with the sp 500 spx down about 20 since the beginning of 2022 it’s useful to consider how it affects the retirement savings of today’s workers the shift from definedbenefit db plans to definedcontribution dc plans in the private sector means that nongovernment workers have the bulk of their retirement saving in 401ktype plans or individual retirement accounts iras see figure 1 it’s important to include iras in the calculus because they are largely rollovers from 401ks most state and local workers continue to be covered mainly by definedbenefit plans to the extent that the money in these private sector accounts is invested in equities workers bear the full risk of stock market fluctuations vanguard reports that 72 of the 401k plan assets that the company manages was invested in equities in 2020 given the covid19 stock market boom the percentage might be slightly higher at the end of 2021 my best guess is that the asset allocation for iras would be about the same thus a significant portion of retirement assets are at risk read why retiring this year could be a worstcase scenario one question is who holds these assets again the data come from vanguard in terms of income it used to be that highincome participants took on more market risk that is invested more in equities than their lowerincome counterparts however with the rising use of targetdate funds and automatic adjustment lowerincome participants actually have a slightly higher share of their assets in equities see table 1 it is also important to understand which age groups are exposed to fluctuations in stock market values if younger employees hold most of the equities they would have time to recover and gain back losses before retirement in terms of age equity holdings do decline as participants age but those 65 and older continue to hold almost half their portfolio in equities see figure 2 to the extent that these older individuals are forced to draw down their retirement assets they will not have a chance to recover so how much have people lost in their retirement plans during this market downturn assume the markets are down roughly 20 since january participants would have lost 20 of 68 trillion 95 trillion x 72 or 14 trillion in their 401ks and ira owners would have lost 20 of 100 trillion 139 trillion x 72 or 20 trillion in these accounts remember that iras are mostly 401k rollovers and therefore should be counted in the total one could argue that these recent losses are simply wiping out the extraordinary covid19 gains so that participants are not actually worse off than before the pandemic but it’s human nature for people to feel like prior gains are theirs to keep so the recent losses are painful people mostly the wealthier also hold equities outside retirement accounts in 2021 these holdings amounted to 322 trillion applying the 20 decline means that people have lost an additional 64 trillion in direct holdings these individuals however are much less likely to be forced to sell and can wait out the decline to recoup their losses we all know that the shift from definedbenefit to definedcontribution retirement plans has transferred longevity and investment risk from employers to workers it is easy to forget this fact when the market is booming hard to ignore when the market tanks