The Market Tanked, but Allstate Employees Kept Piling Money Into Their 401(k)s

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'These turbulent economic times require that Allstate employees rely on the structured support of employer-sponsored retirement plans to maintain stability in their investment strategies,' says Wesley Boudreaux of The Retirement Group, a division of Wealth Enhancement Group. 'Discipline helps protect your financial future from market volatility.'

Financial experts say Allstate employees should strengthen their long-term investment strategies, particularly in target-date funds, since such plans will automatically adjust to their retirement goals, says Patrick Ray of The Retirement Group, a division of Wealth Enhancement Group. 'Keeping a course rather than reacting to short-term market shifts may be key to a financially secure retirement.'

In this article, we will discuss:

1. Economic Trends & Investor Behavior: Analyzing whether and how the recent economic downturn has affected investor activities, especially among 401(k) retirement plans, as well as the implications of preserving investment strategies during market fluctuations.

2. Financial Health & Consumer Behavior: Trends in personal savings, credit card debt and financial health of American consumers reported in recent studies and how they reflect broader economic conditions.

3. Future Financial Security Strategies: Looking at financial planning and the role of automatic saving features in 401(k) plans, and how to get professional financial advice about navigating economic uncertainty and preserving long-term financial security.

The 2022 Stress in America Study by the American Psychological Association found that money is the number one cause of stress for Americans—the highest level since 2015—according to the annual survey. That said, folks at Allstate should understand how this recent economic downturn has affected investor activity. The Federal Reserve says more than half of U.S. adults and their partners received non-labor income in 2020 from investments, interest, Social Security, and unemployment. As inflation grew and markets performed poorly, Americans could not just liquidate assets in their retirement accounts.

An estimated 90% of investors in 401(k)-style retirement plans administered by Vanguard Group kept or increased their savings rate in 2022. And trading among retail investors managing their own assets sank to a two-decade low. With the S&P 500 undergoing a yearly devaluation in proportions equal to 2008, retirement savers stayed away from selling assets and giving up long-term security. Allstate workers with 401(k) accounts continue to invest, save, and avoid emotional financial decisions.

American consumers are displaying signs of financial stress as personal savings rates drop and credit-card balances return to pre-pandemic levels. The 2022 Financial Health Network's Annual Financial Health Pulse Report found that 31% of Americans considered themselves financially healthy fell from 34% in 2021 to 31% in 2022. That said, unemployment is down 0.1% from last year's November-December rates, and hourly earnings for private-sector employees rose 4.6% through December 2021.

Data published in June by Vanguard shows 9% of workers with 401(k) accounts cut back on savings rates starting in 2021—up from 7% a year ago. Just 4% of investors managing their own 401(k) assets moved money from one fund to another last year—down 2% from 8% in 2021 and 4% from 10% in 2020. And people in Vanguard 401(k) plans held 74% of their assets in stocks—up 2% from 72% in 2020.

All things considered, people working for Allstate should understand that some of the investor tenacity to hang onto assets through market declines may be partly due to automatic features designed to remove obstacles to saving and investing. 58% of the plans that use Vanguard's services had target-date funds compared with 32% in 2012. Typically, target-date funds contain stocks and bonds partially indexed to an investor's age and projected retirement date at the time of opening the fund, called a 'glide path.'

A glide path is constructed so that a person can take a growth-oriented approach in his prime earning years and then save capital toward retirement age or 'target' year. Then most of those plans increase employees' savings rate by some percentage (usually 1%) every year up to a 10% limit or more. Behavioral economist and Nobel Prize-winning advocate for automatic 401(k) features Richard Thaler compares these advances to GPS driving. Thaler says such features let investors pick the right path and stay the course without overthinking.

And yet despite all this, people working for Allstate should also recognize that recent strong performance in the market may be reason to hold stocks longer. The S&P expresses an annualized return of 11.3% between 2019 - 2022 despite a 19.4% downturn in 2022. Dow Jones Market Data says that number exceeds the index's 5.8% annualized return since 1928.

Although the market performed well, not all metrics point to better retirement safety nets. In addition to growing early withdrawals from qualified retirement accounts and a 20% drop in the average 401(k) balance to USD 112,572 by 2022, more Americans struggled to keep up with financial emergencies and higher prices. Hardship distributions for things like preventing evictions and paying medical bills were record highs. Loan initiations climbed 9%. Taken together, employees at Allstate should contact a financial advisor to avoid the consequences above. If you plan properly, The Retirement Group customizes a retirement plan for you.

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Sources:

1. American Psychological Association. 'Stress in America 2022: Concerned by Inflation.' APA, 2022,  www.apa.org/news/press/releases/stress/2022/concerned-future-inflation .

2. American Psychological Association. 'Money and Stress.' APA, 2022,  www.apa.org/topics/stress/money .

3. American Psychological Association. 'Stress in America Report.' APA, 2022,  www.apa.org/pubs/reports/stress-in-america .

4. American Psychological Association. 'Inflation, War, and Stress in 2022.' APA, 2022,  www.apa.org/news/press/releases/2022/03/inflation-war-stress .

5. American Psychological Association. 'Speaking of Psychology: Financial Stress.' APA, 2022,  www.apa.org/news/podcasts/speaking-of-psychology/financial-stress .