Despite market’s turmoil, contributing to your 401(k) is still worth it

It is.

Or at least it’s worth it for the people who consistently invest, according to new research by the Employee Benefit Research Institute and the Investment Company Institute.

Yes, it’s painfully apparent 2008 was a crushing year for investors. The average 401(k) retirement account fell 24.3 percent, according to EBRI and ICI.

But data studied by EBRI and ICI found that over a five-year period - from 2003 to 2008 - 401(k) participants saw their account balances increase at an average annual rate of 7.2 percent. The calculations include ongoing worker contributions, employer contributions, and investment gains and losses.

For all participants in the EBRI/ICI 401(k) database, the average account balance at the end of 2008 was $45,519, compared with $65,454 in 2007. If you need a benchmark for how bad that 30.5 percent decline was, consider that the Standard & Poor’s 500 stock index declined 38.5 percent last year.

Taking that kind of hit is enough to unnerve even a seasoned investor. So it’s understandable that many people have been wondering whether they are foolishly investing the little bit of extra money they have now for the dream of having enough money to stop working at some point.

“Basically the engine of saving and investing that the 401(k) presents still works,’’ said Sarah Holden, ICI senior director of retirement and investor research.

For retirement plan participants consistently investing, the average account balance rose to $86,513 at the end of 2008 from $61,106 at year-end 2003. In the same group, the median account balance increased to $43,700 at year-end 2008 from $25,507 at year-end 2003, an annual increase of 11.4 percent over the five-year period.

Holden said that even though retirement plan participants suffered one of the deepest bear markets in modern history in 2008, the growth in account balances still shows that disciplined investing through workplace plans will help employees meet their saving goals.

You might be wondering: How long do I have to wait before I recover what I’ve lost?

No one can tell you for sure. But Jack VanDerhei, EBRI director of research, said his analysis shows that at a conservative 5 percent equity rate-of-return assumption, those with longer tenure with their current employer would need nearly two years at the median to recover.

One thing this study does prove is that we still have to view retirement investing over the long haul. You can’t look at one horrible investment year - in this case 2008 - and declare that investing is for chumps.

Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.