Understanding 401K: How it works and why it matters
What is the 401K Plan? Key benefits and ways to maximize savings.
Retirement Savers face many white knuckle days in 2025, with stock market conditions, and standard suspension tariffs on white knuckle days where everyone’s nerves are put at the edge.
Surprisingly, most people didn’t see double-digit fallout with a 401(k) savings in the first quarter, according to the latest data from Fidelity Investments.
Average 401(k) retirement account balances fell 3% from the second half of last year to $127,100 from the first three months of this year. According to Fidelity, Sabers had a 1% increase in the first quarter of the year before.
There aren’t that many 401(k) billionaires
Being a billionaire in Ruffried in the first quarter was not easy. Fidelity reported that 512,000 savers were billionaires created 401(k) 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 accounts.
The third quarter last year was when Fidelity saw a record 401(k) billionaire created at 544,000.
Fidelity’s 401(k) data is based on 25,300 defined contribution plans for various companies across the country. The plan covers 24.4 million participants as of March 31.
Only market panic at elevation
What difference does the economic uncertainty over the next few months make?
Fidelity data shows that at the end of last year, at the end of last year, retirement savings averaged 401(k) balances increased by 11% from the year.
Even seeing a 3% drop in the first quarter of this year can be a bit unsettling for some savers, given that The Saber saw only 0.5% DIP on average from the third to fourth quarter of last year.
Going back to the third quarter of 2023 about two years ago, we should see a 4% decline in average retirement savings for the second quarter of that year.
So far, it has been an incredibly strange year with some disastrous declines and some miraculous rebounds.
Fortunately, many investors are no longer dealing with the 15% year-on-date decline seen on the Standard & Poor’s 500 index as of April 8th.
“We’re looking forward to seeing you in the future,” said Robert Bilkie, CEO of Sigma Investment Counselors in Northville.
The S&P 500 Index rose 0.92% per year until June 2, when the S&P 500 closed at 5,935.94 points. The total annual return, including dividends, was 1.49% on June 2nd, close to the market. Total revenue in 2023 was 25.02%, and in 2025 it increased by 26.29%.
Most diverse common stock accounts held by savers have risen modestly that year, Bilky noted.
It’s not painful for other companies to invest in car inventory.
The keywords here are diverse. Some investors continue to face deep losses in 2025, especially if they invest a large amount of money in one stock or industry.
For example, General Motors shares fell 10.47% per year from their closing price of $53.27 per share on December 31, 2024, to the closing price of $47.69 per share on June 2.
Stellantis fell 25% from $13.05 on December 31st to the end of $9.78 per share on June 2nd.
Ford shares rose 0.8% since the end of the year, when the stock priced at $9.90 per share and the stock priced at $9.98 per share.
“The worst losses were concentrated on companies affected by the uncertainty surrounding the tariffs and trade wars,” said Sam Hasitso, a certified financial analyst at Raslup Village.
“Think of Tesla or Nike, which is highly dependent on confident consumers and widely dependent on international markets, manufacturing and supply chains.”
Tesla stocks fell 15% year-on-year until June 2nd. Nike fell 18.6% at the same time before dividends.
This year, many investors also sold their shares in some companies as they received profits from 2024’s high-flying stocks, like technology stocks.
“What goes up faster also gets faster. Last year’s market has turned into this year’s warning story.”
We continue to witness the unpredictability and the sense that things are different from past economic changes.
Wild swings are difficult for investors
Unlike the 2008-09 meltdown, this year we have not confirmed that stock prices have been steadily falling. Instead, I’ve seen the indecent volatility. There was a day when Dow Jones Industrial Arage lost 2,231.07 points or 5.5% on April 4th and suddenly scored 2,963 points or 7.87% on April 9th.
Huszczo said many individual investors saving for retirement and tend not to panic sell for other reasons, and was often bought by DIP. Some people “were charged at the dip like Black Friday.”
On April 2nd, Trump placed tariffs on all countries. However, on April 9, Trump suspended his “liberation day” tariffs for 90 days until July 8, after Wall Street revolted widespread tariffs.
Currently, the Trump administration hopes to offer the highest trade negotiation offers by June 4th, according to a Reuters report.
Michael Shamrell, Fidelity’s Vice President of Thought Leadership for Workplace Investment, said Fidelity recommends that, like the situation in 2025, maintaining long-term plans is often the most appropriate strategy when investors are facing rising market volatility.
“Factors such as rapid policy changes, political uncertainty, the impact of tariffs, and the speed and magnitude of change have contributed to increasing instability,” the Fidelity report states.
Savers wants to continue to contribute their savings well to the plan of at least 401(k) Shamrell said to receive their company’s matching contributions.
“We can not only put you in a good place when the market recovers, but we can continue to use the consistent contributions our employers provide,” Shamrell said.
In a phone interview, Shamrell told me in early 2025 that many people remained on the course and encouraged them not to make any changes with a 401(k) savings.
According to Fidelity data, a total of 401(k) savings rate – increased both employee savings and employer contributions to a first quarter record of 14.3%.
According to Fidelity, the record 401(k) total savings rate was driven by an unprecedented employee contribution rate of 9.5% and the highest employer contribution rate ever recorded, along with an employer match of 4.8%.
Shamrell said that with a retirement savings rate of 14.3%, more people are approaching the recommended 401(k) saving rate of 15%.
Fidelity recommends that employees help them retire enough money to maintain their current lifestyle, aiming to save at least 15% of their pre-tax income each year, including money from their employers.
Shamrell said it is likely that the first quarter results will benefit as some companies increased their 401(k) contributions to their plans based on profit sharing arrangements.
Since 2025, federal law, known as the Secure 2.0 Act, has required businesses with new 401(k) plans and 403(b) to automatically register at 3% minimum contribution rates and below 10%. Employees may opt out.
Also, under the safe 2.0, those enrolled in the new 401(k) plan will automatically see their contribution from their pay rise by around 1% each year until they reach 10%. Employees can opt out or change the contribution rate. Both the autoregistration and autoescalation rules launched in 2025 apply to new plans established after December 29th, 2022.
Employers do not need to offer 401(k) plans under a safe 2.0.
more: US bond market, Brexit could foresee your 401(k) trouble
Other post-retirement trends, according to Fidelity data:
- Most individuals continued to contribute to retirement savings accounts and invested in the stock market. Of the 6% of individuals who made changes to their allocation, 28.2% of participants transferred some of their savings to more conservative investments.
- Only 0.9% of 401(k) participants stopped contributing to the 401(k) plan in the first quarter.
- Over 66% of 401(k) participants used targeted dating funds or managed accounts to provide a combination of assets. Target Date Funds provide an asset mix that reflects the individual’s age and expected or eligible year of retirement. Managed accounts are more personalized and take into account personal goals and risk tolerance.
more: Stock market meltdown due to tariffs hits hard on investors on day 3 401(k)
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Overall, 401(k)savers and investors are resilient, according to Melissa Joy, president of Pearl Planning, Dexter’s wealth advisor.
Many investors who maintain their overall allocations have begun to return to positive territory by early May, she said.
“We were looking at accounts just north of the positive. It went from 2% to 4% at the end of the first quarter. Then, Rebate Day made everything deeper in early April, but in many cases we had a temporary drawdown,” she said.
However, she acknowledged that it has become difficult for some investors to separate their political outlook from an investment perspective.
“But in all, our clients have maintained their allocation and investment strategies through the volatility they have seen so far this year,” Joy said.
Of course, uncertainty remains among the most popular words used by CEOs and other business leaders in 2025. I don’t know what Wall Street, trade consultations, or what’s next for the economy as a whole.
Please contact Personal Finance Columnist Susan Tom Paul: stompor@freepress.com. Follow himr x @tompor.
