Retirement Dreams Disappear With 401(k)s

(CBS)  The effects of the current economic crisis have touched everyone. Even if you still have a good job and a paid up mortgage, chances are your monthly 401(k) statement will remind you that you've lost a good chunk of your savings.

Trillions of dollars have evaporated from those accounts that have become the prime source of retirement funds for a majority of American workers, affecting their psyche and their future. If you are still young enough, there's time to rebuild and recover, but if you are in your 50s, 60s or beyond the consequences can be dire, and its drawing attention to the shortcomings of a retirement system that has jeopardized the financial security of tens of millions of people.

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It was a gray, chilly morning in midtown Manhattan and a line of unemployed, mostly white-collar workers, stretched for blocks around the Radisson Hotel. More than 1,000 middle managers, stockbrokers, consultants, secretaries and receptionists had come hoping to find a job.

It was called a career fair, but there was no merriment - only a whiff of desperation.

Many of the people at the career fair have been out of work for months and burned through their liquid assets; their future, even bleaker than the present.

Alan Weir, who turns 60 this month, showed 60 Minutes his latest 401(k) statement, which he hadn't had the courage to open up.

"I'm afraid," he told correspondent Steve Kroft.

There's good reason for his trepidation: nearly half of his life savings have vanished in a matter of months.

"It went down again," Weir told Kroft, after opening the statement.

Overall, he said he was down about $140,000.

Asked if he thought he'd ever get that money back, Weir said. "I probably never see it come back. I was looking to retire, probably, when I hit 62. Can't do it now. I'll probably be working until I'm at least 70."

Until she lost her job, Kathleen Coleman had spent nearly 30 years working as an executive assistant on Wall Street. She doesn't have much to show for it.

She told Kroft her 401(k) was worth less now than it was in 2005. "And another one went down almost $40,000. One was 80 - 88,000. And then, and then it went down to 50(k)," she told Kroft, crying.

Coleman is 54 years old and lives alone. "I don't have any children. I've been a career girl all my life. And it's been a great career, and I don't deserve this," she said.

Asked if there had been some "nibbles" - potential job opportunities - she told Kroft, "All the nibbles I've had I get beat out by top models who can type. I have experience and dedication and loyalty, and I can make any boss shine. I can, if you're out there, I'll relocate anywhere for you."

"Psychologically, what does this piece of paper do to you?" Kroft asked.

"Oh, it crushes any rest I may get when I'm 65. I'll have to work for the rest of my life," she replied.

The saddest part of this story is that it is being repeated all over the country. In eastern Pennsylvania, 59-year-old Iris Hontz lost her accounting job and half of her 401(k) investments. She's now back in the workforce as a part-time cashier in a grocery store.

In Dearborn, Mich., Terry and Donna McNally are barely holding on; he lost his sales job in August. The condo they bought 15 years ago is worth less than their mortgage, and 40 percent of his 401(k) retirement savings is gone. Donna is the main provider now, running a daycare center out of their home.

Terry considers himself fortunate to have found part-time work greeting the bereaved at a funeral home and making lattes at Starbucks, where colleagues young enough to be his grandchildren have taken him under their wing.

Asked what the hardest part is, Terry McNally told Kroft, "I'm no longer sitting at a computer or driving in a car to a call. You know, suddenly I'm standing for four to six hours and greeting people or makin' drinks or tryin' to learn the process and the food business thing, which is very difficult."

"It's tough," his wife added. "But I'm proud of him at his age to be doing what he's doing."

"The 401(k) drop was tremendous, is tremendous at this point in time. And that's where the savings was, you know. That's our hurt right now," Terry McNally explained.

"We can't live our vision of our dream of retirement. That's the worst part. Many people can't," Donna McNally said.

That dream, Donna McNally told Kroft, was to have a log cabin in northern Michigan and live a nice quiet life. "And we can't do that," she said.

Neither one of them thought that they might be able to retire. "Can no longer see that day," Terry McNally said.

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[Jerry_Flo]

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[60MinutesFan567]

It is indeed frightening that so many people have been so mis-educated about 401ks. And I have to say that while I love 60 Minutes and their usually high-quality investigative journalism (I even bought the 60 Minutes mug from the CBS store on a trip to NY!), I was thoroughly disappointed by the sloppiness of this segment and its intellectually-lazy and superficial approach to the issue.

In these times, it?s very easy to stand up and say woe to those who have lost so much and blame the most obvious candidate?the 401k system. But what they didn?t address is 1) what are the alternatives to the 401K system? And 2) what were the real problems it was facing? Was it really market volatility that can cause losses in a savings plan and some undisclosed fees? Or was that Americans weren?t saving enough for retirement to begin with, and when they did, they often unknowingly allocated it into risky investments?

There are 30 somethings who have all their money in cash (won?t be able to outpace inflation over the long term) and 50 somethings who have their 401K in company stock (ask some of the employees of Enron how that worked out for them).

Some studies have suggested that 15 % of someone?s salary, including company contributions, needs to be saved. Most people save more like 7% with their employers match, and that?s only the average among those who contribute. Many don?t even sign up for their companies 401K plan, not even to take advantage of the match. Those whose companies don?t have a 401K, often don?t bother to open an IRA or Roth or something that would enable them to build some kind of nest egg.

Americans were all around saving too little and spending too much in recent decades, and the 401K/retirement savings is no exception to that. I was blown away that the 60 Minutes segment didn?t even mention this. We were on the path to a crisis before the market collapse, as an aging baby-boomer population who had saved far too little was approaching their golden years.

With regard to the poor asset allocation choices many investors made, of course it can seem like you?re gambling your retirement if you?ve invested it unwisely. I?ve often been amazed that our education system will teach you trigonometry and baking brownies in home economics, but won?t teach the masses what is a stock and bond.

Perhaps its because so many teachers and government employees have such generous pensions that they never need to worry about retirement savings and asset allocation strategies. But the vast majority of us are going to actually have to manage our own savings, and they have done nothing to address the financial literacy gap and adopt the education curriculum to modern times. People at least need to speak the same language as their financial advisors, and if they can?t afford an advisor, then that?s all the more reason they should be educated on how best to manage the money the do have.

Speaking of pensions, it?s increasingly obvious this system has its flaws too?something else this segment didn?t address: what are our alternatives to 401Ks?

Pensions are the perfect solution for someone who spends most of their career at one stable company. However, in the unstoppable churn of globalization, what companies are sure-fire solid decades now? GM employees thought their company was solid, and why wouldn?t they after it topped the list of Fortune 500 list of conglomerates? Polariod employees thought the same, but after Polariod went under, their pensions were wiped out. Even municipal governments across the country are grappling with near insolvent pension plans that could blow up without Federal stimulus money or having to hike taxes.

Some have proposed a government guaranteed retirement system. With mounting federal deficits and Social Security eating up close to one-fourth of the federal budget, I don?t see how that?s possible.

Social Security, as we all know, has its problems as well. It?s surprisingly similar to a giant ponzi scheme where pay-ins by younger workers support retirees pay-outs. This is great when the demographics are in favor, but when you have a younger population supporting a growing older population, as we do now, the plan hits obstacles.

Social Security is not yet in crisis (at least not like Medicaid), but without efforts to reform it, this could be the case in a few decades. The last thing we need is another cripplingly expensive government plan that would and replace 401Ks.

So while the 401K system may be in need of reform that would further encourage more savings and sounder investment selections, it?s probably one of the best solutions we have. For 60 Minutes to devote a segment to easy populist-pandering sob stories and fees, and ignore the real problems, was borderline irresponsible.

So while I?ll depart my soapbox and I?ll still watch the show, I?ll do so with perhaps a more skeptical eye of their research collecting.

[1jhnerd2]

The ignorance I'm reading on these pages is not just appalling, but dangerous. Ignorance isn't a bad thing, but hopefully we have the motivation to at least learn enough to know what we don't know. Anyone who feels that 401K plans were designed by greedy businesses to exploit the average worker is delusional. How about the greedy workers who invested too much of their savings in stocks rather than more conservative bonds and money market funds.

Reading these posts, it's evident that when faced with adversity people react in two distinctly different ways. Those who thrash around looking for villians and those who focus on making the best of the hand they've been dealt.

Again, shame on CBS for playing into this easy, emotional hit. We need our media to play more of a moderating voice of reason and elucidation rather than fanning the flames of ignorance.

[stevenduval]

This is something that independent 7702 Private Plan representatives have been preaching for a long time. There is just way to much control of your retirement with unregulated and greedy people with a 401k Plan. But things are changing, every month thousands and thousands of people dump the company plan and set up their own 7702 Private Plan. Interest is earned tax deferred and there is no market risk - further because of heavy regulation the person representing the 7702 Private Plan administrator must present a detailed retirement illustration that discloses all costs and fee's. In most States they even have to show you what would happen if you put your money in, and the market kept going down, all the way to zero.

The 7702 Private Plan is new, it became IRS approved in 2005, but it is already gaining mainstream popularity - that is the best way to get back at these greedy people. Pull you money out of a 401k (or at least stop putting money into it ) and start your own 7702 Private Plan!

[SgtLucifer]

It's a good thing that we had an MBA president to get us into this mess.

[1jhnerd2]

Although I feel sad for all of us who have lost so much of our retirement savings, I?m repelled by those who would blame 401K plans. They are wonderful savings vehicles?forced discipline, freedom of choice, tax deferral and for most, employee matching, free money. I doubt any 401K plans required employees to invest in stocks and most 401Ks are relatively low cost. Additionally, most companies have sophisticated employee communication plans to educate employees on their investment decisions.

So why would 60 Minutes engage in an irresponsible, superficial and pandering negative 401K piece? because it sells. But in this case, it will work against the program, because their motive to exploit all of us who have been hurt by the current economic tsunami is so evident that the program will lose its credibility going forward.

[AmericanWillow]

Please tell me that lovely woman (the "career gal") got a job. I'm unemployed too, and 52, but I've been thinking about her since the episode aired. Please update us. I'm hoping that she'll get a few nibbles from your story.

Good story, by the way.

[scout331]

Thank you for doing a story on this. My husband has a standard pension and will get a guarenteed lump some or a guarenteed monthy annuity. My company did away with pensions and my 401K has never produced the earnings touted by those who support this. Corporations took the opportunity to "sell" this to employees when the steelk industry collapsed and when the tech boom was creating millionaires. If you told someone you would take your savings to Vegas and try to win big, they would think you were nuts. Well, investments of any kind are a gamble and are different than savings. Bring back pensions and let people who want to invest do so with their disposable income.

[dlkndsn]

When the 401K was introduced, it was claimed to be the solution to everyone's retirement worries. Just put some money in it, your company will match some of it, and you will be able to retire with no problem at all. The missing link is that noone is given any information on how to manage their money. One thing our schools should teach is how to manage money. How do you determine what to invest in? Who should you go to for help? How do you determine how much money you need to retire? How do you "grow" your money? I think the 401K is a good investment vehicle, but people must learn how to manage it. My wife and I were fortunate to find a really good, honest investment advisor. Yes, they are out there, but you must look very hard. Many of the schools in the Minneapolis area where we lived had Adult Education classes that were focused on retirement. Over the years, we went to many of these classes. Part of the class involved the financial advisors giving the class providing the students with a free retirement plan. Through this mechanism, we met many financial advisors and learned a great deal about what questions to ask and what to look for in an advisor. Secondly, while everyone was busy upgrading to bigger and bigger houses, we stayed in our house for many years. We put as much money as was practical into our 401k's and have a good retirement because of it. We have lost some portion of our 401K's, but thanks to our due diligence in learning how to find an advisor, we have done quite well. We never have owed anyone money, aside from our mortgage, and didn't run up thousands of dollars in credit card debt.

You do have to be proactive. Learn as much as you can. Most of all, live within your means. Don't trust anyone who says they can get you 12% returns no matter what the market does like Madoff did. That's impossible.

Go to investment seminars, ask questions, but don't yield to high-pressure sales pitches. Talk to many advisors. If an advisor doesn't really believe in a good asset allocation strategy, run like mad. It's hard work to find a good one, but it is worth it. Usually, advisors at these seminars push one kind of investment. It may be life insurance, stocks, bonds, mutual funds, whatever. They are basically pushing the one thing they make the most money at. Remember asset allocation.

I really feel sorry for sorry for people who have lost a lot of their retirement. We haven't yet, but this mess isn't over either.

The 401K is a good vehicle if you educate yourself.

[Yadyee]

azirine1, The markets started collapsing way before Obama was elected. It started in Sep. 2007. I am talking about the regulation needed on Wall Street so the corruption and greed does not continue (e.g., housing crisis). More transparency. We can't leave the candy store unattended. By the way, I was personally out of the market 100% in Dec. 2007.