Recouping Losses in Your IRA

Question: I’ve lost nearly 30% in my IRA this year and am wondering how long you think it will take before I get back to even. Should I get more defensive now? Your thoughts? -Alexis, Los Angeles

Answer: Alexis, it will take at least a few years to get back to even, maybe a lot longer, depending on how your IRA is currently allocated. For example, a cash only portfolio or a bond only portfolio usually will take substantially longer to recover from the recent market declines than a diversified portfolio of 60% stocks and 40% bonds, or an all-stock portfolio.

Let’s assume an investor started with $100,000 in her IRA.

-If your investment is down 10% to $90k - you need to earn 11% to get back to even

-If your investment is down 20% to $80k - you need to earn 25% to get back to even

-If your investment is down 30% to $70k - you need to earn 43% to get back to even

-If your investment is down 40% to $60k - you need to earn 67% to get back to even

-If your investment is down 50% to $50k - you need to earn 100% to get back to even

In your case, assuming a 30% loss:

-It would take you 18 years to recover in an all cash portfolio (2% return assumed)

-It would take you 7.3 years to recover in an all bond portfolio (5% return assumed)

-It would take you 4.7 years to recover in a 60/40 portfolio (8% return assumed)

-It would take you 3.7 years to recover in an all stock portfolio (10% return assumed)

The rates of return used are for illustrative purposes only and are hypothetical in nature because we have no idea what we’ll actually earn.

Bill’s Bottom Line: Locking in losses and moving to low-yielding alternatives during a market down turn can lengthen the time needed to recoup your IRA.


Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert on CNBC’s “On the Money”. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at www.MyRetirementSuccess.com.