The Retirement Financial Crisis Is Next America’s first generation without retirement pensions is devastated by three market crashes in 20 years James Gorrie, March 27, 2020 Given the enormity of the current financial crisis, millions of Americans are wonder- ing where their next month’s paycheck will be coming from. Granted, it looks as though at least a couple of trillion dollars are being committed to the financial rescue of the entire working American population. There will likely be another trillion or three thrown at it not too far down the road, as well. But what happens after that? It won’t be enough to solve all the financial and social problems we face. For example, one of the lasting impacts of our latest financial crisis is a looming retirement crisis. I’m talking about the money lost in retirement plans and invest- ment accounts. Now, it may seem like a retirement crisis that won’t be a big deal for another decade hardly seems worth squawking about now. But it is. Because without well-funded personal retirement accounts, we’re likely to see tens of millions of baby boomers living in poverty and seeking additional help from already strapped social services. And there are no good, fast, or easy answers to this challenge, either. Of course, it wasn’t supposed to be this way. In the old days, up to around the mid- 1980s or so, company and union retirement pensions were the norm. American workers didn’t invest their money in the market for retirement as much as they relied on company and union pension plans to do so for them. The creation of the 401(k) retirement plan was supposed to replace the company pension and give American workers control of their own retirements. And it did. But for the baby boomers, it hasn’t turned out so well. With cataclysmic market crashes in 2008 and the current financial disaster, millions of baby boomers are seeing retirement accounts and dreams evaporating before their eyes. In the financial world, one of the pillars of wisdom was that of long-term investing. The longer one’s money stayed in the market, the more it would grow. Sure, there would be bull and bear markets over the years, where stock markets would fluctuate in value. But the long-term trend for the past 90 years — essentially since the Great Depression in the 1930s — was positive. But even so, it took the stock market 25 years to recover from the Great Depression. This wisdom began to fail first with the stock meltdown of 2000, also known as the dot-com crash. Boomers who had contributed to retirement accounts starting in say, 1995, saw their accounts grow for the five years. Then, they saw their accounts fall by 30, 40, or even 50 percent. Then, a few years later, they began to feel okay about positioning their retirement funds back into the market again. They had to make up for the losses they’d suffered in the dot-com bubble burst of 2000, and of course, by 2004, the stock market was booming again. Then came the crash of 2008. Boomers again saw their retirement accounts fall in value by up to 50 percent almost overnight. This dismal phenomenon is called “sequence of returns risk.” Simply put, it means that if your account is hit early and often enough with negative market returns, then it will be much more difficult to actually recapture or grow your principal, because even in positive years in the market, your capital has been depleted, so the growth is minimized as well. That’s been the case since at least 2008. Then comes the crash we’re living through right now. Baby boomer retirement plans have once again taken a massive hit to their valuation. The boomer retirement crisis is a much bigger problem than many fully realize. In fact, it’s here, right now, not 10 years from now. Among U.S. households headed by people 55 years and older, about half have absolutely no money saved for retirement. And among those who did have money saved, the pandemic has likely taken much of it. Where should they invest now? And with what money?