Ordinary people are confronting significant losses in their retirement funds as a result of the stock market crash. Whether or not the stock surge today is a significant indicator for the road to come, it will not prove capable of saving the 401(k). As an article in the WSJ indicates: "This year through Thursday, the average 401(k) account balance dropped roughly 19% to 25%, depending on the participant's age and tenure with the plan, according to Employee Benefit Research Institute [EBRI]."- As in the case of high winds and heavy undergrowth, this lays the case for a red flag alert for the stock market and investment banking in the days, months and years ahead.
Again from the same WSJ article, it is reported that: "Fully 27% of 401(k) participants age 56 to 65 years old devoted 90% or more of their account to stocks in 2006, according to EBRI."- This is the real indicator of the fact that the damage from yesterday, the stock crash is the harbinger of the tsunami to come. The 401(k) will suffer a violent death taking with it the futures of millions.
Politically, Obama has come out in support of withdrawal of funds up to $10,000 from 401(k)s without penalty. This is a good idea, but too little, too late. The time to have had this was before the crash, not after it. As people look to rescuing their 401(k)s right now they are not looking to save $10,000, but they are ready to bailout their whole savings which could be hundreds of thousands of dollars. Reflect on this given the WSJ's sum up of retirement funds: "There was $4.5 trillion in defined-contribution retirement plans at the end of 2007, including roughly $3 trillion in 401(k) plans."-
The response from employer-based matches to employee 401(k)s (see WSJ article again) will also make the 401(k) dead on arrival at the financial hospital. Without significant matching funds from employers, this will just become an employee savings account that is invested in the stock market or weak bonds. We need a DNR, Do Not Resuscitate, order for the 401(k) and focus on restoration and strengthening of Social Security in the recognition that it will be more than just a supplement to the elderly in the years ahead.
