The Federal Reserve’s 2022 Survey of Consumer Finances (SCF) offers valuable insights into the changes in family finances over a significant period — from 2019 to 2022. This three-year span includes the tumultuous times of COVID-19 and economic disruption. Furthermore, the year 2022 proved to be challenging for stocks and bonds, impacting investment returns.
Despite these difficulties, it is essential to consider the broader context. The government stepped in with unprecedented fiscal support, ensuring stability in employment rates. Moreover, while there was a temporary drop in the stock market in 2022, it still performed remarkably well compared to 2019. In addition, the 401(k) system continued to evolve and mature during this period.
When examining overall outcomes, it is reasonable to expect improvements in retirement balances across various age and income groups from 2019 to 2022. To gather comprehensive data, the SCF goes beyond information solely about households’ 401(k) holdings. It also includes details about their Individual Retirement Accounts (IRAs). These IRAs are primarily composed of rollovers from 401(k)s and represent a significant portion of retirement account assets (refer to Figure 1).
Retirement Asset Trends for Working Households
The latest report from the 2022 Survey of Consumer Finances (SCF) unveils both positive and concerning developments regarding retirement savings for working households. Notably, for older individuals with a 401(k)/IRA plan, the average balances reached $204,000, a significant increase from $144,000 in 2019 (see Figure 2). However, the situation is less promising for younger households.
Households aged between 45 and 54, experienced a modest growth in median 401(k)/IRA balances, rising from $105,800 to $119,000. Comparatively, this increase has failed to outpace the rate of inflation. Most alarming is the decline in holdings for the youngest group, aged 35 to 44.
Furthermore, the distribution of wealth within working households is anything but equal. While the middle quintile observed not only an increase in their retirement balances but also a rise in the percentage of households with a 401(k) plan – a positive development. Higher-income households experienced even more substantial percentage increases in their balances, with the share of households equipped with a plan remaining steady.
However, the news isn’t as favorable for the bottom two quintiles. Either their balances decreased or their balances increased, but the percentage of households with a plan dropped significantly (see Table 1).
Considering the robust state of the economy and the remarkable gains in the stock market over the past three years, the 2022 SCF paints a disheartening picture of retirement assets for working households.
Ensuring the Solvency of Social Security
The current focus lies on the 50% of households that possess a 401(k) plan, while the other half rely solely on Social Security. It is evident that guaranteeing the long-term financial stability of Social Security remains of utmost importance.