Near Retirees Most at Risk for not Recovering Post-Recession

June 18, 2009 ( - Defined contribution participants under 30 have actually gained 24% in average account balances between the end of 2007 and April 30, 2009, but those 55 and over lost an average 16%, a Mercer study found.

A Mercer news release about the data analysis said younger participants with smaller balances can more easily recover from market setbacks through new contributions and possibly a more aggressive investment approach. Older investors have much less time to generate enough to make up for the losses.

Even though a recovery depends on a substantial increase in deferrals, Mercer said,participants over age 55 have cut their pre-tax contribution rates from 9.2% in September 2008 to 8.8% in April 2009. Only 8% of participants over age 50 who contributed in 2008 took advantage of catch-up contributions.

According to the announcement, Mercer looked at participant account data for those over 55 to determine what hypothetical future investment returns would be required to recoup the average investment losses suffered for this group of investors as of January 1, 2008. Mercer found that those with two years to retirement now deferring an average 8.8%, would need to add another 16.50%. Those with five years would need to add 6.6%; those with 10 years need to add 3.3%; and those with 15 years left 2.2%.

“The overall improvement in market conditions has certainly helped account balances to start heading in the right direction,” said Eric Levy, business leader of Mercer’s retirement outsourcing business, in the news release. “But, near retirees do not have time on their side. Based on our data it is evident that these participants are not adjusting their portfolios as quickly to capture the recent market upswing as they were to move into more conservative investments in late 2008.”

Other findings from Mercer's participant data through April 2009:

  • More participants are increasing their contribution rates, a trend Mercer has seen every month in 2009 except February.
  • The number of withdrawals is up 42% in the first quarter of 2009 compared to the first three months of 2008, but withdrawals still involve a small proportion of participants (0.96% versus 0.68%).
  • Thirty-three percent of those who took a withdrawal in 2009 also took one in 2008.