One Way to Rebuild Your Battered 401(k)

A year ago, at about the time many investors would normally have done a regular reassessment of their 401(k) plans’ asset allocations, the markets were in too much chaos to make the exercise practical. But now it’s time to face reality. How can you rebuild your 401(k)?

The good news is that you can recover from sizable losses, even if you’re approaching retirement.

The bad news is that you only have a few options for recovering. You can save more, invest more aggressively or work longer. The easiest option is to work longer.

Savings certainly matter – but for many of us, saving more isn’t a viable option because we’re strapped as it is.

If you plug figures into the Fidelity Financial Engines model, you’ll find that working longer is the best way for a 50-year-old Average Joe to get a 401(k) back on track.

If Average Joe had a $500,000 portfolio, was contributing $1,000 a month to his 401(k), and was planning to retire at age 65, the model determined that increasing his savings by $100 a month or changing his investment mix from 70% stocks and 30% bonds to 60% stocks and 40% bonds helped only a little.

But if Average Joe worked until age 67 instead of 65, it would have a dramatic effect.

According to the analysis, 50-to 60-year-olds can get their 401(k) plans back on track after recent stock market losses without any additional savings if they work just two or three more years.