Millions of Americans lost more than a quarter of their 401(k) retirement savings in 2008 because of the stock market's collapse, a setback that could force them to work longer or severely curtail their spending as they grow older.
In an analysis of their participants' accounts, Fidelity Investments, Vanguard and T. Rowe Price -- three of the nation's largest 401(k) plan providers -- also found that some employees were further eroding their savings by taking hardship withdrawals to pay for current financial needs.
Many Americans have seen their wealth evaporate with the drop in home values, the rise in the cost of living and the stagnation of wages. Now, as they tap into nest eggs to pay bills, they face leaner retirements as well. Particularly vulnerable are baby boomers who expected to retire in the next few years.
"With a hardship withdrawal, I'm going to eat my retirement for breakfast, lunch and dinner right now," said Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research in New York. "That is worrisome. It shows that the outcome of this crisis is not only that the account balance is down, but that they're taking out part of their principal. . . . It means that it will take longer to retire."
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The stock market's dramatic collapse revealed the vulnerability of a system that requires workers to make investment decisions that professionals once made for them. To make matters worse, many cash-strapped employers have recently been suspending their contributions to employees' accounts.
"The financial collapse just drives home how fragile these plans are," said Alicia Munnell, director of Boston College's Center for Retirement Research.
In a study released yesterday, Fidelity Investments reported that the average 401(k) balance dropped 27 percent, to $50,200, last year from $69,200 in 2007. Fidelity has more than 11 million plan participants.
Vanguard, which has 3.5 million participants, reported the average account balance for 2008 fell 28.5 percent to $56,050 from $78,411 in 2007. T. Rowe Price's 1.7 million participants also had a 27 percent loss on average.
And to think that then-president George W. Bush wanted to privatize Social Security?
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