Retirement Savings Secure Despite Falling Markets

August 2, 2002

Much of the political debate surrounding Social Security privatization has focused on losses due to recent drops in the stock market's value. However, according to a recent Los Angeles Times article by James Flanigan, "the retirement savings of millions of workers have not been as hard hit as the market plunge would indicate." Although the "Standard& Poor's 500 stock index and the Dow Jones industrial average declined more than 20% in the last year, corporate and state pension plans and individual retirement plans lost only 5% to 10%." Dallis Salisbury, president of the Employee Benefit Research Institute, argues that in fact "there is no retirement crisis because of the stock market decline," which explains why the economy and consumer spending remain healthy.

The reason, the article argues, is that both defined benefit pension funds and defined contribution accounts like IRAs and 401(k)s tend to be diversified, holding not just stocks but bonds and real estate as well. This diversification has limited losses, even in this year's difficult markets.

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