Have 401(k)s Recovered Yet?

Average balances have topped 2007 highs, but some investors are still behind.


Average 401(k) balances have topped 2007 highs. But not all investors have more money than they did four years ago. An appropriate asset allocation and continued saving were necessary to help your nest egg recuperate from the recession.

Retirement accounts held about $8.7 trillion in the third quarter of 2007. However, 401(k)s and IRAs then lost 31 percent of their peak value and held just $6 trillion by the end of the first quarter of 2009. Retirement accounts finally rebounded to their peak value, again reaching $8.7 trillion, in the first quarter of 2011, according to calculations by Urban Institute researchers Barbara Butrica and Philip Issa. But once inflation is factored in, retirement account balances are still 5 percent below the 2007 peak value.

[See 7 Ways to Stay Ahead of Inflation in Retirement.]

Individual account balances have also recently exceeded their 2007 highs. The average Vanguard 401(k) account balance fell 29 percent from $78,411 in 2007 to $56,030 in 2008, before climbing back up to $79,077 in 2010. And the average Fidelity 401(k) account balance was $71,500 at the end of 2010, finally topping the $69,200 average balance from 2007 and significantly above the $50,200 average balance in 2008.

[See 10 Essential Sources of Retirement Income.]

The Urban Institute estimates that the majority of the recovery (63 percent) is due to appreciation in stocks since the first quarter of 2009. But not all investors have experienced enough growth to completely recuperate from their losses without continued saving. While the S&P 500 Index gained 104 percent between the market low and the first quarter of 2011, an investor who had $100,000 invested in equities on Oct. 9, 2007 now has a portfolio value, including dividends, of $91,511, according to a recent T. Rowe Price analysis. Investors with a more balanced allocation of $100,000 to a 55 percent stock and 45 percent bond portfolio over the same time period recouped their losses by October 2010. And more conservative investors with a 45 percent stock and 55 percent bond allocation of their $100,000 retirement portfolio recovered even earlier, first crossing the threshold in April 2010.

[See Workers Paying Hidden 401(k) Fees.]

Much of the individual 401(k) account growth was due to continued saving in retirement accounts. Workers age 55 and older who consistently saved in a Fidelity 401(k) plan with a single employer for the past decade saw their average account balance more than double from $96,000 in 2001 to $211,300 in the third quarter of 2010. Individuals who continuously contributed to the same Vanguard 401(k) plan between 2005 and 2010 saw their median account balance rise 77 percent, compared to a 13 percent gain among all retirement savers.

Twitter: @aiming2retire