WASHINGTON -- Retiree Paul Ferraro got out of the stock market before it got him.
"I'm sitting here while Rome is burning, and laughing," said Ferraro, 60, of Alexandria, Va.
Ferraro, who retired from the Labor Department in 1996, did get nicked a little, though. He lost about $4,000 last fall in various funds that were invested in the stock market, and "saw the writing on the wall." He pulled everything out in favor of lower-risk money market accounts.
Others weren't so fortunate.
For the first time in their 20-year history, 401(k) retirement plans lost money last year. The average balance dropped to $41,919 from $46,740 in 1999, according to Cerulli Associates, a benefits consulting firm in Boston. Overall, assets fell $72 billion in 2000 to $1.77 trillion. There were 327,364 plans serving 42.1 million participants.
Ferraro's wife Laura, 53, who still works, lost "a lot" in her investment portfolio and retirement plans. She can't bear to open her statements to find out exactly how much. But she is still several years from retirement and hopes to recoup the losses.
The stock market fall, combined with increasing debt, has meant the largest absolute decline in household wealth since World War II, even after correcting for inflation, said Christian Weller, an economist with the Economic Policy Institute in Washington.
Household wealth dropped $2.3 trillion, or 8 percent, between the end of 1999 and the end of 2000.
This comes at a time when a White House commission to overhaul Social Security is developing a plan to let young workers invest some of their payroll taxes in private accounts. Proponents argue that market volatility is minimal during a long holding period.
The annual return on stocks ranges from a worst-year drop of 35 percent to a best-year increase of 47 percent. But in any 35-year period in the past 128 years, the average annual rate of return for an all-stock portfolio was 2.7 percent to 6.4 percent, according to a study by the National Center for Policy Analysis.
"Stock are a lot less risky than most people think," said Andrew J. Rettenmaier, an author of the study.
That's not much comfort to workers nearing retirement. They have two choices to build back their savings: save more or hope the market recovers soon. Some experts say immediate prospects for either are dim.
Households and companies are overburdened by debt, which hurts the outlook for saving and the stock market, Weller said.
Americans' personal saving rate peaked at 10.9 percent in 1982. But in 1999, it plummeted to 2.2 percent -- an annual rate not seen since the Great Depression.
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