401(k) losses: Older investors' retirement funds hit hard

— -- Older Americans are watching their retirement savings evaporate as the economy slumps and the stock market falters. John Hansen, 54, has lost 35% to 40% of his 401(k) savings and, like many close to retirement, says he has few options.

A middle manager at a company in Cohasset, Minn., Hansen planned to retire at 591/2 but now doubts his savings will rebound fast enough.

"I've run out of time," he says. "I'm going to have to work until I'm 70."

Today, 401(k) plans are the major source of retirement income for millions of Americans. The bear market underscores their risks.

"We're seeing that those funds were never guaranteed, that the stock market can go down and stay down and that the fees can erode earnings and contributions so that people end up with less than they put in," says Teresa Ghilarducci, professor of economics at the New School for Social Research in New York.

Recently, General Motors said it would suspend its matching contribution to the 401(k) plan for its salaried employees. "All the risks and responsibilities are on the individuals in 401(k) plans," says Karen Friedman, policy director at the Pension Rights Center, an advocacy group.

Among other 401(k) dilemmas:

• Workers often don't save enough. Nearly 43% of workers over age 55 have less than $50,000 in savings and investments, according to a survey released last April by the Employee Benefit Research Institute.

In part, the saving rates are so low because many failed to start investing in their retirement plan at an early age. "I didn't really start doing anything with my 401(k) until I was in my early 50s," says Dan Kaley, 59, who lives in Pittsburgh. He decided to catch up quickly by heavily investing in stocks. Now his retirement investments have nose-dived.

"My plan has always been to retire at 62 or 63," Kaley says. "Now I have no idea. Maybe I will work until my late 60s."

Other workers say they just can't afford to save much more for retirement. The most common reason: They don't have enough money left after paying their bills, according to a recent AARP survey of workers age 45 and older.

• Workers cash out retirement savings. Young workers often cash out their 401(k) plans when they change jobs, thinking that they are young enough to make up for the withdrawals later on. But cashing out retirement accounts not only can trigger taxes and penalties, it also imperils their financial futures.