Again Freakonomics:
A 60 Minutes segment on Sunday presented sad stories about people in their 50’s and early 60’s who had counted on their 401K plans to provide a comfortable retirement income by age 65 or even earlier, but who have had their dreams destroyed by the stock market bust.
Anyone born in the 1940’s or 1950’s who planned on retiring by age 65 has either ignored the rise in life expectancy (to age 82 for a man at 65, age 85 for a woman at 65); has saved like mad while working; or has delusions about the risks and returns to investments. I’d bet that many people extrapolated the huge returns on stocks between 2001 and 2008 as if they would persist forever. They didn’t, and they never will.
It’s true that in almost every year a random set of stocks will do better than other investments if held for 20 years (DeLong and Magin, Journal of Economic Perspectives, Winter 2009); but short-term fluctuations are greater on stocks, and one can’t count on huge sums being there every year.
So it may be heartless of me, but I am quite unsympathetic — even though my own 401K was down 12 percent at the bottom (only 12 percent because for once I was sensible and, as one should by age 65, had a large majority in bond funds).
I keep telling the wife--for the longest time now!--to just stop looking at the 401k's or you'll cry. She keeps doing it though.... : )
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