Monday, November 10, 2008

Some cut retirement savings back

Anne Wilson is putting an end to saving for retirement. Worried about the economy and the possibility of price increases for everything from food to gasoline, she made her last contribution to her retirement plan six months ago. Now, she's holding on to her cash.

"I'm not sure what exactly is going on,'' said the 55-year-old court reporter in Nashville. "There's uncertainty in everything, food, gas, investments; it's everything."

Surveys of Americans are finding that many people are either reducing their contributions to their retirement accounts or ending them altogether. Some are spooked by a volatile stock market, a declining economy or inflation. Worse yet, some are forced into curtailing savings after losing their jobs or because of a sudden onslaught of high medical bills.

Financial planners generally think this scenario means people who stop investing when times get tough — and stock prices reach bargain levels — lose out on potential gains because they end up buying only when stock prices are higher.

"It's like going to the mall and saying, I'm not going to buy that — it's on sale,'' said Doug O'Rear, a certified financial planner in Brentwood. "I'm going to wait until it goes back up."

The S&P 500 index has fallen 36 percent from a year ago, but it has recovered since its low of Oct. 27 by nearly 10 percent through Friday's trading.

Still, whether it's economic necessity or just plain fear, many Americans seem to be leaving their retirement plans behind.

An AARP telephone survey in September of working adults 45 years and older found 20 percent have stopped putting any money into a retirement account, such as an IRA or 401(k). A TD Ameritrade telephone survey recently said 16 percent of Americans reported reducing or eliminating retirement contributions.

Job loss and the cost of health care were the most common reasons given as explanations.

Sticker shock remains

Theresa Burson was blown away by her losses when she checked her retirement account online at work.

"I got tired of seeing a 30 percent loss every time I opened it up,'' said the paralegal from Goodlettsville. She stopped contributing last month.

What to do with one's horrific investment statement has even become a subject of intense marital debate.

Tony Mathews, a state budget director, said his wife wanted to respond to their dwindling accounts by ending their contributions. They have lost about 25 percent of their retirement savings since last year. He wanted to increase contributions, under the assumption that "everything is on sale."

They compromised by keeping their savings rate the same.

"We're in a position where we can ride it out,'' said Mathews, who is 40 years old and has another 15 years before he wants to retire.

Some say many of their clients' 401(k) contributions remain on a sort of autopilot, and that has helped the outflow of money from mutual funds and other long-term accounts from being any swifter.

Thomas Swain is a principal at employee benefits consulting firm Bryan Pendleton Swats & McAllister in Brentwood, which is affiliated with Wells Fargo.

He said only 8,750 of 1.4 million people in Wells Fargo's retirement accounts decreased their contribution levels in September, the latest data available. Still, that was double the normal head count.

A spokeswoman for Fidelity Investments said the average contribution to retirement accounts with the firm is slightly higher than last year, although she wouldn't provide information on the number of people who are dropping out or reducing their contributions.

A Vanguard spokeswoman also said the firm had no information on the number of people who were reducing contributions.

Financial firms work fervently to persuade people to stay the course.

Vanguard has been posting various articles on its Web site with titles such as "renowned economist reassures investors" and "now's the time for steady nerves."

Worried investors with retirement accounts managed by SunTrust Bank have ratcheted up call volume to 21,423 calls in September and October, up 27 percent from the same period a year ago.

"Clearly in the last 45 days, there has been unprecedented volume of activity,'' said Elaine Thomas, a group vice president at the Atlanta-based bank.

The bank introduced an automatic voice message at the end of September that reminds investors: "Saving for retirement is a long-term proposition."

Still, more than just individual investors and employees with 401(k) accounts at work are thinking harder about whether to save.

Some companies have gone so far as to end matching contributions to retirement accounts. General Motors, which saw sales fall 45 percent in October, announced last month that it was freezing its 401(k) match for salaried, non-union workers.

But such actions are rare. A survey late last month by human resources consulting firm Watson Wyatt said only 2 percent of firms had reduced retirement plan matches for employee accounts in response to the economic crisis. Four percent plan to do so in the next 12 months.

A more common response is corporate layoffs, which 26 percent of firms plan in the next year, and a hiring freeze, which 25 percent plan to enact, according to Watson Wyatt.

Most companies preserve retirement contributions because they don't want to hurt the incomes of their best performers, said First Tennessee Brokerage senior investment officer Bryan Bell.

"They want to keep their good people,'' he said. "Good people may be even more valuable in hard times. Productivity is important."

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