The idea that retirement savings were destroyed in the market crash of 2008/2009 is a popular idea. I receive many comments in the context of Social Security benefits, the COLA and retirement to the effect there is no hope because the market crashed five years ago. Many people accept the notion without question that they are the victims of the evil people on Wall Street, the 1%, and the stock market.
The truth is that many Americans are likely the victims of their own poor planning, lack of financial sophistication or simply their failure to pay attention to what is happening around them. When I was managing 401k plans it was a given that many people would consistently move their investments out of stocks the minute there was a decline thereby locking in losses. They failed to take a long-term perspective or to focus on their real financial goals. The natural result was consistent disappointment in their 401k plan. The more serious consequence was a disappointing retirement and worry about the next Social Security COLA.
I am partially guilty of this investing approach myself; taking a too conservative perspective for investments after I retired. Thankfully, I have a son-in-law with more investing savvy who convinced me to take a more aggressive approach with a portion of my savings. Persistence pays though because even with a large portion of fixed income investment choices since I retired in January 2010, for every dollar I had then I have $116.50 today … and if I had been wiser, it would be quite a bit more.
Now as for those folks who blame the market crash for their current retirement woes, I say look in the mirror and then at the mix of your investments, what you did with investments in 2009, your timeframe for using your savings and the facts.
Following are charts showing the performance of three key market indexes over the last ten years. Note especially the extent of the recovery from the 2009 crash. Staying the course would have recouped any losses and quite a bit more.
- Shiller on 401K Plan Investing (calculatedriskblog.com)