Typical U.S. Worker Saw 401(k) Lose 24.3% in 2008

Posted by: Lauren Young on October 6, 2009

Maybe it wasn’t so bad after all.

U.S. workers suffered a 24.3% average loss in their 401(k) accounts in 2008, according to a new study from the Employee Benefits Research Institute and the Investment Company Institute. By contrast, the S&P 500 fell 37% while the Barclays Capital U.S. Aggregate Bond Index rose 5.2%.

The average 401(k) account balance was $86,513 at year-end 2008. (At the end of 2007, the average investor had an account balance of $114,337.)

Where did investors stash their cash last year? At year-end, the typical 401(k) investor had 56% of their assets invested in equities via funds and company stock versus a 41% stake in fixed-income securities such as stable value, bond and money market funds. By contrast, that equity stake exceeded 59% in 2007. The market’s mayhem helped drive stock positions down, obviously. “Investment performance likely explains much of the changes in 401(k) participants’ asset allocations over time,” the report says.

This is the most alarming detail of all: While the 72% of workers held 20% or less of their account balances in company stock, nearly 7% of 401(k) investors had more than 80% of their account balance invested in company stock.

Whoa. That takes the risk premium to the extreme.

Reader Comments

siphandone

October 6, 2009 1:20 PM

I lost close to 36%... That is a lot... It will take me through next June to get me even..........

BadMan

October 6, 2009 3:38 PM

Lost 15% of mine. Just pull the F*&Ck3r out the hands of Edwards Jones lazy investor. Put it in real estate instead. Also with the first time buyer plan and the RRSP that I got. I really did not loose anything.
Damn am I good or what?
To the first comment, next year June is not a given.

Strategery

October 7, 2009 12:41 AM

And where did all that money go? Right in the pockets of the same people that caused $147/oil and skyrocketing food prices; the same people who doubled your credit card rate and took government bailouts--blaming housing--when it was really all the side bets that caused the collapse. The next big market will be carbon caps, and you guessed it, consumers will pay while the likes of Goldman Sachs will make billions. It should be crystal clear by now that the stock market is a rigged game for the insiders who steal from 401k account holders and casual investors.

Deano

October 7, 2009 9:21 AM

Are you kidding me? The average US worker has no 401K, let alone $86K worth. If this were true, the average US worker would be borrowing against it to buy an unaffordable house, and we know that's not happening. Where do you people get this stuff??

peter

October 7, 2009 12:49 PM

I must agree with Deano...The average US worker can not possibly have anything close to $86K in their 401K!

Lauren Young

October 8, 2009 12:24 PM

This is Lauren Young, the author of this item on retirement accounts. Thanks everyone for your comments thus far.

Several of you asked how is it possible that the typical U.S. worker had so much money in their 401(k). Great question.

So let's dig a bit deeper: I included in my post a link to the EBRI/ICI report. You'll see that this research covers people who consistently held a 401(k) from 2003 to 2008.

And while the AVERAGE balance for those folks exceeded $80,000, their MEDIAN 401(k) account balance was $43,700 at yearend 2008.

But, perhaps, here is the number that most of you think will make the most sense: The median account balance for participants (based on a sample of 6 million plan participants in the database of 24 million) was $12,655.

Do you think $12,655 is a more realistic number for the average worker's 401(k) balance? Why or why not?

Steve Moore

October 11, 2009 4:56 PM

Lauren, Most folks probably do not know what the median is: The median is the number at which 50% are above and 50% are below that number. The fact that the median is so low compared to the average means that the population is heavily skewed to the left and small percentage of 401(k) holders have very large balances that bring the average well above the median. If the population is not skewed, then the median and average would be the same (or at least very close to each other).

Martha Schilling

October 12, 2009 3:07 PM

Lauren,

Good stuff, American's should take notice and be more responsible for themselves and increase their savings rate. I would say Steve is right,the numbers appear skewed. The small percentage that have large balances may have stayed with one employer as those that have multiple employers tend to cash out as they move on.

FlaDean

November 4, 2009 9:06 PM

I lost only 11% in 2008, thanks to having pulled out of the market in early 2008, and parking in cash. I only wish my 401k had offered a gold/precious metals fund instead.. 401k participants should be screaming at their administrators to offer a broader range of fund types/classes, especially in this uncertain market. We keep reading how gold is going to continue advancing, stands to reason that that sector might a safe haven for the time being....

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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