TRILLIONS of dollars have been WIPED from Americans’ retirement savings.

The S&P 500 has slumped over 20% in the last year. The Dow Jones Industrial Average has fallen close to 16%, and the Nasdaq Composite has dropped more than 28%.

As a result, Americans have lost $1.4 trillion in their 401(k) accounts and another $2 trillion in IRAs.

According to the Director of the Center for Retirement Research at Boston College, Alicia Munnell, says most Americans “still have enough time to recover.”

Munnell says that she never expected any gains in 2021 and therefore, she believes the situation is “not so bad.”

She says, “I personally feel like I never expected the gains in 2021… In some ways, we’ve just lost those unexpected gains and put us back out to where we were before all this excitement started. In that sense, it’s not so bad.”

Last year, nearly 2/3 of all 401(k) money that it manages was held in stocks, according to a report by Vanguard.

Holding a large sum of equities in retirement accounts was sweet while it lasted.

The S&P 500 climbed 26.89% in 2021. The Dow and Nasdaq also scored gains of 18.73% and 21.39% for the year, respectively.

As a result, the average total and personal returns for retirement plan participants were 14.6% and 13.6%, for the one-year period which ended on December 31, 2021.

How Much Stock is Too Much?

In 2021, the retirement plan for those under age 34 consisted of 88% in stocks. For savers between the ages of 50-54, that dropped to 71%.

For those between the age of 60 and 64, it was 57%; and for those over 70, it was 43%.

“I was actually surprised at what a large share of assets people have in equities,” Munnell said. “At least in Vanguard, I mean having more than 70% of your assets in equities is quite a lot in your 50s. And it showed that even people approaching retirement had almost half their assets in equities.”

When asked why retirement savers have so much invested in equities, Munnell responded that this was largely due because of target-date funds, which “maintain a substantial amount of equity investment.”

Ninety-five percent of plans offered target-date funds at year-end 2021, up from 84% in 2012, according to the report. Eighty-one percent of all Vanguard participants used target-date funds and 69% of participants owning target-date funds had their entire account invested in a single target-date fund.

As a result, all retirement plan participants (regardless of income level) had more than 3/4 of their average account balance in equities in 2021. The median of participants allocated 87% to equities.

All Income Levels Have Similar Equity Risk

In the past, higher-income participants assumed somewhat more equity market risk than lower-income participants. However, with the increasing adoption of target-date funds and automatic enrollment, participants in ALL income brackets have similar equity risks.

In fact, the median retirement plan participant earning $50,000 annually had 87% of their account invested in equities compared with 85% for those earning over $150,000.

Equities come with a higher risk and higher return, but having a percentage of assets in stocks is not necessarily a bad thing even with the market mayhem.

“As you approach retirement, you probably will have a longer life expectancy than 20 years,” Munnell said. “That’s a long period over which to recoup losses. And it wouldn’t make sense to go to zero equity balances at 65 and give up all that return. But if you’re approaching retirement and you need to take that money out, then you get squeezed here.”

Who is Affected the Most?

The people who are most affected are retirees who by law are required to take minimum distributions from their tax-deferred retirement accounts now the year they turn 72.

“This year, that may involve selling some stocks at a loss,” Munnell said.

“Young people, it doesn’t bother at all, because they have years to have the market bounce back,” she said. “And even most people approaching retirement can wait this out.”

The other thing to remember is that people with these 401(k)plans and IRA accounts are basically the top third of the population in terms of earning, Munnell said, “so this is something that affects the higher paid, not the lower paid.”

If the declines stop now, then “people shouldn’t be that upset,” says Munnell.

“If it goes further, it’s worrisome, particularly if you have to use the money,” she said. “If you don’t have to use the money, then just don’t look.”


Is this advice helpful or re-asssuring? What do you think of Munnell’s comments?

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