Will Retirement soon be Obsolete

This latest market downturn may be the final death knell for the concept of retirement. Even before it hit, many companies were scaling back or even eliminating their pension plans. That is, those which were among the handful of employers that still offered them. Most of them had long since abandoned pension plans in favor of employee-directed (and employee-funded) 401(k) and other retirement accounts.

Of course, now many of these accounts have been devastated – or at least jolted – by the most recent market drop. Some employees – even those approaching retirement age – have seen their retirement savings wiped almost completely out. Losses of 40-60% have been commonly reported.

So where does this leave people who have been planning on retiring soon or sometime in the near or distant future? Obviously they are going to have to take a serious look at re-thinking their plans. Those who had been planning to retire within the next five years will be impacted the most. The market is not likely to recover quickly enough for these people. Most of them will probably have to postpone retirement for several years or forget about it altogether, even under a best case scenario.

But even most of the rest of us – the younger baby boomers and those who followed – might be forced to give up on our retirement dreams. With Social Security being inadequate – even assuming it won’t eventually go bust – and pensions pretty much a thing of the past, most of us had been depending on that money in our 401(k) and/or IRA accounts to carry us through retirement.

Now that money has become severely depleted and we’re unlikely to put as much of our hard-earned wages into the market as before, even after it bounces back. We are going to be reluctant to invest in stocks, wary of having the next bear market eat up years of gains in a few short months, as it did this time, and sending us back to square one.

Therefore, we are going to put much more, if not all, of our retirement savings into safer vehicles like CDs and money market accounts that grow only at about one to three percent annually, compared to the stock market’s historical average gains of ten percent a year. Those kinds of paltry returns will not be enough to fund a viable retirement for most of us.

As a result, retirement (at least in its truest definition) will soon become obsolete. Most of those who are working now will continue to work, at least part-time, well into their 60’s, 70’s, and 80’s. Only disability or death will ultimately bring their labor to an end. Our parents and grandparents don’t know how lucky they were.