The Checkout

A Knee-Jerk Reaction to a Loss in Retirement Savings

If you think you're the only one losing money in your 401(k), think again.

In its analysis of 2.7 million employees' plans, Hewitt Associates, a global human resources consulting company, found that the average 401(k) balance dropped 14 percent in 2008 to $68,000, down from $79,000 last year. In just two months, on average, employees have lost 18 percent of their assets, with some losing up to 30 percent.

This is how American workers are responding: They're moving their 401(k) retirement savings into less risky investment funds. According to a study released this week, the amount of 401(k) assets in equities, or stocks, is at an all-time low, with only 53.8 percent, on average, compared with 68.1 percent a year ago. That is also down from its high of 74.2 percent in 2000.

The number of employees making trades has also gone up, to 19.3 percent this year from 18.7 percent in 2007. To date, 5.3 percent of employee's 401(k) savings is being traded compared with 3.5 percent last year.

And the number of people pulling money out of their 401(k)'s is also increasing. More than 6 percent withdrew money from their 401(k)'s, up from 5.4 percent last year. Much of that comes from hardship withdrawals rather than loans. Withdrawals are much harder to get and come with severe tax penalties. Employees who take withdrawals also cannot contribute to their 401(k)'s for six months.

"Because the credit crisis has made borrowing from financial institutions more difficult, we're seeing more employees turn to their 401(k)'s to get the money they need to help them get by," said Pamela Hess, director of retirement research for Hewitt Associates.

Some somewhat promising news: Only 4 percent of employees have terminated their 401(k) plans altogether.

By Nancy Trejos |  November 26, 2008; 7:02 AM ET Economy Watch , Nancy Trejos
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