- Associated Press - Monday, March 21, 2011

DES MOINES, Iowa | Americans who were afraid to open their 401(k) statements during the recession are finding good news inside the pay envelope now: For the most part, their accounts have come all the way back and then some.

Nine in 10 of the popular retirement plans are at least back to where they were in October 2007, the peak of the stock market. Since the bull market began in March 2009, stocks have almost doubled.

And many investors who kept their nerve and continued putting some of their paycheck into a 401(k) during the market’s worst months are now ahead.

“I thought it would be more like six to eight years of pain, so I’m more than happy,” said Brett Hacker, a photographer for a TV station in Kansas City, Mo.

The married father of two said most of his account is invested in a mutual fund that tracks the Standard & Poor’s 500 index, and the rest in Meredith Corp., his employer. His balance fell 53 percent in the downturn. He’s now 15 percent ahead of where he stood in 2007.

“By the time that the market started going down, I thought it was too far gone to jump out - and I just let it ride,” Mr. Hacker says. “I figured that I was in for a long haul.”

Account balances didn’t recover solely from the strength of the market rebound. Those automatic paycheck deductions helped a lot.

On average, 401(k) participants put in about 8 percent of their pay from 2003 to 2006, according to business consulting firm Aon Hewitt. Contributions slipped slightly during the recession, falling from an average 7.7 percent in 2007, to the current average around 7.3 percent.

Advisers typically recommend setting aside from 11 percent to 15 percent of your salary to enable you to live comfortably in retirement, and ensure you save enough to last for decades.

A 401(k) plan allows employees to deposit part of their salary into an account and not pay income tax on the money until it’s withdrawn later in retirement. Employers may also match a certain portion of a worker’s contributions. Taking money from the account prior to age 59½ will trigger taxes and a penalty.

An Associated Press analysis of 401(k) balance data provided by the nonpartisan Washington-based Employee Benefit Research Institute found that the youngest workers with the shortest time on the job saw the most significant recovery.

If the stock market has declined, says Jack VanDerhei, EBRI’s research director, it’s almost always true that workers with fewer years on the job are going to recover more quickly. That’s because they can make up losses more readily by continuing their payroll deductions. The money they’ve contributed since 2009 makes up a larger portion of their total account balance.

The news is not all good: Employees who have been on the job from 10 to 29 years still haven’t recovered their losses since 2007. Their balances on March 1 were 5 to 8 percent lower than at the market’s peak. Average account balances range from $44,000 for the youngest workers to $187,000 for the oldest in this group.

And those who bailed out of stocks near the bottom locked in their losses - and if they were afraid to reinvest, they lost out on the recovery. Mr. Hacker knows colleagues in that situation, and said he was thankful he stayed the course.

Most investors sought to recession-proof at least some of their money by pulling out of the stock market. Last year they withdrew almost $97 billion from U.S. stock funds and put more than $240 billion into bond funds, according to the Investment Company Institute.

One lesson of the past four years for retirement investors is the importance of sticking with a strategy instead of trying to anticipate the direction of the market, said Brian Wagenbach, branch manager for the Charles Schwab offices in Minneapolis.

The S&P 500 was up more than 26 percent in 2009. However, an investor who pulled out of the market and missed just the top 10 trading days that year would have forfeited 44 percent in potential gains, according to Mr. Wagenbach.

“That’s the big lesson when you have this kind of market volatility,” he said. “You have to participate. Time in the market is much more important than timing the market.”

The stock market’s volatility also reinforced the importance of having an appropriate mix of stocks, bonds and cash, for your age and investment goals. But it is also critical to rebalance your portfolio to keep that mix on target, said Ron Florance, managing director of investment strategy for Wells Fargo Private Bank.

“Not letting your investment strategy be driven by fear and greed, but opportunity and fundamentals clearly is a winning strategy,” he said.