to a benefits manager or contact the brokerage to see if you can reallocate your portfolio so that it's invested in less risky stocks.
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.
The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.
Fidelity Investments should know, as it boasts more than $11 trillion in assets under management and more than 43 million investors served -- many via 401(k) accounts. According to Fidelity, there were 378,000 millionaires with 401(k) accounts in the second quarter of 2023, up 10% from the year-earlier period.
“Rich Dad Poor Dad” author Robert Kiyosaki isn't a fan of traditional retirement savings plans because he doesn't think they are a safe place to park your money. In a recent tweet, he predicted that 401(k) plans and IRAs will soon be “toast,” and shared that his previous predictions have usually come to fruition.
Good alternatives include traditional and Roth IRAs and health savings accounts (HSAs). A non-retirement investment account can offer higher earnings but your risk may be higher.
| Age | Average Account Balance | Median Account Balance |
|---|---|---|
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
| 65+ | $232,710 | $70,620 |
As a rule of thumb, Fidelity Investments suggests that at age 50, you should have approximately six times your annual salary in your 401(k) and by age 60 eight times.
For those who stayed the course, account values fully bounced back within three years, or by the end of 2010. Those with traditional allocations — such as 60% stocks, 40% bonds — fared particularly well, Roy noted.
The stratospheric inflation, brought on by government spending, borrowing, and printing too much money, has further eroded the value of 401(k) plans by $16,200 on average, for a real (inflation-adjusted) loss of around $33,200, or 24.8%.
How many people have over $1 million in their 401k?
All told, there were 422,000 retirement savers in Fidelity 401(k) plans sporting balances of seven figures and beyond as of Dec. 31, up from 349,000 at the end of September and 299,000 at the end of 2022. There were also 391,562 IRA millionaires on Dec.
The number of people in Fidelity's millionaires club remains relatively small — 1.8 percent of 401(k) participants and 2.61 percent of IRA holders — but they demonstrate a lot of positive behaviors that other investors should follow, such as not panicking when there's a market downturn.
Surrendering to the fear and panic that a market crash elicits can cost you. Withdrawing money early from a 401(k) can result in hefty IRS tax penalties, which won't do you any favors in the long run. It's especially important for younger workers to ride out the market lows and reap the rewards of the future recovery.
We expect 2024 to be a year of diverging trends for the dollar. It will likely move lower on a broad trade-weighted basis early in the year but stabilize as the year progresses. Although we expect a general downward drift for the dollar, performance of individual currencies will likely vary widely.
In 2023, the US dollar has gone through some troubles with inflation and concerns of a recession, but it remains one of the most secure currencies in the world. The US dollar shows no sign of losing its place as the world's reserve currency, and is still $5.6tn ahead of China with its GDP.
