Life After Debt: Rethinking Investments

Americans Have Lost $2 Trillion In Retirement Savings Since Nov; Now They're Asking What To Do With What's Left

(CBS)  The value of most Americans' single biggest investment - their home - continues to fall. And their second biggest - their retirement nest egg - has also taken a hit.

Since the bear market began in November, more than $2 trillion in 401(k) savings has evaporated.

And that has a lot of future retirees wondering what to do with the money they have left, as CBS News business correspondent Anthony Mason reports.

Sam and Myrna Cadelinia were hoping to raise a glass to retirement five years from now. But, Sam says, "That's all changed."

Sam owns a San Francisco real estate business and his nest egg has been eaten away by the recession. Retirement portfolio down 25 percent while business has virtually stopped for his company.

Now he doesn't know how to invest what money they still have.

Real estate and the stock market were supposed to be the reliable investments. But the financial crisis has turned a quarter century of assumptions about retirement savings upside down.

"Definitely it's created a serious level of fear for the first time. It's certainly shaken people," Ted Benna said.

Benna has lost about 20 percent in his retirement fund. And he's not just any investor. "I'm commonly identified as the father of the 401(k)," Benna said.

In 1980, Benna, a financial consultant, created what's now the main retirement savings plan for most American workers.

"I think what made this so difficult is that stocks and bonds tanked together. The strategy of being diversified just didn't work," he said of the current crisis.

So worried investors have been lighting up the lines at Vanguard, the country's largest mutual fund group, where everyone is asked to pitch in and take calls - even CEO Bill McNabb.

Vanguard sends out statements to 20 million accounts and manages about manages about $1.1 trillion in savings. McNabb says the crisis has changed investors. Three years ago, a typical Vanguard account had 70 percent in stocks. Today, that's dropped to 62 percent.

"It's gonna be transformational in terms of how people think about risk, how people think about savings. And those actually could be healthy in the long run," McNabb said.

For years now, Americans have put little money aside, assuming that double digit returns from the stock market would bail them out. We've expected the stock market and the real estate market to do all the work for us, and, says McNabb, "We have to do it ourselves."

McNabb says the savings rate is one of the most critical issues facing the country. Among Americans nearing retirement, about 60 percent have less than $100,000 put away.

So how much does our savings rate need to go up?

"The average 401(k) participant saves between 9 and 10 percent," McNabb said. "Our math would say it needs to be between 14 or 15."

For the average worker, saving 15 percent means putting away another $2,200 a year. What's more, the father of the 401(k) says, the wise retirement strategy now is to keep training, so you can keep working.

"One way you avoid having your retirement nest egg run dry is being able to continue to earn a paycheck," Benna said.

Sam and Myrna Cadelinia are confronting that reality. "Not all is lost. Our lives are just evolving differently," Sam Cadelinia said.

Like millions of Americans, they're adjusting to a new economy and new expectations.

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After the Great Recession: What Next?

The Best Places to Retire

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[JayAdler1]

In 1991 when I became a government worker and acquired a 403B plan,a few nuances short of a 401K I invested $50.00 and agreed to a 10% check withdrawal. I knew quite a bit about the financial markets at the time for two reasons. One, for some unknown reason, everybody in my family especially my cousins (one was a very successful stock broker) were street knowledgeable in the market and all of them did well. Over the years, I learned from them. In the late eighties I decided that I wanted to become formally trained in finances but I did not want to pay for college courses. Guess what, I went to my public library and read. I subscribed to the Wall Street Journal and Barrons and read some more. I called Fidelity Investments, Merrill Lynch, 20Th Century, Vanguard and more. The call is free and to this day they will spend a few minutes of time on the phone educating you and in particular send you wheelbarrows of learning material n/c. When I retired in 2007, that $50 was $112,000 and I never changed much at all, only mutual funds were available. When that went down to $30,000 I pulled everything out of the State Plan and did a rollover into my traditional retirement plan when for once I could buy single issues. I immediately purchased shares in Sirius at 5 cents per share ending at a holding of 4,000 shares and rising 15 fold. Stop the anxiety and learn, then research and pick.

[aperspective]

I am so glad to see many comments here deriding 401K plans. They were a brainstorm to direct citizen?s hard earned money into the greedy hands of Wall Street. Overtime companies matched less and less and creative fees added insult to injury. I made a good decision eight years ago not to join my companies 401K for these reasons. Break/convert your 401k if you have to and save 15% of your income in a CD and leave the drama behind. You will watch you money grow and have the satisfaction that you life?s savings are not being gambled away ? by a guy making more in annual bonuses than you earn over years.

[MaggieMN]

Retiring debt-free should be the goal.

A study my company (Securian Financial Group) conducted in February shows that about 70% of the retirees we polled retired with debt: One-third of that group had more debt than savings and investments!

It's hard enough to meet on expenses with a fixed income -- adding debt makes it even more difficult.

[veep1]

I'm miffed of those who had money in 401k plans did not know there was risk involved. I, like most, lost 40% of my 401k savings, I am in my late 50's and this setback will prolong my retirement by at least 10 years, but I don't blame the corporations for this problem. Our own government set the stage for this disaster, by arm twisting lending institutions to make loans to those who would not qualify. This set the stage for an attitude by many in the lending business to make loans in the commercial and residential markets without doing the due dilligence required. Our constuction industry is really the only Homegrown industry left in America and when it fails, as it has, look out. All business is affected, leading to the dramatic loses in the stock market. We can all thank our government for this. The ironic thing about this whole thing is that the government worker (who we support) is not affected by all of this. They will enter retirement as scheduled, and will see no reduction in there standard of living. The joke is on us Americans.

[jamesguy]

Invest in a lapdance. It'll help a single mother, and it'll give you a raise even though you don't have a job.

[johnbrown8888]

Those of us who may "retire" in the next ten years contributed like mad to social security to pay big bucks to the "Greatest Generation" and the "Golden Generation", and we expect to get some return on all those 7% after tax SS contributions plus employer's match.

After all, we paid for the "GGs" to drive around in 6 mpg Winnebagos after they were allowed to work at top salary to age 65 and retire with defined-benefit company pensions.

So the yuppies and the Xers and Gen D better start working harder as we're going to take our retirement and any politician who says not had better start looking for another job.

[zebra8835]

Everyone was told the 401K plan was the way to go. Practically every company has moved from the traditional retirement plan to the 401K and everyone got on board and poured in their life savings which have just about been cut in half. Most companies only contributed a measly 3% to 6%. And now after having our brains bashed in like baby seals, the majority of corporations have now decided not to contribute anything at all, great, just great! Wall street plucks us all like chickens and the corporations leave us hung out to dry, what a country!

They should pass new laws and all of your pension would be paid into a government account unless you would prefer to op out of the system and take your own chances. Regardless of who you worked for or for how long, you'd receive 100% of your benefit and be vested at day one. Hundreds of companies have proven time and time again that they cannot be trusted with fiduciary responsibility. The working time of your life is not replaceable.

[tmittelstaed]

I also rebalanced my 401K back in 2000 after losing massively in it, and out of disgust put the entire investment into money market funds, with about a 2% rate of return. The result? Today I have more money than I had in 2000, while everyone else who put theirs in stocks has less money (or the same amount) as they had in 2000.

The fact of the matter with 401K's is that the tax laws have turned them into an institutionalized rip-off. If 401K plans allowed you to immediately re balance, so that when you saw the stock market starting to slide you could pull your money out before it got eaten up, they would be worth it. Instead, all of them are designed to make it almost impossible to respond in a timely manner to market downturns, or market upturns. You can't put your money immediately into stock when the market is rising, and you can't pull your money immediately out of stocks when the market starts falling. Yet, the large institutional investors, and the individuals using brokers, CAN do this. As a result, every time there's a downturn, the non-401K plans save their behinds with money from the 401K plan losses, and every time there's an upturn, the non-401K investors get first dibs and by the time the 401K plan investors get into the game, the rally is over.

The simple demographics of the baby boom generation should show people that it's ludicrous to think that the majority of the baby boomers can retire. The country cannot afford to pay for all of them to sit around in Arizona in a retirement village. That's likely the real reason the collapse happened - the boomers will be worked until the day they die. The sad part of it is that the generation I'm in - the ones right behind the boomers - are mostly never going to get a shot at being the CEO's and VP's of companies out there because by the time the boomers die and vacate those jobs, we will be too old to get them. We will be consigned to watch the economic opportunities pass us by, and by the time we are old enough to start seeing any of the money come back to us that we put into the Social Security system, that system will be bankrupt, tapped dry by the boomers.

[get_down]

After my first Grand-kid was born last year, my perspective in life made a 180 degree turn - I consider her to be my number one priority and place my job behind it. It so happens this year opportunity presented itself that I decided to retire and so I informed my boss and he was surprised by asking me "Are you sure?" and I replied to him "Yes Sir". After all, coming from old-school and baby-boomer generation, I learned life is all about setting priority and pursuit one's dream. Well, after college, Military service, advanced Graduate study which landed me with my current job which lasted 25 plus years, it becomes only "when" not "whether" I'll retire and luckily my Number one son and his wife made it easier for me. Followed my Valedictorian's daughter's suggestion a few years ago - I pulled my 401K shares out of stocks and merged them into fixed category which prevented me from suffering more loss during those years. Other than still owning some company stocks, my majority assents all ended in fixed category. Sure with nowadays closed to zero percent interest rate, my assets don't grow as much, but at least it won't decrease any more! God bless everyone.

[incog-nito]

401K plans are nothing more than a way to transfer money from the many into the hands of the few, a way for them to gamble with OPM (other people's money) AND charge them a fee to do so. From the Dot Com bust to today's crisis, it's the same story. Create sham companies, run them into the ground while giving yourself huge bonuses, declare bankruptcy, and start all over.

Count your lucky stars they couldn't get social security to be privatized.

[despido]

by rightaboutit June 23, 2009 6:15 PM PDT
...It all started about 30 years ago. It was called reaganomics...
--------------------------------

Actually, it all started exactly 30 years ago when Jimmy Carter deregulated consumer credit. Our government can't resist the temptation to tinker. Politicians can't resist that urge to 'stimulate' the economy. Whether Carter's defeating the usury laws, Reaganomics, Clinton's deregulation of banking, the Fed's free money policy under Bush or Obama's 12.6 Trillion in promised funds; it always ends in a bubble bursting and disasterous consequences. Every President, every member of Congress is responsible. Ultimately, its the people that elected them.

[johnbrown8888]

"Sam owns a San Francisco real estate business and his nest egg has been eaten away by the recession."

Hard to sympathize with San Francisco real estate agents and speculators that funneled so much Asian money into the bay area real estate market that Americans are unable to afford housing there.

The trouble is, Americans believed the lies they were being told by the financial talking heads on TV and in print. These shills were all sponsored by their various industries to talk up the investment potential of whatever BS product they were selling.

Lesson: dont' trust a thing you hear on CNN, ***, or from Madison Avenue.

Their goal is to separate you from your money, not to grow your money.

Best invest locally.

[johnbrown8888]

Is "Fox" being censored as a dirty word?--figures.

[tincup356]

Whoever wrote the laws concerning 401k's had one thing in mind, how to get Americans to invest in something that could be easily stolen through the maze of corrupt investment schemes ......what even makes it worse if for some reason you have to cash out ......in the end after taxes and penalties......you get 1/3 and the government gets 2/3.......now someone tell me how this is fair, it's more like robbery without a gun put to your head. America's problems were not the fault of home foreclosures as they would want you to believe and used that as the excuse last year to rob 700 billion dollars from the American people. If home foreclosures was really the problem,,,,,then why 8 months later they have not spent a cent of that 700 billion on that problem? The answer is very easy, Congress, and the White house , BOTH parties,,,,,,,,are in CONSPIRACY with the banks and AIG to defraud the people of this country,,,,,,,Washington needs to be marched on by about 5 million middle class Americans who have lost not only retirements, but homes , jobs, everything, ,,,,,,because the people in Washington are TRAITORS who took an oath to represent the people,,,,,and then they betrayed those same people who placed their trust in them. They should all face charged of HIGH TREASON.

[despido]

This 'recovery' will be among the longest and slowest in our history. The old stand by, the stock market, will be very selective and volatile. Not exactly a first rate vehicle for retirement. As the newly incurred massive debts are funded, interest rates will rise, stifling any growth or comeback in home values. Another traditional haven gone bad. Sound depressing? Yup. I sure am glad I'm already retired. Never thought I'd be glad to be old - but hey, the times they are a changin'.