After 33 years as a computer programmer for Lockheed Corp. in Burbank, Cuno Ranschau was looking forward to retiring late in 1988. But in the course of an afternoon two weeks ago, Ranschau, 57, abruptly decided to check out early.
Ranschau heard through the office grapevine that if he retired before the end of October, his account in the company savings plan would escape the devastating impact of the stock market's mid-month collapse. With his retirement funds 80% invested in stocks, Ranschau stood to lose about $50,000--more than his annual salary.
So, like 602 other Lockheed employees, he took advantage of an accounting lag and retired Oct. 30. "When the financial facts were there on the table--that I could work for a whole year for nothing, because I would have lost that much money or more--I said, 'Wow! Forget it,' " Ranschau explained.
The spur-of-the-moment judgments at Lockheed were only the most dramatic of a wave of decisions thrust upon Americans nearing retirement by Wall Street's turmoil.
Some, their company retirement accounts and private nest eggs decimated when the Dow Jones industrial average fell 508 points in a day, found that they will have to work longer than they had planned. Others struggled to translate dizzying memos about company pension programs to determine if they had been hurt.
And the investment choices that trouble everyone with a stake in the U.S. economy are especially pressing for those who soon will have to live on their investment income. Is it, they wonder, a time to hope for a rebound and stay in the market? Or should they cut their losses and shift into money market funds, certificates of deposit or other relatively secure investments?
Experts say the situation is not cataclysmic. The market, after all, did no worse than retreat to slightly above its level of a year ago. Traditional pension plans seem, in the main, to have weathered the crash--despite some eye-popping losses--so the 42 million workers depending on them for retirement benefits need not lose any sleep.
Some Are Hurting
But many of the 150,000 workers who retire each month don't have the security of a guaranteed pension benefit from their employer. There are 47 million workers not covered by any kind of employer pension program, according to the Employee Benefits Research Institute in Washington. Another 13 million workers must rely exclusively on so-called "defined-contribution" retirement plans, in which the post-retirement benefit depends on the investment performance of funds contributed by companies and employees.
Like participants in IRA and Keogh plans, these employees--through profit-sharing plans, stock options, employee stock ownership plans and a variety of tax-deferred savings programs--have been free to place their retirement savings in volatile investments that may have been clobbered by the market crash.
Those that did--their numbers are unknown--are hurting. "What we're seeing at this moment is wide-eyed amazement," said Roy Oliver, partner in charge of human resource consulting for Peat Marwick Main & Co. in Los Angeles. "Those that are in defined-contribution plans and are very close to retirement have taken a very big hit."
Many people, however, have the good sense to grow more conservative about their finances as they close in on retirement, financial planners say. Given a choice, they opt for guaranteed and fixed-rate investments in their company savings plans and IRAs, reducing their exposure to market fluctuations. Surveys, in fact, indicate that about 70% of participants in defined-contribution plans opt for investments that earn a guaranteed interest rate.
And even the minority of imminent retirees who were heavily invested in the market during the October collapse generally saw only their 1987 paper profits erased.
"Anyone who was planning, at the beginning of 1987, to retire at the end of 1987 has no basic reason to change their plans," said Dallas Salisbury, president of the Employee Benefits Research Institute.
Nonetheless, the stock market's tumble has prompted employers to rethink their commitment to an array of market-sensitive retirement planning vehicles, whose popularity has expanded dramatically over the last two decades, and especially during the bull market's five-year run.
Defined-contribution plans may seem less attractive now that some workers are chalking up losses. And though the plans were sold to employers as money-saving innovations, the pounding some took in the market crash now is forcing at least a few companies to pump in extra money, rather than risk alienating employees by letting them drift into retirement financially unprepared.
"It's one thing to pass the investment risk onto the employee when everything is going up," said Michael Footer, a principal with the Richmond, Va., office of William M. Mercer-Meidinger-Hansen, a benefits consulting firm. "It's another thing to pass the risk onto the employee in markets like the ones we've been having."