Investors Whose 401(k)s Recovered Fastest

These people grew their nest eggs significantly over the past 5 years.


Almost everyone now has a bigger nest egg than they did in 2005. The median Vanguard 401(k) balance plunged from $23,851 in 2005 to just $17,399 in 2007. But the stock market recovery and continued saving pushed the median balance back up to $26,926 at the end of 2010, which is 13 percent more than 401(k) participants had in 2005. However, some people have seen much more significant gains in their 401(k) plans while a few stragglers are just barely ahead or even behind where they were five years ago. Here’s a look at who has recovered best and fastest.

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Consistent savers. Investors who continuously saved in the same 401(k) plan each year between 2005 and 2010 saw their median account balance increase by 77 percent over the 5-year period, compared to just 13 percent among all 401(k) participants, according to an analysis of over 2,000 Vanguard-administered 401(k) plans with 3.1 million participants. “Account balances over the 5-year period have risen as a result of ongoing contributions, a recovery in stock prices, and the balanced diversification of participant portfolios,” write Stephen Utkus and Jean Young, the authors of the report. “Because of ongoing contributions, account balances will appear to be less negatively impacted during declining markets. As a result, participants’ psychological reaction to falling wealth levels may be muted and lead investors to stay the course even in the face of rapidly declining markets.”

Young people. New contributions generally make up a significant portion of young employee’s 401(k) balances, which has allowed them to recoup losses faster. The median account balance among workers between ages 25 and 35 has grown 252 percent over the past 5 years, Vanguard found. And employees between ages 35 and 44 roughly doubled their money, due to both positive returns and continued saving. Baby boomers and especially seniors have not fared as well. The typical worker between 55 and 64 now has about 60 percent more than they did in 2005. And the median account balance of retirees age 65 and older is just 22 percent above where it was 5 years ago. Some 28 percent of seniors saw declines in their account balances, compared to 10 percent of baby boomers, and 7 percent of all younger age groups. The lower account balance largely reflects withdrawals for living expenses.

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High income households. It’s obviously easier to save for retirement when you have a higher income. Only 6 percent of households earning $100,000 or more per year still have a smaller 401(k) account balance than they did 5 years ago, compared to 10 percent of families earning between $30,000 and $49,999 and 11 percent of those earning under $30,000 per year. Almost all workers with $10,000 or more saved for retirement saw significant growth of 81 percent or more in their retirement account balances. However, the median retirement saver with less than $10,000 in a 401(k) saw just 20 percent growth over the past five years. And over a quarter (27 percent) of 401(k) participants with less than $10,000 saved for retirement now have even smaller balances than they did 5 years ago.

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Individuals with other savings. People who have an emergency fund or other savings outside of their retirement accounts are less likely to need to stop contributing to their 401(k) or take early withdrawals for sudden expenses. Between 2 and 3 percent of workers stopped contributing to their employer’s plan each year between 2005 and 2010, even though they remained employed and eligible to participate. “Some may face rising financial obligations caused by a deteriorating economy; others may be concerned about the risk of unemployment and may prefer to accumulate liquid savings outside an employer plan,” according to the report. Hardship withdrawals grew 49 percent between 2005 and 2010 to 2.2 percent of all participants. Vanguard found that about 90 percent of 401(k) participants who now have less saved for retirement than they did 5 years ago took loans or withdrawals from their account.

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