Market Volatility Has Not Slowed 401(k) Growth

A new report from the Investment Company Institute and the Employee Benefit Research Institute showed significant growth in retirement savings over a four-year period despite market downturns in 2022.

The study, “What Does Consistent Participation in 401(k) Plans Generate?” analyzed 2.7 million workers who maintained their 401(k) accounts from 2019 through 2023. The results reveal that the average account balance rose to $148,092 in 2023 from $82,274 in 2019, a compound annual growth rate of 15.8%. The median balance also saw remarkable growth, climbing to $58,898 from $23,468 — a 25.9% annualized increase.

The report notes that younger participants, particularly those in their 20s and 30s, achieved the largest percentage increases. Participants in their 20s grew balances at an annualized rate of 56.1%, driven largely by contributions relative to their smaller starting balances.

Older savers, though experiencing slower rates of growth, held significantly larger balances. For example, participants in their 60s with more than 30 years of tenure averaged account balances of $430,914 at year-end 2023.

Asset allocation trends remained stable during the period. More than 70% of participants’ 401(k) assets were invested in equities in 2023, with more than 96% of participants holding some form of equity exposure — including equity funds, company stock and target-date funds.

Younger savers were more heavily invested in equities: nearly 90% of participants in their 20s had portfolios that were equity-based, compared to about 61% for participants in their 60s.

The use of TDFs, which automatically adjust allocations as investors age, was largely unchanged, as they continue to be used heavily. About 65% of participants held TDFs in 2023, with younger workers leading adoption.

Notably, more than 90% of those fully invested in TDFs in 2019 remained fully invested in those instruments in 2023.

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