Retirement: Not In Recession
Common wisdom holds that planning for retirement should be at the top of your priorities, even before college savings for your kids. Your children will be able to get scholarships, work, or get loans to fund their higher education. But you, at a certain age, may not be able to work anymore and may have to rely on your savings.
But even if you have a great retirement plan, a recession may force you to change your plans and delay your retirement. The Wall Street Journal reported yesterday that more Americans are delaying their retirement, not because they want to keep working, but because they have no choice: the falling real estate and stock markets have eroded their savings to a point that makes it impossible for them to retire.
Millions of retirement-age Americans, stung by the recent economic downturn, are suddenly forced to reassess their plans.
According to WSJ, today’s market turmoil is shaping up to be the most painful in decades, especially because property and market values are both dropping. The dot-com bust and stock plunge of 2000-02 also persuaded some workers to delay retirement. But back then, those suffering losses in the stock market could take comfort in home values, which were still appreciating. Not anymore.
If you are younger than 50, you probably have enough working years ahead of you to make up for current downturns. But many older workers choose to keep working despite previous plans to retire, because they worry that their investments will diminish to the point that they won’t have enough money to get them through retirement.
I am not a financial adviser, but this makes me think that investors should ignore the rule of thumb that says that the percentage of your portfolio that you should hold in stocks is 100 minus your age. If you are over 50, and won’t have time to bounce back from a bear market, you should place a large percentage of your portfolio in safer vehicles such as treasury bonds or insured CDs. I wouldn’t rule out having up to 80% of your portfolio in “safe” investments.
And while safer investments do carry the risk of being slowly eroded by inflation, I believe that after a certain age, it makes more sense to take the risk of a slow, gradual erosion than to face sudden, overwhelming losses in the stock market.
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Pinyo responds:
Posted: April 2nd, 2008 at 9:17 am →
I understand your point, but if you’re in your 50s, you potentially have another 25-30 years to go before you die. That’s a long time and you could run into the risk of not having enough left by investing 80% in safe investments.
hank responds:
Posted: April 2nd, 2008 at 11:54 am →
I tend to agree with you Mom in regards to keeping a higher % in safe funds. Pinyo has a good point, but it really depends on what YOU’RE comfortable with. The “stress factor” may or may not be worth more or less to each person.
good post!
MomGrind responds:
Posted: April 2nd, 2008 at 12:16 pm →
I think I agree with both of you and of course with myself.
Yes, Pinyo, if all goes well, a 50 years old person could lose a lot by staying out of the stock market. But the stress factor that hank mentioned should also be taken into account. Personally, I am a VERY conservative investor, even though I am only in my thirties. I do have exposure to the stock market, but definitely not as much as most financial advisers would recommend for a person my age. So it’s a very personal decision.
Clay Collins | The Growing Life responds:
Posted: April 2nd, 2008 at 3:08 pm →
I agree! You shouldn’t save for college. The more you have saved for college the less you’ll get in financial aid. In a lot of ways, saving for college is just like throwing the money away.
This site is beautifully designed, by the way.
–Clay
MomGrind responds:
Posted: April 2nd, 2008 at 4:04 pm →
Thank you Clay! I just visited your site and I think I can safely return the compliment.
Re saving for college, you are raising an interesting point. I think I may research it some more and maybe write a separate post about it. Thank you!
Paula G responds:
Posted: April 2nd, 2008 at 5:53 pm →
Great article. And indeed — that % of investments in “safer” investments is important the older you get.
Of course I love the image — must be from despair.com?
Thanks for the shout out to my retirement article!
Warmly
_Paula
MomGrind responds:
Posted: April 2nd, 2008 at 6:10 pm →
I just visited your blog. I can’t believe that 33 states make it legal to fire a person just because she’s gay?
My photos are all from Flickr.
Protect Yourself Against A Recession | responds:
Posted: December 3rd, 2008 at 6:04 pm →
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