Hello there! I am trying to become financially literate this year. I have listened to a bunch of people refer to the 2008 economic downturn, and how it set back their retirement savings.
I was 8 at the time, so I don’t have much life experience in economic recessions beyond COVID.
I understand that if you have retirement savings (401k or IRA), the money is invested in the stock market. When there is a downturn, those assets are worth less. But retirement accounts are long-term, so wouldn’t the assets just regain their value after an economic recovery? Why would it set you back permanently? Can’t you just wait?
Thank you! 🙌
In: Economics
You actually have a pretty good understanding, and a lot of people did bounce back.
* A lot of people lost jobs, or took lower salaries, or didn’t get bonuses for a few years, or something. They made less money, and couldn’t contribute much for retirement.
* Some people panicked, and sold their stocks, and didn’t benefit when stock prices went to.
* Some people needed to pull money out of investments/retirement funds to get by, and pulled out at lower prices and never got that money back.
* Lots of people didn’t have diverse retirement funds in index funds, they might have had stock from their company, or they might have invested in stocks they picked. Many of these stocks did poorly.
* For lots of people, retirement savings isn’t a 401K, it’s a small business they run, and some of these went broke.
* For some people- their retirement wasn’t a stock fund, it was an expensive home they bought with a low adjustable mortgage. They started with a low interest rate- but it adjusted/jumped up after a promotional period, and they couldn’t pay the higher rate. They tried to refinance, but they couldn’t- even though mortgage rates were low- because they were out of a job, or because their house value went down, or because they’d missed payments and their credit score was low. So they couldn’t get a new loan. So they defaulted on the loan and lost the house and their savings. A lot of people treat their house as their retirement savings.
* Some people already were retired and were taking money out of their retirement fund every month. They never saw the rebound.
Latest Answers