During the financial crisis and the Great Recession, the value of individual retirement accounts plummeted as equity markets fell about 50 percent on average. Since that time, which is over 5 years now, the value of retirement accounts have made up some lost ground according to Fidelity Investments.
The mutual fund company released the analysis of 7 million Individual Retirement Accounts (IRA) held at Fidelity. The average IRA balance fell to $52,900 at the end of 2008. The value of the average IRA grew to a five-year high of $81,100 in 2012, recovering some of the losses suffered in the financial crisis and recession.
IRA Account Gains Differed Based on Age Group
The increase in the average account balance wasn't the same for all age groups. This makes sense because older Americans nearer retirement are less exposed to stocks than younger Americans. If you're older and closer to retirement, you're advised to take less risk because you have less time to recover from large market declines, like we saw a few years ago.
Unfortunately, if you were closer to retirement just before the financial crisis and didn't reallocate your portfolio, you got caught up in the declines. You probably thought you learned from your mistake and reallocated your portfolio after the declines and missed some of the largest gains the past 5 years.
IRA balances for Americans in their thirties more than doubled in five years, to an average of more than $20,000, whereas Americans over the age of 70 saw their average account balances increase the least, to $164,300 from $110,500.
Another interesting bit of information in the Fidelity report showed that overall Americans are saving less than they could. The average IRA contribution stood at $3,920 in 2012. The maximum annual tax free limit is $5,000 ($6,000 for workers over the age of 50). Everyone is basically leaving $1,000 of pretax money that could have been placed into an IRA, and as a result, would end up saving more and lowering their tax bill.
Little Risk Means Little Reward with Low Deposit Rates
As with any investments, less risk means less reward. The least riskiest investments, savings accounts, money market accounts, and certificates of deposit earn some of the lowest interest rates right now. Average 1 year CD rates are at 0.70 percent and average savings rates are at 0.49 percent this week.
The best CD rates on 1 year CD accounts are just above 1.00 percent and the best savings rates are at 1.00 percent. With rates so low you won't make up much lost ground if your retirement account took a loss back in 2008. If you're retired or near retirement you have no quick options to gain lost ground. You either have to make riskier investments or earn very little on most interest-bearing assets.
Higher Deposit Rates in the Coming Years
If you are retired and have very little appetite for risk in your life, you have been suffering with low deposit rates for years now. The good news is in the coming years deposit rates will be moving higher. You should consider staying invested in either savings accounts, money market accounts, or short term certificates of deposit of 1 year or less. That way you can take advantage of higher interest rates right away.
For now you can search for the best CD rates, savings rates and money market rates right here at MonitorBankRates.com.
