Rocky markets highlight retirement insecurity

By Pedro Nicolaci da Costa

NEW YORK (Reuters) - With Americans relying more heavily than ever on the stock market to fund their retirements, Wall Street's slide has some starting to worry they will struggle financially in old age.

Even worse, the housing crisis has reduced what employees are able to sock away, and some are even tapping their retirement money for everyday expenses like food and gasoline.

All this has reopened a debate over 401(k) retirement plans offered by many employers in the United States, which give employees responsibility to save for their own retirements and also some control over their investments.

"The 401(k) system today in the United States has been an acknowledged failure," said Alicia Munnell, director of the Center for Retirement Research at Boston College's Carroll School of Management. "It transferred all the risks and responsibilities from the employer to the individual."

The decline in the market has highlighted those risks. Share indexes on Wall Street have lost 14 percent of their value since hitting a peak in October. For someone retiring now with say, $500,000 in savings, that would translate into a drop of around

$70,000.

Peter Mitchell, a 65-year old former mechanic, is the kind of person who normally wouldn't give two cents about the market's ups and downs. But, having retired to New York city from California late last year, he is stressing about the effect of market volatility on his nest egg.

"You're going to see me out here on the street asking for change," he said.

Millions of other Americans who are in or nearing retirement have similar concerns about their finances.

"It's driving home to people that the market is volatile and it does move in erratic ways. You could be in a very different place six months from now than where you are today," said Dean Baker, chief economist at the Center for Economic and Policy Research, a think tank in Washington.

Before 1980, workers relied on so called defined-benefit plans managed by their employers, in which the size of their pensions were independent of the performance of the investments in the funds.

Those have been gradually overtaken by 401(k) plans, also called defined-contribution plans because employees define how much they want to contribute to their retirement.

By 2005, 42 percent of employees were participating in defined-contribution plans, while participation in defined-benefit plans had fallen to 21 percent, according to the Bureau of Labor Statistics.

BUY AND HOLD, BUT HOLD TIGHT

Of course, financial advisors, who make a living from giving people investment tips, say that the best strategy is still to hold one's nose through the tough times and rest assured that, over the long-run, stocks tend to be the best performing assets.