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U.S. Master Pension Guide, 2012 Edition
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CCH® PENSION — 02/03/10

Retirement Account Balances Are Recovering; Working An Additional Year Will Help

from Spencer’s Benefits Reports: The stock market drop of 2008 and early 2009 resulted in a 33% drop in assets in individual retirement accounts (defined contribution plans and IRAs), from a high of $8.6 trillion in the third quarter of 2007 to a low of $5.9 trillion in the first quarter of 2009. According an Urban Institute fact sheet entitled Retirement Account Balances (Updated 1/10), account balances have “rebounded sharply” since the first quarter of 2009. Total account balances are estimated to have reached $7.6 trillion in the fourth quarter of 2009.

The fact sheet notes that “although current retirement account assets remain 17% below their peak value in 2007, they are above their 2005 value and near their 2006 value.”

While investment losses have caused many people to postpone their retirement plans, another article by the Urban Institute, Delaying Retirement an Additional Year Could Offset Stock Market Losses, states: “By delaying retirement one additional year, many mid- and late-career workers could increase their income at age 67 enough to offset some or all of their stock market losses.”

Individuals currently covered by a defined benefit plan would receive additional benefit accruals by working another year or two. Those people currently covered by a defined contribution plan would be able to increase their account balances by making additional contributions for the extra year or so. In addition, the article points out that people who earn additional wages will increase their annual Social Security benefits.

By working an additional year, people who were born between 1961 and 1965 (“late-bloomers”) have a better chance to reduce or eliminate their investment losses. The Urban Institute estimates that the percentage of late-bloomers who will have lost 10% or more of their retirement income when they retire at age 67 will drop from 22% to 14% if they work an additional year.

The likelihood of recovery decreases the closer an individual is to retirement. “Delaying retirement would reduce the share of pre-boomers (those born 1941-1945) who lose 10% of more of income by only one percentage point, from 20% to 19%.” However, the article notes that pre-boomers had mostly stopped accumulating assets by 2008, resulting in fewer additional losses from new asset purchases.

For more information, visit http://www.urban.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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