How Did Your 401(k) Really Stack Up in 2008?

It all depends on your age, job tenure, and risk level.

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Chances are, 2008's market meltdown did a number on your retirement portfolio. Misery had plenty of company. The year's 401(k) and IRA account summaries have been rolling in, and they don't look pretty: In 2008, employees, on average, lost 14 percent—or about $10,000—of their retirement savings, according to Hewitt Associates. Some lost much more. Fidelity, the nation's largest retirement-plan administrator, says the average balance in its customers' accounts dropped $19,000 in 2008. But averages don't tell the whole story. How your retirement account navigated the year's tumultuous market depends on several factors: your portfolio's stock versus bond breakdown, your allocation to other asset classes, the performance of your individual funds, and your account balance. So how did your 401(k) fare compared with investors in the same boat? Here's a look:

By account balance.
Retirement account losses in 2008 disproportionately affected wealthy savers. Those with more than $200,000 lost more than a quarter of their savings, on average, according to an Employee Benefit Research's Institute analysis of 22 million participants in more than 55,000 employer-sponsored 401(k) plans. Investors in the $100,000 to $200,000 range suffered as well, with an average loss of 21 percent in 2008. The typical account with $50,000 to $100,000 lost 15 percent.

Not surprisingly, the market's decline had less of an impact on savers at the low end. On average, those with between $10,000 and $50,000 in their 401(k)'s last year managed to break even. And—here's a surprise—some 401(k) participants actually came out ahead: Investors who had less than $10,000 in their accounts in January 2008 saw their balances increase by an average of 43 percent between then and January 2009. Although the market fell substantially during that period, "new contributions probably more than made up for the account losses," says Jack VanDerhei, research director of the Employee Benefit Research Institute.

By risk. In 2008, "safe" investing was all relative. Stocks of just about every stripe were crushed. Not even bonds—the most timid of investments—made it out unscathed. As Marilyn Cohen, president and chief executive of Envision Capital Management, a Los Angeles firm that manages bond portfolios for individual investors, puts it: "This crisis is a different story. It's a crisis of confidence. It's a crisis of credit."

In 2008, the average diversified U.S. stock fund fell a whopping 38 percent. Meanwhile, bond funds dropped 8 percent. The bond categories turned out some of the year's most shocking performance, says Russ Kinnel, Morningstar's director of fund research: "It's not unheard of to lose 40 percent in equities—many funds lost more than that in the 2000-02 bear market—but ultra-short bonds losing 8 percent, and short-term bonds losing 4 percent...those were some big surprises."

Aside from Treasuries and leveraged funds, few investments made it into the black in 2008. "In previous down markets, you had concentrated pockets of pain," says Kinnel. "There were areas of strength in the 2000-02 market. Most bond funds did well, and a lot value funds made positive returns. But this year, a lot of investments you think of as conservative lost money."

Take target-date funds, one of the most popular choices on 401(k) menus, which contain a mix of stocks and bonds that grows more conservative over time. Funds designed for investors reaching retirement in 2010—which devote the highest allocation to bonds among all target-date funds—lost 22 percent last year, according to Morningstar. At the other end of the spectrum, funds with a target-date range of 2041 to 2045 lost an average of 38 percent, in line with the S&P 500's performance.

By age and job tenure. While some younger savers ended up on top in 2008, the biggest setbacks fell upon older workers. Here's a look at how different age groups fared in 2008:

25-34: Many investors in this age group actually saw their 401(k) balance increase over the past year, because market drops were largely offset by new 401(k) contributions. For workers who have been with their current employer for less than four years, the average account balance actually increased by 25 percent, on average. Meanwhile, those with five to nine years on the job saw their balances rise by an average of 5 percent.