How to Recover Retirement Account Losses

A new study calculates the savings needed to offset financial market and real estate declines.

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The financial market and real estate declines in 2008 and 2009 diminished the assets of many retirement savers. As many as 14.3 percent of U.S. households who would have had adequate retirement assets before the financial crisis are now at risk of running out of money in retirement, according to an Employee Benefit Research Institute report released today.

[See 5 Ways to Make Your 401(k) Balance Last Longer.]

The study calculated that nearly half (47 percent) of early baby boomers between ages 56 and 62 are now at risk of not having sufficient assets to maintain their current standard of living in retirement. Many late baby boomers between ages 46 and 55 (44 percent) and Generation Xers ages 36 to 45 (45 percent) are also at risk of being unable to pay for their expected retirement costs, EBRI found.

To cover basic expenses and pay for out-of-pocket health care costs after retirement at age 65, households that experienced recent losses will need to save more. Early baby boomers will need to save a median of 3 percent more annually to have a 50 percent chance of a maintaining their current standard of living in retirement. If early boomers want a 90 percent chance of setting up an adequate retirement income they will need to save 4.3 percent more of their pay each year to account for the financial and housing market crisis.

[See 5 Ways to Finance Retirement Until Age 100.]

Making up for retirement and housing losses will be easier for younger workers who have more time before retirement. Late boomers will only need to save a median of an extra 0.9 percent of pay to cancel out the impact of the financial crisis. Generation Xers can break even by tucking away an extra 0.3 percent of their salary.

[See 6 Retirement Planning Regrets.]

However, investors who were especially susceptible to the financial crisis may need to save even more to eliminate its impact. Early baby boomers who were exposed to the crisis in multiple ways including defined contribution plans such as 401(k)s, IRAs, and home equity will need to save 5.6 percent more of their pay for a 50 percent probability and 6.7 percent more for a 90 percent chance of setting up an adequate retirement income.