Even before the recession began, Americans should have been considering working past the average retirement age, 63, because of increasing life expectancy. But the 18 percent hit the average 401(k) participant took in 2008 has made retirement prospects even worse.
The average 40-year-old with a 401(k) savings rate of 7 percent must work one more year or save an additional 1 percent of pay per year until age 65 to recoup 2008 market losses, according to recent calculations by human resources consulting firm Hewitt Associates. People closer to retirement age will have an even tougher time replenishing depleted retirement accounts. A typical 55-year-old employee with a 401(k) savings rate averaging 10 percent of pay will need to save an additional 12 percent each year until age 65, or work for two more years.
Other research has found similarly large numbers. The Employee Benefit Research Institute calculated in December that employees with between 20 and 29 years on the job will have to work an extra 1 year and 9 months to recoup stock market losses. If workers pull their remaining cash out of the stock market it will take even longer to recover: 2 years and 1 month, EBRI calculated.
But simply recouping losses probably isn’t enough to get you to a secure retirement. Before the economic upheaval began workers were on track to replace 85 percent of their income, according to a Hewitt analysis of nearly 2 million employees at 72 large U.S. companies in July 2008. Now the typical employee is on track to replace 81 percent of income. “Most Americans were already far from achieving adequate levels of retirement income before the economy collapsed, and for many, the financial downfall has made reaching these goals nearly impossible,” says Rob Reiskytl, Hewitt’s leader of retirement plan strategy and design. “They may need to work longer, part-time, or find other ways to supplement income in retirement to make up for the shortfall.”
Check out these 6 ways to make your retirement accounts last longer.