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Market Turmoil Puts Squeeze on Retirement Savings

The markets have endured a wild ride in recent weeks, increasing anxieties over the solvency of retirement savings accounts. The director of the Congressional Budget Office discusses how the financial crisis may impact retirement accounts.

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  • JEFFREY BROWN:

    Now, we do gauge some of the fallout that is already happening from the financial turmoil. We look at the impact on retirement savings and the federal budget with Peter Orszag, director of the Congressional Budget Office.

    Welcome to you.

  • PETER ORSZAG, Director, Congressional Budget Office:

    Thank you. Nice to be here.

  • JEFFREY BROWN:

    Now, we just heard some potential good, and I think we're all hoping for that. But you've been looking at the impact already on retirement savings, something that everybody is concerned about.

    Can you make a general statement about what the impact has been so far?

  • PETER ORSZAG:

    Sure. And retirement assets are one of the myriad ways in which financial market turmoil is going to affect households, looking specifically at that since the beginning of — sorry, since the middle of last year, retirement assets, public sector, private sector, defined benefit, defined contribution, all together, have declined by about $2 trillion, or about 20 percent.

  • JEFFREY BROWN:

    Two trillion dollars?

  • PETER ORSZAG:

    Yes.

  • JEFFREY BROWN:

    Now, you just — there's different kinds of pensions.

  • PETER ORSZAG:

    Yes, there are.

  • JEFFREY BROWN:

    And so break it down a little bit. Define "contribution." That would be the 401(k)s that people are familiar with.

  • PETER ORSZAG:

    Right.

  • JEFFREY BROWN:

    Now, do we know — are most of those in stocks or the majority? How does that work?

  • PETER ORSZAG:

    Something like two-thirds of the assets that are in 401(k) plans are in stocks. And, actually, one problem is that too many workers are over-invested in a single stock like their own employer's stock, which is not a wise investment strategy.

  • JEFFREY BROWN:

    Not sufficiently diversified.

  • PETER ORSZAG:

    Not sufficiently diversified, yes. But even for those who are diversified, they suffer when, if you're in a diversified stock fund, when the stock market goes down, your retirement assets decline.

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