Spending a Little Extra Time At the Office

In today’s Washington Post, there was an interesting, and brief, article in the business section. The Post put the following question to the Employee Benefit Research Institute (EBRI):

How much longer would typical workers have to work to recoup their losses?

Specifically, how much longer will the average worker need to work until the value of their portfolio is back to where it was one year ago, assuming that the future stock market returns are in line with historical averages?

The EBRI analyzed 20 million people saving at different rates under 53,000 different 401K plans. The analysis factored in both expected employee and employer matching contributions. The ERBI assumed two scenarios:

  1. In the first scenario, called Actual Asset Allocation, employees continue to distribute their contributions among stock, bonds, and money market funds according to the existing averages.
  2. In the second scenario, called Zero Equity, employees up the portion of their contributions in the safest options (e.g., money market funds).

In estimating the number of years required, the ERBI determined that the number of years on the job was a better predictor than employee age. The results are:

Less than five years on the job

  • Actual Asset Allocation: 4 days
  • Zero Equity: 1 week

5-9 years on the job

  • Actual Asset Allocation: 10.2 months
  • Zero Equity: 11.4 months

10-19 years on the job

  • Actual Asset Allocation: 1 year 6 months
  • Zero Equity: 1 year 8.5 months

20-29 years on the job

  • Actual Asset Allocation: 1 year 9 months
  • Zero Equity: 2 years 1 month

I have been working since 1984. I have no current plans to alter my asset allocation. I guess this means that I can resume opening my Schwab and Fidelity statements in, let’s see, September, 2010. I can’t wait.

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