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Retirement Out of Reach: Financial Markets will not Generate Adequate Retirement Income for Average Household

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Abstract:

In March 2000, the biggest bull market in Wall Street's history came to a halt. With the stock market's slide, households lost more than $5 trillion, or 18%, in financial wealth between March 2000 and the end of 2001, the largest nominal decline since 1952. History suggests that the record-setting run-up in the stock market was so dramatic that the future inevitably holds in store further declines in the stock market and household wealth.

While household wealth continues its decline, debate has intensified over the future of America's retirement system. At the end of 2001, President Bush's Commission to Strengthen Social Security proposed to redirect large parts of Social Security into individual accounts. In the meantime, the scandals around Enron and other corporations that roiled financial markets in early 2002 have forced the public and policy makers to question the security of company savings plans. These new misgivings, however, have not stopped proponents of Social Security privatization from continuing to argue for greater reliance on financial markets, despite the obvious risk such misplaced trust poses to retirement income. The risks of relying on financial markets for adequate retirement income are immediately apparent upon examining what has happened in recent years to retirement wealth for the average household.