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CNN: 401(k)s are too risky for retirement

By Yvonne Walker

May 9, 2012


Sharon Edwards of Salem, Oregon, may have to move to Mexico, where the cost of living is cheaper, so she can afford her retirement.


She was always good about saving, but because of forced retirement at 62, the self-employed interpreter is now limited to a $500 monthly budget. Her finances are determined by Social Security, savings and the cost of treating a chronic lung disease. She worries about meeting her basic needs during her later years and thinks about selling her house to finance her expenses.


“When I budgeted for life as a single woman, I didn’t budget for 3% inflation, the loss of half of my retirement savings in the market crash, my hearing loss or early retirement,” she said.


Almost daily, we hear stories of the crisis stemming from the breakdown of the three-legged stool of retirement: traditional pensions, Social Security and individual savings. For the majority of Americans, one of the legs of the stool is already gone – traditional pensions. With its replacement, the 401(k), the stool is in danger of tipping retirees into poverty.


Recent research finds 401(k)-style defined contribution plans have lost their shine. IRAs and 401(k) plans lost a combined $2.8 trillion, or 47% of their value, between September 2007 and December 2008, the height of the economic recession.


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