How long will it take for your 401(k) to recover?
Posted on 23 February 2009
By Mark Miller
Permanent URL of this article: http://retirementrevised.com/money/how-long-will-it-take-for-your-401k-to-recover
How long will it take for your 401(k) to recover from the market crash? New 401(k) research from the respected Employee Benefits Research Institute (EBRI) attempts to quantify how long it will take us to get back to where we were in early 2008, before the big market declines began.
Much depends, of course, on how the market performs. The other big variables are how long you’ve been in your plan and your mix of equity and non-equity investments. That said, here’s what the EBRI projection ranges look like:
Modest rate of return: If the stock market generates 5 percent returns over the next few years, the median figure for recovery is two years, with 90 percent of investors recovering five years out.
No market gains: If the market return is zero for the next few years, the median recovery grows to 2.5 years, with 90 percent of investors recovering within nine or 10 years.
The EBRI report also offers this disturbing finding: at the end of 2007, nearly one in four investors age 56-65 had 90 percent or more of their portfolios invested in equities at the end of 2007, which is far too high for that age bracket. And two out of five in this age group had more than 70 percent in stocks.
On a more positive note, EBRI notes the rapid adoption over the past year of lifecycle/target date funds, which can help mitigate the losses of older investors by automatically moving them out of stocks as their target retirement years approach.
