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Are Retirement Savings Too Exposed to Market Risk?

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  • Alicia H. Munnell
  • Dan Muldoon

Abstract

The stock market, as measured by the broad-based Wilshire 5000, declined by 42 percent between its peak in October 9, 2007 and October 9, 2008. Over that one-year period, the value of equities in pension plans and household portfolios fell by $7.4 trillion. Of that $7.4 trillion decline, $2.0 trillion occurred in 401(k)s and Individual Retirement Accounts (IRAs), $1.9 trillion in public and private defined benefit plans, and $3.6 trillion in household non-pension assets. This brief documents where the declines occurred. This information is interesting and important in its own right. But the declines also highlight the fragility of our emerging pension arrangements. Today the declines were divided equally between defined benefit and defined contribution plans, but in the future individuals will bear the full brunt of market turmoil as the shift to 401(k)s continues. Much of the reform discussion regarding private sector employer-sponsored pensions has focused on extending coverage. But the current financial tsunami also underlines the need to construct arrangements where the full market risk does not fall on pension participants.

Suggested Citation

  • Alicia H. Munnell & Dan Muldoon, 2008. "Are Retirement Savings Too Exposed to Market Risk?," Issues in Brief ib2008-8-16, Center for Retirement Research, revised Oct 2008.
  • Handle: RePEc:crr:issbrf:ib2008-8-16
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    File URL: http://crr.bc.edu/briefs/are-retirement-savings-too-exposed-to-market-risk/
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    Cited by:

    1. Alicia H. Munnell & Francesca Golub-Sass & Dan Muldoon, 2009. "An Update on 401(k) Plans: Insights From the 2007 SCF," Issues in Brief ib2009-9-5, Center for Retirement Research, revised Mar 2009.
    2. Alicia H. Munnell & Alex Golub-Sass & Richard W. Kopcke & Anthony Webb, 2009. "What Does It Cost To Guarantee Returns?," Issues in Brief ib2009-9-4, Center for Retirement Research, revised Feb 2009.
    3. Alicia H. Munnell & Anthony Webb & Alex Golub-Sass, 2008. "How Much Risk is Acceptable?," Issues in Brief ib2008-8-20, Center for Retirement Research, revised Nov 2008.
    4. Alicia H. Munnell & Richard W. Kopcke & Francesca Golub-Sass & Dan Muldoon, 2009. "An Update on 401(k) Plans: Insights from the 2007 Survey of Consumer Finance," Working Papers, Center for Retirement Research at Boston College wp2009-26, Center for Retirement Research, revised Nov 2009.
    5. Ashby H.B. Monk & Steven A. Sass, 2009. "Risk Pooling and the Market Crash: Lessons From Canada's Pension Plan," Issues in Brief ib2009-9-12, Center for Retirement Research, revised Jun 2009.
    6. Alicia H. Munnell & Jean-Pierre Aubry & Dan Muldoon, 2008. "The Financial Crisis and State/Local Defined Benefit Plans," Issues in Brief ib2008-8-19, Center for Retirement Research, revised Nov 2008.
    7. Alicia H. Munnell & Jean-Pierre Aubry & Dan Muldoon, 2008. "The Financial Crisis and Private Defined Benefit Plans," Issues in Brief ib2008-8-18, Center for Retirement Research, revised Nov 2008.

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