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Julie Jason: Staying the course paid off for 401(K) investors

By Julie Jason

Special to The Tribune

First Published Aug 29 2014 04:42 pm • Last Updated Aug 29 2014 04:42 pm

If you participated in a 401(k) plan at work during the financial crisis, you may remember seeing a "60 Minutes" segment highlighting the personal tragedies of 401(k) participants who lost retirement savings.

Now, more than five years after the March 2009 market bottom, we have hard data on 401(k) participant returns, recently released by the Investment Company Institute.

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Employees who continued to participate in their 401(k)s from the end of 2007 through the end of 2012 saw their balances increase about 40 percent.

That’s a good result, given that the average 401(k) account balance dropped by 34.7 percent in 2008. These figures include both employer and employee contributions, investment returns, withdrawals and loans.

According to the report, from year-end 2007 through year-end 2012, the average account balance rose from $77,049 at year-end 2007 to $107,053 at year-end 2012, for an average annual return of 6.8 percent (cumulative about 40 percent). The median account balance in this group rose much more — 76 percent, from $28,358 in 2007 to $49,814 in 2012, a compound annual average growth rate of 11.9 percent.

On average, a significant amount (three-fifths) was held in stock funds or company stock, with younger participants holding more equities than older participants.

The study reviewed about 7.5 million "consistent" participants, defined as the 401(k) participants with accounts at the end of 2007 in the EBRI/ICI 401(k) database who had accounts at the end of each year from 2007 through 2012.

If you would like to read the ICI report, "What Does Consistent Participation in 401(k) Plans Generate?" you will find it at www.ici.org/pdf/ per20-04.pdf.

While the study ends in 2012, adding 2013 would have boosted returns even more. That year, the S&P 500 Index rose almost 30 percent.

According to an ICI report released in January 2014, "Americans’ Views on Defined Contribution Plan Saving," a majority of U.S. households have a favorable opinion of 401(k) plans — as they should indeed.

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One more point: There is another reason 401(k) participants need to stay the course, especially if the plan offers a match — it’s the math behind the 401(k).

As I wrote in my Oct. 19, 2008, column, "Do the Math and Stay the Course on Your 401(k)," when you consider the pre-tax savings you have when you contribute to your 401(k) and add the extra money your company contributes through the match, you have a winning combination — even in declining markets.

Julie Jason welcomes your questions/comments (readers@juliejason.com).

Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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