Life After Debt: Rethinking Investments

Ted Benna - known as the father of the 401(k) retirement plan - says he's lost 20 percent of his own retirement during the current financial crisis. Americans have lost a total of $2 trillion in retirement savings since November and are trying to figure out how to invest what's left.
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.

More from CBS MoneyWatch:

Can You Afford to Retire ... Ever?

After the Great Recession: What Next?

The Best Places to Retire

Over 50? Here's How to Get (and Keep) a Great Job

  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"