1. Employee benefits cut
Stock market collapses hurt employee benefits in several ways. Initially, when the market is soft, companies tend to pull back on retirement benefits, eliminating pensions and matching 401(k)s. Motivated by the same concern, they also reduce other types of benefits, like health care and dental plans. The 2008 Employee Benefits study by the U.S. Chamber of Commerce showed that “employers began scaling back on employee benefits as the economy slowed down in 2007, even before last fall’s economic tailspin partly unleashed by the constriction of the credit markets,” according to The Wall Street Journal. “The average dollar amount of employee benefits fell 14% to $18,496 in 2007 from $21,527 the year before.”
2. Retirement deferred
Nothing kills retirement like a cratering 401(k) — when the value of savings meant to fund life after people stop working plummets. The difference between a $1 million portfolio and a $500,000 portfolio can be the difference between retiring at 65 or working until 70 — as large numbers of people found out when the market collapsed in 2009. According to USA Today, a 2009 AARP study found that “35% of those ages 45 to 54 have stopped putting money into their 401(k), IRA or other retirement accounts, 25% said they have prematurely withdrawn funds from their retirement accounts.”
3. Home sale
Are the stock markets and home markets tied to one another? Absolutely. Over 20% of home loans in the U.S. are underwater. To sell those homes, owners have to come up with the difference between what they can sell the house for and what they owe the bank. That difference can certainly be well into the tens of thousands of dollars. If the money needed to bridge that difference is tied to the stock market, owners will have a hard time selling.
4. Home purchase
It has become difficult to get a mortgage even though rates are at historic lows. Banks are leery of lending when house prices continue their free fall. A down market makes the banks even more cautious: they tend to tighten lending standards, require higher credit scores, shrink credit limits, raise minimum payments and make it generally more difficult to qualify for a loan. On top of it, any assets potential home owners set aside for down payments are often partially in equities.