Retirement Savers Navigate Turbulent Markets Amid Rising Uncertainty

As the first quarter of 2025 comes to a close, retirement savers have faced an unprecedented number of challenges that have put their nerves on edge. Market conditions, coupled with the uncertainty surrounding tariffs and trade wars, have created a perfect storm that has left many investors wondering if they will be able to recover from the losses.

Average 401(k) Balances Show Modest Decline

According to data released by Fidelity Investments, average 401(k) retirement account balances fell by 3% from late last year through the first three months of this year. This decline may seem significant, but it is essential to note that savers still saw a 1% gain in balances from the first quarter a year ago. The data also reveals that Fidelity reported an average 401(k) balance of $127,100.

Number of 401(k) Millionaires Declines

The first quarter's rough ride has made it more challenging for individuals to become millionaires through their 401(k) savings. Fidelity reported that 512,000 savers were 401(k)-created millionaires in the first quarter, down about 4.6% from 537,000 in the fourth quarter of 2024. These savers had at least $1 million in their retirement account.

On-Again, Off-Again Market Panic

The current market conditions have been nothing short of unpredictable, with rapid policy changes and political uncertainty contributing to a sense of heightened instability. Fidelity's data shows that the average 401(k) balance increased by 11% from the start of last year, making it one of the best years on record.

Unprecedented Volatility

The S&P 500 index has seen significant fluctuations in value, with some days experiencing losses of over 2,000 points. While this may be unsettling for some savers, many investors have taken a long-term approach and maintained their allocations despite the market volatility.

Diversification Key to Success

Maintaining a diversified portfolio is crucial during times of uncertainty. According to Robert Bilkie, CEO of Sigma Investment Counselors, "The key word here is diversified." Some investors continue to face deep losses in 2025, particularly if they invested a large chunk of their money in one stock or industry.

Tariffs and Trade Wars

The uncertainty surrounding tariffs and trade wars has had a significant impact on the market. Companies such as Tesla and Nike have seen significant declines in value due to their dependence on international markets, manufacturing, and supply chains.

Record High 401(k) Savings Rate

Despite the challenges faced by savers, Fidelity reported that the total 401(k) savings rate increased to a record 14.3% in the first quarter. This is driven by an unprecedented employee contribution rate of 9.5%, plus an employer match of 4.8% – the highest employer contribution rate recorded to date.

Secure 2.0 Act

The Secure 2.0 Act, which came into effect this year, has required companies with new 401(k) plans and 403(b) plans to automatically enroll eligible employees at a minimum contribution rate of 3%, but no more than 10%. The employee may opt out.

Most Individuals Continued to Contribute

According to Fidelity data, most individuals continued to contribute to their retirement savings accounts and invested in the stock market. Of the 6% individuals that made a change to their allocation, 28.2% of those participants moved some of their savings into more conservative investments.

Target Date Funds and Managed Accounts

More than 66% of 401(k) participants used target date funds or managed accounts, which offer a mix of assets. These types of accounts provide an asset mix that reflects an individual's age and their expected or targeted year of retirement.

Conclusion

The first quarter of 2025 has been marked by unprecedented uncertainty and volatility in the markets. Despite these challenges, many investors have maintained their long-term approach and continued to contribute to their 401(k) plans. While it is difficult to predict what lies ahead for Wall Street, trade talks, or the overall economy, one thing is clear: maintaining a diversified portfolio and sticking to a long-term plan is essential for success in today's unpredictable markets.

Additional Data

• The total 401(k) savings rate – adding both employee savings and employer contributions – increased to a record 14.3% in the first quarter.
• Fidelity reported an average 401(k) balance of $127,100.
• More than 66% of 401(k) participants used target date funds or managed accounts.

Sources

Fidelity Investments Secure 2.0 Act