Concern about $2 trillion in retirement losses

By Pete Southern in LiveWire Economics Blog | October 9, 2008 9:30 |

The first question to open the second Presidential debate on Tuesday night was from a future retiree concerned about the losses of financial savings and assets of American workers in the current economic crisis. The second debate featured a “Town Hall” format, meaning the questions posed to the candidates were created by and delivered by Americans participating in the debate.

It is not surprising that much of the debated centered on the economy. Whereas the Iraq War and the War on Terror carried much emphasis early in the presidential race, the economy is front and center. It is none too ironic that the opening question of the debate related to retirements savings. With large banks and financial institutions dropping left and rate, many Americans are left wondering what could happen to their resources if the situation worsens.

Tuesday, a report indicated that Americans saving up nest eggs for their retirement have already lost over $2 trillion in the last 15 months. Analysts estimate this means in just over one year, cumulative retirement savings have lost approximately 20 percent of their value.

The big concern for many Americans is that a huge reduction in retirement savings amounts to more years of work and less time to enjoy retirement. Many retirement plans that include period payouts of a nest egg over time are adversely affected when the total savings is lowered. Essentially, this means there is less money to distribute over time and many workers would not be able to meet their monthly financial needs.

Already considered the greatest financial crisis in the US since the Great Depression, the mood on Wall Street and across the US has intensified to open this week. The Dow Jones Industrial Average has dropped 875 points in the first two days of trading. Many traders are in panic mode and trying to get out of risky stocks and find the safest place to store their financial assets until security is restored. The trouble is that the mood of anxiety and panic is partly a catalyst to continued turmoil in trouble markets. Fear prevents home buying. Credit markets are largely frozen which reduces business expansion and economic growth.

Some economists are already speculating that the $700 billion allocated to preserving struggling creditors may just be a “drop in the bucket” compared to the potential devastation as the economy worsens.

Both John McCain and Barack O’Bama spent most of their time Tuesday discussing their plans to improve the economy. Both candidates worked hard to lighten the sour mood about the economic picture. Each candidate did say the bailout was just the beginning of fixes that are required to help turn the situation around. Each also conveyed a sense of hope based on their respective plans for economic improvement related to tax plans, health, social security, Medicare, and more.

Prior to the tumult in the credit sector, many Americans have long been concerned that social security would be the next great economic crisis in the US. O’Bama and McCain discussed the various ideas about how to best ensure social security for future retirees. The debate included discussion of improvements, private security ideas, and more.

It will be interesting to see what reaction American voters have to Tuesday’s debate. Some have said the twelve days since their first debate have been among the most dramatic periods of events in US history. O’Bama currently holds a 7-10 percent lead in most polls, but the last thirty days of the election campaigns could be as rocky as Wall Street.

Market Recap

The Dow dropped 369 points Monday for its first sub-10,000 finish since 2004, as the week started off with a sense of despair over the struggling financial markets. After late week euphoria last week after the bailout plan, reality is sinking in as Americans begin to fear the worst. Gas has dropped below $3 per gallon in some parts of the US. Tuesday the Dow dropped another 508 points to bring its 2-day fall to over 875 points. The NASDAQ and S&P fell 108 and 60 points, respectively. The dollar is falling to nearly 100 Yen while it has driven higher against the Euro. Concern over the economic crisis grips Wall Street. Thursday marked the second of three Presidential debates.

Neil Kokemuller
Tuesday, October 7, 2008
10:36 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.


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