Retirement accounts have lost $2 trillion so far

Spoke with my mother recently.  She told me that a friend's father had lost over $600,000 from his retirement accounts last week alone.  The bleeding shows no sign of slowing.

For months, I've heard a certain radio talk show host make claims that they would be coming for your pensions soon.

(knock, knock)

They're here.

Tuesday October 7, 6:22 pm ET

By Julie Hirschfeld Davis, Associated Press Writer

Retirement accounts have lost $2 trillion, leading Americans to keep working, stop saving
WASHINGTON (AP) -- Americans' retirement plans
have lost as much as $2 trillion in the past 15 months -- about 20
percent of their value -- Congress' top budget analyst estimated
Tuesday as lawmakers began investigating how turmoil in the financial
industry is whittling away workers' nest eggs.

The upheaval that has
engulfed financial firms and sent the stock market plummeting is also
devastating people's savings, forcing families to hold off on major
purchases and even delay retirement, Peter Orszag, the head of the
Congressional Budget Office, told the House Education and Labor
Committee.

As Congress investigates the causes and effects of the
meltdown, the panel pressed economists and other analysts on how the
housing, credit and other financial troubles have battered pensions and
other retirement funds, which are among the most common forms of
savings in the United States.

"Unlike Wall Street executives,
America's families don't have a golden parachute to fall back on," said
Rep. George Miller, D-Calif., the panel chairman. "It's clear that
their retirement security may be one of the greatest casualties of this
financial crisis."

More than half the people surveyed in an
Associated Press-GfK poll taken Sept. 27-30 said they worry they will
have to work longer because the value of their retirement savings has
declined.

Orszag indicated the fear is well-founded. Public and
private pension funds and employees' private retirement savings
accounts -- like 401(k)'s -- lost about 10 percent between the middle
of 2007 and the middle of this year, and lost another 10 percent just
in the past three months, he estimated.

Private retirement plans
may have suffered slightly more because those holdings are more heavily
skewed toward stocks, Orszag added.

"Some people will delay their
retirement. In particular, those on the verge of retirement may decide
they can no longer afford to retire and will continue working," Orszag
said.

A new AARP study found that because of the economic
downturn, one in five workers 45 and older has stopped putting money
into a 401(k), IRA or other retirement savings account during the past
year, and nearly one in four has increased the number of hours he
works. More than one-third of these workers have considered delaying
retirement, according to the study, which also found that more than
half now find it difficult to pay for basic items such as food, gas and
medicine.

The hearing came just as workers are receiving -- or
about to receive -- their quarterly retirement savings account
statements, which are likely to show disheartening drops in the value
of holdings.

Jerry Bramlett, the head of BenefitStreet Inc., a
retirement savings plan administration company, said there's a risk
that people will overreact to the bad news by pulling their money out
of the accounts, which could add to their potential losses.

"For
participants with many years of retirement, a drastic abandonment of
equity positions in their retirement account will only serve to lock in
as-of-yet-unrealized losses. Markets do go up and down, and 401(k)
participants must try to think long-term," Bramlett said.

Still,
he said workers should do their best to diversify their retirement
savings accounts and "perhaps consider less volatile investments."

On
the heels of enacting a $700 billion market bailout, lawmakers are
searching for ways to help workers who are feeling the ripple effects
of the financial crisis.

"What should we be doing to try to find
a way to salvage the retirement position of American workers?" said
Rep. Dennis Kucinich, D-Ohio, an opponent of the government rescue
plan. Congress, he added, "rushed to protect Wall Street in hopes that
some benefits would trickle down to workers."

The massive losses
have already reopened a bitter and long-running debate about what role
-- if any -- the government should play in helping workers save for
retirement.

Some experts argue that the hefty tax subsidies that
Congress has put in place in recent decades for 401(k) and other
worker-contribution accounts have made people's retirement income less
secure by shifting risks, decisions and costs from employers to people
who often know little about investing.

"They are fatally flawed,"
Teresa Ghilarducci, an economist at the New School for Social Research,
said of the tax-advantaged plans. "They're too risky, and it's not good
policy to have workers run their own retirement plan. They want
government help."

Common mistakes workers make include
overinvesting in a single stock -- often their company's -- and
participating in funds that carry large fees or involve excessive risk,
the witnesses said.

"You cannot tell the participants at the
bottom of your fund prospectus, 'Warning: Your psychology may lead you
to make irrational choices,'" said Christian E. Weller of the
University of Massachusetts Boston.

The current market turmoil
adds to an already difficult retirement savings picture for Americans,
who are increasingly shouldering the burden of managing and funding
their own company-sponsored retirement savings plans as firms eliminate
traditional pensions.

Even before the recent downturn, older
Americans were on track to continue working longer. Twenty-nine percent
of people in their late 60s were working in 2006, up from 18 percent in
1985, according to the Bureau of Labor Statistics. Over the next
decade, the number of workers who are 55 and older is expected to
increase at more than five times the rate of the overall work force,
the BLS reported.

Falling home values and now the decimation of
much of their savings could plunge older Americans into period of
austerity not seen in decades, Miller said: "The fear factor is huge,
and they don't see the availability of resources to them to get well."

Orszag said the situation has little precedent in American history.

"The
period that we're experiencing is arguably the greatest collapse in
confidence that we've experienced since the Great Depression," he said.