Yahoo Finance 10 Years Later: Have This Year's Retirees Recovered From the Recession?
The year 2007 started with peak home sales and ended with foreclosure rates that were double those from the year prior. The news didn't get much better in 2008 when five of the 10 largest point losses in Dow Jones history occurred. Depending on where people had their money invested, they saw upward of 40 percent of their retirement savings wiped out.
"There were certain things out of control of savers," says Jeff Scott, vice president of corporate benefits and retirement at insurance and consulting firm NFP. Even those who thought they had appropriately diversified their investments saw significant losses. "It was a little bit of a shock."
Now, it's 10 years later, and the effects are still lingering for some people hitting retirement age this year. "For people who lost their jobs and struggled to find a new one, they may still be trying to recover financially," says Andrea Coombes, investing and retirement specialist for NerdWallet. However, not everyone is suffering. "For others, the worst outcome might have been the way their 401(k) account temporarily dropped," she says.
It's a mixed bag for current retirees, and whether they have recovered from the recession depends on factors such as their line of work and how they responded to the crisis.
[See: 10 Ways to Repair Your Retirement Finances.]
The lost decade. Myra Natter, a certified financial planner and wealth advisor with Titus Wealth Management in Larkspur, California, says the recession alone didn't cause problems for those reaching retirement age right now. "We also have to put it in the context of the whole decade of 1999 to 2009," she says.
The years leading up to the financial crisis of 2007 and 2008 were part of what is sometimes referred to as a "lost decade." During those years, job growth was stagnant, and the S&P 500 recorded its worst 10-year performance in history.
For many 50-somethings, these years meant their investments weren't growing and neither were their incomes. "They were in their peak earning years, and then they had a double whammy," Natter says. She notes that this period seemed to have the most significant effect on those who were self-employed or who owned a business.
While her clients who have corporate pensions are still retiring on time, it's a different story for those who saw their businesses stagnate for 10 years. "I have a number of people who are going to work until 70," Natter says about the lost decade.
[See: 10 Costs to Include in Your Retirement Budget.]
Booming market helps today's retirees. While the recession of 10 years ago was among the worst the country has seen, the stock market has grown substantially since March 2009. "There's no doubt that the financial crisis decimated retirement accounts, but the stock market has been on a tear ever since," Coombes says.
As a result, many retirees exiting the workforce this year have gained back all their losses and then some. "Those who were able to ride out the downturn are sitting in better shape today," says Neil Krishnaswamy, a certified financial planner with Exencial Wealth Advisors in Frisco, Texas.
The problem is with those who either pulled out of the market after the drop in 2008 or moved their investments to more conservative funds that have only had moderate gains in recent years. Some investors tried to hedge against future losses, but those efforts could be backfiring.
"The trend we've seen today is more and more investment products that take away some of [the risk]," Scott says. Target-date funds are a prime example. These funds are intended to provide the right mix of investments based on when a person expects to retire. Older workers may feel like their money is in good hands when, in reality, some of these funds have been criticized for charging high fees and underperforming.
[See: How to Save $1 Million by Retirement.]
Feeling more optimistic now. Regardless of whether they will retire on time or work longer than expected, many people are feeling good about their future. According to a 2017 survey from investment firm Merrill Edge, 45 percent of respondents feel more secure now than they did 10 years ago.
"Since the Great Recession, we're seeing a strong sense of optimism among Americans, retirees included," says David Poole, head of Merrill Edge advisory, client services and digital capabilities. That may be partly because the definition of success is shifting away from a balance in a bank account. "Retirees, like the majority of Americans, place greater value on supporting their family than accumulation of wealth," Poole says.
"The financial crisis is to some extent burned into the memory of most investors," Krishnaswamy says. However, it's now 10 years in the past and a fading memory for some. The challenge is not to forget the lessons of that recession. New retirees should be vigilant to ensure they are able to weather the next downturn, whenever that may come.
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