Average Americans see very different 401(k) retirement…

Average Americans see very different 401(k) retirement savings

As financial markets were profoundly battered by the Great Recession of December 2007 to June 2009, people saving for retirement through 401(k) plans and other means saw their account balances shrink.

Some Americans reacted by withdrawing funds, preferring to absorb penalties and tax implications rather than brave the uncertain financial landscape ahead.

A large number of job losses caused many Americans to delay contributions.

The recession also caused many people to postpone their plans for retirement. Working longer to rebuild savings seemed to be a partial solution among many tough options.

But the stock market would eventually recover after hitting its lowest levels in March 2009. People who remained invested during the recession watched as their 401(k)s regained value over time.

A look at two demographic groups affected by the Great Recession serves to inform people on how timing and economic conditions can result in very different financial experiences, explained Kitces.com's Adam Van Deusen for TheStreet's Retirement Daily.

The financial well-being of 'early boomers' compared to 'late boomers'

While researchers frequently compare financial health across generations (Baby Boomers to Generation X or Millennials, for example), a study by the Center for Retirement Research at Boston College took a different approach.

The idea for this research was to look within one commonly understood generation (Baby Boomers) and study the varying effects of the Great Recession on retirement savings inside that group.

It looked at the experiences of 'early boomers' (born between 1948 and 1953) and compared those with the experiences of 'late boomers' (born between 1960 and 1965).

And the differences between the two cohorts within the Baby Boomer generation were found to be significant.

More on retirement:

For example, at 56 years old, the early boomers averaged about $75,000 in their retirement plans, while late boomers averaged about $37,000.

Also, when factoring in pensions (more common for early boomers) plus Social Security benefits, the early boomers had about $345,000 available to them, while the late boomers average $280,000.

A pocket watch is seen resting on $100 bills. Different cohorts in the Baby Boomer generation experienced the Great Recession very differently with regard to their retirement savings and 401(k)s.
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The retirement wealth gap is linked to different Great Recession experiences

The research suggests that early boomers, who were later in their careers at the time of the Great Recession, were beyond their peak earning years and therefore had a better opportunity to save money during a robust economy.

Late boomers experienced widespread unemployment during the recession and had fewer opportunities to increase their income when they otherwise would have been peaking financially.

"While generations can provide a useful window into the experiences of different age cohorts, there can be significant differences in the experiences of individuals within the same generation," Van Deusen wrote.

Now, late boomers are getting closer to retirement age and are likely seeking financial advice.

Van Deusen offered a thought for financial advisors about some questions they may encounter from their late boomer clients.

"Advisors might find that they have had a more challenging savings experience (and less accumulated wealth) compared to their clients who have already retired (which might call for a different approach to deciding when to retire and what their retirement might look like)," Van Deusen wrote.

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