Your 2008 401k Report Cards Have Failing Grades

Your 401k is probably very glad that 2008 has ceased its assault on your retirement portfolio. The year’s 401k and IRA account summaries have been rolling in, and they don’t look pretty: In 2008, employees, on average, lost 14 percent-or about $10,000-of their retirement savings.

But averages don’t tell the whole story. How your retirement account performed during this volatile year is directly correlated to your asset allocation: your portfolio’s stock versus bond breakdown. So how did your 401k fare compared with investors, relatively speaking? Here’s a look:

By account balance.

Retirement account losses in 2008 disproportionately affected wealthy savers. Those with more than $200,000 lost more than a quarter of their savings, on average, according to an Employee Benefit Research’s Institute analysis of 22 million participants in more than 55,000 employer-sponsored 401k plans. Investors in the $100,000 to $200,000 range suffered as well, with an average loss of 21 percent in 2008. The typical account with $50,000 to $100,000 lost 15 percent.

The 2008 market’s decline had less of an impact on savers at the low end. On average, those with between $10,000 and $50,000 in their 401k’s last year managed to break even. On a bright note, 401k investors who had less than $10,000 in their accounts in January 2008 saw their balances increase by an average of 43 percent between then and January 2009. This is due, in part, to the fact that these individuals 401k contributions helped to bolster the total asset value.

By risk.

In 2008, there was really no place to hide, as almost every asset class came under fire. In 2008, the average diversified U.S. stock fund fell a whopping 38 percent. Meanwhile, bond funds dropped 8 percent. The bond categories turned out some of the year’s most shocking performance, with many short-term bonds losing 4 percent…

By age and job tenure.

While some younger savers ended up on top in 2008, the biggest setbacks fell upon older workers.

Here’s a look at how different age groups fared in 2008:

25-34: Many investors in this age group actually saw their 401k balance increase over the past year, because market drops were largely offset by new 401k contributions. For workers who have been with their current employer for less than four years, the average account balance actually increased by 25 percent, on average. Meanwhile, those with five to nine years on the job saw their balances rise by an average of 5 percent.

35-44: For workers between these ages, changes in the average 401k balance ranged from an 11 percent increase for workers with four years or less on the job to a 21 percent drop for employees with 10 or more years of tenure.

45-54: Many of these mid-career employees saw sharp 401k declines, ranging from an average loss of 18 percent for those with between five and nine years on the job to 26 percent for workers with a job tenure of 20 to 29 years. Only those with four years or less on the job saw balance increases, by an average of 3 percent.

55-64: The recession couldn’t have come at a worse time for employees rapidly approaching retirement age. Changes in balances ranged from a 1 percent gain for people with just a few years on the job to a 25 percent loss for those with 20 years or more.

Subscribe by RSS Subscribe by Email