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.

Photo by The Rocketeer

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