South By North Strategies, Ltd.

One consequence of the current recession has been a significant loss of retirement wealth for the subset of Americans holding equities in IRAs, 401(k)s, and other tax-advantaged retirement savings accounts. A new analysis posted at TaxVox estimates how long it would take for portfolios to recover under various growth scenarios. The answers are not encouraging.

The post also highlights a frequently overlooked aspect of retirement saving: the class dimension. Severe stock market losses tend to inflict a higher price on older and wealthier households. Notes the blog:

Keep in mind that there will be big differences in how the crash affects individuals’ retirement prospects, depending on their age and income. Older people are likely to lose more because they had more invested before the crash and have less time to recover their losses before they retire. But younger people may benefit because they’ll have the chance to buy stocks at bargain prices. Because the wealthy are likely to own more stocks, they’ll lose more if the market does not bounce back, but gain more if it recovers. In contrast, low and middle-income individuals own few stocks and rely mostly on Social Security for their retirement. They are little affected by the market crash and most can recover their losses by working for an additional year.