Fallout of stock market's plunge: retirement woes

Take Cameron Beck, a claims representative at the Social Security Administration in Boston. He wants to retire in two years. But an economic downturn may force him to work longer, he says.

"I'm terrified my retirement monies will be depleted," Mr. Beck says.

He has not given up completely on investing in the stock market. But he won't move back into the market until he believes the bottom has been reached.

"You know what they say about investing – don't try to grab a falling knife," says Beck.

A new AARP survey of workers over 45 years of age found that 65 percent believe they will have to work longer if the economy does not improve. In this demographic cohort, whose youngest members can just begin to see retirement glimmering on the horizon, fully 69 percent added that it is likely they will spend less after they stop working, unless in the meantime good times return.

Furthermore, 13 percent of workers older than 45 already are withdrawing money from retirement accounts to pay for day-to-day expenses, according to AARP. Twenty percent have stopped contributing to retirement accounts within the past year – unwilling to, in their view, throw good money after bad.

"Admittedly times are tough, but saving every little bit helps," says AARP's Ms. Setzfand.

Both candidates for president have proposed easing rules on access to retirement funds due to the current crisis. In particular, Democrat Barack Obama has called for the US government to allow penalty-free withdrawals of up to $10,000 from retirement plans.

Whatever the short-term benefit from such an action, it might be a bad idea in terms of retirement security policy, according to experts on the subject.

The government should look for other ways to ease the pain of the financial crisis, while encouraging people to continue to build up their savings, said Jerry Bramlett, CEO of BenefitStreet Inc., at the Oct. 7 House Education and Labor panel hearing.

Even a small reduction in savings can lead to a large reduction in payout later on, Mr. Bramlett said. "Given that most 401(k) participants are not investment experts, there is a danger that many of them will overreact to the market downturn."

Overall, total losses to retirement plans from today's downturn are more than $2 trillion, Peter Orszag, head of the Congressional Budget Office, said at the House panel hearing.

Assets of defined benefit plans had declined by 15 percent, he said. Assets of defined contribution plans had gone down even more, because they are more heavily invested in stocks.

• Mary Knox Merrill in Boston contributted to this report. Associated Press material was also used.

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