As nest eggs shrink, many defer retirement

Employers offering traditional defined-benefit plans also have moved to shift risk to their employees by expanding the option of lump-sum payments — which removes the cost of retiree benefits from their books. In 1992, only 13 percent of employers offered lump-sum payment options; by 2005 nearly half of employers were doing so.

But while many older workers who had expected to retire now find they need to keep earning a paycheck to survive, it’s getting harder to do so. The national unemployment rate jumped to 6.5 percent last month from 4.8 percent a year ago. The rate is lower among older workers, but joblessness is rising among every age group.

Retirees have suffered through market downturns before. The conventional wisdom from most financial retirement advisors was that investing in stocks would help offset the corrosive impact of inflation on fixed-income savings like bonds. Like many retirees, Pecora, the paralegal, avoided selling her stocks because past market downturns have eventually reversed course.

“The last time (my retirement fund) fell that far was on Sept. 11, 2001, but I eventually got it all back by September 2007,” she said. “Now it's gone again.”

Given the scope and breadth of the turmoil in the global financial markets, it’s not at all clear how long it will take for investors like Pecora to recoup their savings.

That’s why financial advisers have long recommended a gradual investment shift, in the decade or so before you plan to retire, moving money out of riskier stocks into safer investments like money markets or bonds.

Investment firms catering to small investors have developed specialized "life cycle" funds, tailored to age and expected retirement date, that gradually shift assets to avoid the risk that stock holdings will plummet shortly before a planned retirement date.

But the traditional advice became more difficult to follow in the past decade. Historically low interest rates meant that returns on safer, fixed-income investments have barely kept up with inflation, and in some cases have fallen behind. So many older investors accepted more risk in the stock market.

“With some of the low returns on bonds, it’s not as if people had a lot good options,” said Certner.

Msnbc.com senior producer John Schoen answers your questions about retirement.

Certner says some retirees are also finding out the hard way the dangers of investing too much of their 401(k) savings in their own company’s stock. When their employer hits hard times, they face a double risk: Their company stock may go down sharply just at the moment when they are facing a layoff. (Certner and many financial advisers recommend that employees keep no more than 10 percent of their savings in their own company's stock.)

It remains to be seen whether the current collapse of millions of individual retirement plans prompts changes in the government-subsidized, individual retirement system that has become the primary safety net for most Americans. Among the proposals under consideration are moves to increase participation by making individual retirement plans “automatic” and to provide incentives or requirements that expand the number of employers who offer company-sponsored plans and make contributions.

But the problem didn’t arise overnight, and it won’t be solved quickly. In the meantime, those who are near or in retirement have been left to cope as best they can until the economy and financial system can get back on its feet.

“It’s been a nice ride,” said Laursen. “But I think we all knew that something was going to happen eventually.

Like many msnbc.com readers, Laursen admits to some resentment that, having played by the rules and managed his money wisely, he’s caught in a predicament that wasn’t of his own making.

“I am very upset that I managed my money, bought only what I could afford, only to be penalized for making wise choices,” he said. “While others bought when they should not have, spent well above their income and now get bailed out, I am left wondering about survival.”

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