Just something to think about: the years that are most impactful on your retirement are when you are young. Id argue that he'll have a very hard time catching up through traditional means if he is young and things go south.

This.

The power of compound interest. Every time I look at how much I need to save for a decent retirement I wish I'd started five years earlier (which I completely could have afforded).

That was more true at a time when interest rates on CDs were 6%. Now they are 1%.

If you want a decent return today you've got to heavily leverage or take on a lot of risk. That's probably going to be the norm for a while.

That's true, the question is how quickly will he be able to return a similar amount to the fund?

Yes, the next three years might be low but it will rise again and the question isn't just when he can start paying back into it, but how quickly can he get it back to it's current level.

I concur with 35636. Compound interest was the old era. The new era is "pay the piper". Returns will no longer be fueled by $trillions in federal borrowing. Instead they'll be greatly pressured downward (perhaps to negative levels) by austerity measures.

The power of compound interest isn't what it used to be. When you walk into your bank and see a sign proudly advertising 3-year CDs at 1%, that's when you know it's time to start taking chances. Even crazy ones.

All the more reason for me to have started in the mid-90s when it was exactly what it used to be...

But it's not the mid-90s anymore. This thread is about the right strategy for 2012-2013.

I know, I was being maudlin.

Back on topic, let's assume that things stay bad for five years before they pick up some. I can get 3% risk free right now in the UK (cash investment) and five years of that is (compounded) 16%.

The question is can he get the fund back to it's current value plus 16% in five years?

Because it's not just about how quickly he can start paying into it again, it's about how quickly he can get it back to it's current value (or it's current value plus 16%), so he's got a comparable amount when the interest rates do pick up.

Even if it doesn't pick up and 3% is the new norm, that still compounds over 20 years to doubling it's current value. Is he going to be able to / be willing to make up that money in some other way during that period?

That's all a bit all over the place but the point is that low rates aren't nothing (particularly not when compounded), and even with low returns rebuilding that fund isn't going to be trivial.

> the years that are most impactful on your retirement are when you are young

The impact is a lot smaller nowadays, though, given current low returns (except with high risk of negative returns).