Has the Stock Market Recovery Saved Your 401k?

When the financial crisis hit and the stock market tanked, the financial security of tens of millions of people was jeopardized. While trillions of dollars were erased from 401k accounts, the average retirement balance for workers in the United States hit a record high of $80,900 in the first quarter of 2013, an increase of 75 percent since the stock market hit its lowest point during the recession.

Generally, the picture painted of retirement is grim. PBS aired a program at the end of April entitled “The Retirement Gamble,” which postulated that the financial crisis had made retiring a much more difficult prospect. And the numbers suggest a similar conclusion. According to the Employee Benefit Research Institute’s latest survey on retirement confidence, 57 percent of households say they have less than $25,000 in savings and investments, while twenty-eight percent say they have less than $1,000. Furthermore, the Center for Retirement Research at Boston College has warned that 53 percent of American households are at risk of not having saved enough to maintain their living standards in retirement.

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Still, saving is not the only method of funding retirement; another important pillar of the American retirement system, falling only behind Social Security in importance, is the 401k. In fact, for wealthier Americans, the accounts — whose payouts are dependent on contributions and investment returns — constitute the primary means by which they save for retirement. Gallup’s poll of Americans preparing for retirement, conducted between April 4 and April 14 of this year, discovered that for 65 percent of respondents earning $75,000 or more per year, retirement savings accounts would be the “major source” of retirement funds. Only 17 percent said Social Security.

The majority of the recovery in 401k accounts is linked to the stock market rally that lifted the broad S&P 500 Index 145 percent since the close of trading on March 9, 2008, the stock market’s nadir.

In particular, the recovery has benefited workers 55 and older, according to Fidelity, the largest administrator of 401k retirement plans in the United States. Those pre-retirement workers have seen their average balances soar by nearly 100 percent, increasing from an average balance of $130,700 in the first quarter of 2009 to $255,000. Fidelity’s analysis covered people who have worked with their current employer for 10 years or more.

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However, A small percentage — 1.6 percent — of pre-retirees abandoned the stock market during the tumult of the financial crisis and, as a result, have not experienced the same rebound. Their average balance grew just 26 percent to $101,000 during the same the period, Fidelity said.

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