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Planning for Retirement in Tough Financial Times

By Dr. Shelby Smith
of The Retirement Pros

If you had a plan for retirement, chances are it has been up-ended in the latest market meltdown. As I mentioned in this retirement blog, Retirement-minded savers and retirees that committed their hard earned money to the “market” have been on a roller coaster ride since 2000. First came the craze that drove stock prices to dizzy heights. The bubble burst and stock prices sunk dramatically with tech stocks as a group dropping 80%.

From 2003 until late 2007, the market trended upward and came close to its inflation adjusted pre-2000 level before again plummeting dramatically. From late 2007 until March 2009, the market shrank by 50%, abruptly surged upward by 30% and for the past two months has vacillated around this plateau. Keep in mind that a 50% loss means a 100% gain is needed to get back to breakeven. Where will the market go from here?

There is only one thing certain about the market: no one knows its future direction. Of course there are always those that make reasoned forecasts, but to my knowledge there is not now, nor has there ever been, anyone who has consistently predicted the future direction of the market. Forecasts are simply “educated guesses” and as such are wrong as often as they are right. Guessing is not a good way to invest your retirement money, unless you are prepared to lose it. Thus, what should you do if your retirement money is in the market?

Start by asking yourself: What am I trying to accomplish? If your answer is “to make a gain” then you must determine if you “can afford a loss” because you have a chance for either. If you can’t afford losses, then the market is not the place for your money. You can keep in the market that part of your money you can afford to lose or don’t plan to use. You’ve been told that “in the long run you’ll do just fine in the market”.

The questions are: Do you have a “long run”? Exactly how long is the “long run”? As this is being written in June 2009, the DJIA [widely used barometer of the market] closed at 8750 – exactly the same closing level as in March 1998. Before accounting for inflation, that’s eleven years without growth. If inflation is taken into account, you would have lost 40% of the purchasing power of your retirement money during these eleven years. For the retirement- minded, eleven years – or one-third of an average retirement – is the “long run” and they’ve not done “just fine”. It could get better or worse going forward.

If your objective is to make sure you do not outlive your money, you could be in the wrong place. Instead of measuring how “tall” your money stands, you need to focus on how “long” it will last. Ideally you’d like to have a guaranteed lifetime income you simply cannot outlive. There is only one place to get such a guarantee, regardless of what the market does in the future. That one place is the industry that manages the risk of your home being destroyed, car being wrecked, medical emergencies leaving you bankrupt, and more. That’s right: an insurance company that manages the risk of outliving your money. You can cover this risk by putting some of your retirement money into an annuity with a Guaranteed Lifetime Income Benefit rider. This option is safe, easy to understand and eliminates the risk of living too long.

So if you’re still at Point A and have made no adjustments to your retirement for the new financial landscape, you need a Plan B. Don’t waste another day; get with your financial advisor and review your investments, retirement plans and lifestyle. This will move you from Point A to Plan B… you’ll sleep better and have a much better retirement.


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