Will your 401(k) ever bounce back? Maybe not, if you're older or don't contribute much

As the stock market continues to swoon, it's tempting to not even look at your retirement savings account balances. But for those who peek -- and then wonder how long it'll take to undo the damage -- new research by a think tank that studies employee benefits isn't very encouraging.

Older employees who've worked for the same company for a long time got hit hard, according to the study by Employee Benefits Research Institute research director Jack VanDerhei. So did people with balances of more than $200,000. Members of both groups saw average losses of more than 25 percent in 2008.

Here's the really bad news: For as many as three in 10 older workers, VanDerhei found, a prolonged bear market for stocks may mean their retirement savings will never recover the value they had at the beginning of last year. He examined a database including information on some 21 million 401(k) participants.

Who might find themselves in that position? Among the unlucky are "those with either very large equity allocations at the end of 2007 or those with low contribution-to-account balance ratios," VanDerhei wrote. His calculations explored how a higher (6.3 percent) return on bond and money market investments compared with a lower (3.5 percent) return, but for this group of workers, it didn't matter.

"In both cases, under these assumptions, the recovery times are so large as to effectively eliminate the possibility that the participant will ever recover their 2008 losses," he wrote.

Nearly 30 percent of workers between the ages of 56 and 65 had 70 percent or more of their 401(k) savings invested in stocks at the end of 2008, VanDerhei found. Most investment advisors recommend older workers shift assets away from equities to avoid catastrophic losses of the type VanDerhei's research suggests many may now be facing.

Even with less pessimistic assumptions, more senior workers may have to wait a while to see their retirement savings return to 2007 levels.

VanDerhei's study looked at how long it would take for employees to recover their 2008 401(k) losses given a range of assumptions about future investment returns. Assuming stocks lose 10 percent a year, the typical worker with 20 to 29 years on the job would need between six and eight years to make up what they lost, depending on returns in the bond market. If stocks lose 5 percent, that worker would likely need three to four years.

The outlook continues to improve along with the outlook for stocks, VanDerhei found. If stocks return to near their historic average rate of return of 10 percent, the median older worker would need less than a year-and-a-half to get back to where they were at the end of 2007.

Younger workers fare much better. Nearly all less-tenured employees should be able to make up even steep losses in a year or less, according to the study. A typically higher ratio of contributions to total 401(k) balance means these workers aren't as susceptible to stock market fluctuations, VanDerhei found.

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