401(k) Owners Pray Markets Are Kind To Their Future

Over the last two decades, employers have been shutting down defined-benefit pension plans and steering their workers into 401(k)-type savings plans. But the returns on many of these retirement funds have been dismal for more than a decade.

RENEE MONTAGNE, Host:

And on Wall Street, the volatility of the last week or so may be stabilizing. Yesterday, the Dow gained over 200-points - relatively tame compared to the 4 and 5 percent swings of last week. But for people checking their 401(k) or IRA balances, it could still be discouraging, especially since for many people, these accounts represent their only retirement savings.

NPR's Tamara Keith reports.

TAMARA KEITH: It used to be when you retired, you got a pension from your employer, something you could count on every month. That's what it was like for Darlene McCray's father. But for her and most American workers, those days are long gone. Now it's all about the 401(k).

DARLENE MCCRAY: And I contribute 20 percent of my salary.

KEITH: McCray works for an engineering firm in the San Francisco Bay Area. She says she did what all the personal finance gurus say is right. She started putting money away in her employer-sponsored 401K when she was in her early 30s.

MCCRAY: I always this, you should expect your investments to make 10 percent. Well, I have not seen my investments make 10 percent in the last 20 years.

KEITH: McCray says she doesn't have any of the security her dad enjoyed a generation ago.

MCCRAY: At 54, I'm afraid.

KEITH: With defined contribution plans like 401ks, employees carry all the risks of paying for retirement rather than employers. McCray says she feels like she's betting her retirement on the markets.

MCCRAY: Retirement is not a gamble. Retirement should not be a throw of the dice. Well, you either got lucky or you didn't. Aw, too bad.

KEITH: If in the year 2000, you invested in a fund linked to the S&P 500 - something plenty of people do - and then left it alone, today you'd have less money.

TERRY HEADLEY: That, you know, is not a good outcome.

KEITH: Terry Headley is the president of the National Association of Insurance and Financial Advisors. He says the markets have had a lost decade. Headley owns a small investment and insurance firm in Omaha, Nebraska and has been trying to keep his clients calm over the past week-and-a-half of market drama. He still believes the fundamentals of individual retirement investing are sound.

HEADLEY: Sometimes we tend to take a very short-term perspective on, really, a long-term investment strategy. There has been, over the last 75 years, no better place for an investor to be than in the companies of the United States of America.

KEITH: And, yes, if you go back to the '80s and '90s, investing in the markets worked out pretty well for people, says Alicia Munnell, director of the Center for Retirement Research at Boston College.

ALICIA MUNNELL: It's a boom that actually stretched from 1982 - and then there was that collapse in '87, but that bounced back really quickly - all the way up until 2000. And that was just a wonderful ride.

KEITH: It's a ride she says many of the people retiring today enjoyed.

MUNNELL: The baby boom generation, even though it got hit by the financial crisis just as it was approaching retirement, actually was treated fairly well by the financial markets on the whole.

KEITH: But for those who expect to retire in the year 2020 or later, Munnell says that lost decade could be a real problem.

Darlene McCray thought her retirement savings and the value of her house would be enough to see her through old age. She's nowhere near there yet. Her new plan: stay healthy and work as long as humanly possible.

MCCRAY: I'm trying hard to pinch my pennies and really save and not have any knee-jerk reactions to what the market's doing and hope that in 10, 15, 20 years, I'll be in a lot better position. Hope.

KEITH: Hope that she can work long enough to see the markets recover and her home's value rebound.

Tamara Keith, NPR News, Washington.

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