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Managing your retirement account in a volatile market: Don't panic
In the end, 2022 was not kind to retirement savers.
Average 401(k) balances plunged 23% over the course of the year to $103,900, according to a report by Fidelity Investments, the nation's largest provider of 401(k) plans. Individual retirement account average balances sank 20% year over year to $104,000, Fidelity found.
A separate analysis from Vanguard also found that average 401(k) balances fell 20% in 2022 to $112,572, and hardship withdrawals ticked up slightly.
"If you've suffered losses in your 401(k) last year, you're certainly not alone," saidWinnie Sun, co-founder and managing director of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC'sAdvisor Council.
"It's important to remember that as long as you haven't sold those investments, you haven't realized the loss, either, and there is a potential for a comeback."
It's reasonable to expect that portfolios will continue to improve in the next year, or even by year-end, she said.
How to bounce back from 401(k) losses
One very important practice every investor should do is to review their investment allocation at the start of the year, Sun advised.
That means this is a good time to check if your allocation still meets your needs, she said. If you're not sure, consult with a financial advisor to help you calculate your risk tolerance and your investment time horizon and see if how you're invested still works for you.
Odds are that it probably doesn't, Sun said, and "a rebalance, like a regular haircut, is needed."
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Even if one sector of the financial markets performed well, you can't assume that will continue. "So, if you are too heavily weighted in large-cap growth, for example, but less so in international, it's better to build a more sustainable diversified portfolio," she said.
After a tumultuous year, many older Americans are concerned about their retirement security. Nearly half, or 48%, of retired Americans believe they'll outlive their savings, a separate report by Clever Real Estate found.
"Everyone is feeling pressure financially — there's a lot of uncertainty out there in the markets and the economy," said Mike Shamrell, Fidelity's vice president of thought leadership.
However, "a lot of people understand there's going to be ups and downs," he added. "Don't let short-term economic events derail your long-term retirement savings efforts."
"If your time horizon is long, and you're able to afford to do so, consider adding during market dips," Sun advised. "If you're buying quality investments long term, this will help you buy more shares since the market is down."
To that end, try to increase your 401(k) contribution percentage this year, she said.
The average 401(k) contribution rate, including employer and employee contributions, currently sits at 13.7%, just below Fidelity's suggested savings rate of 15%.
