Retirement is supposed to be a joyous time, a reward for a lifetime of toil and responsibility, but the economic meltdown of 2008 and 2009 has made life miserable for too many retirees by draining the gold out of their golden years.
I have hit this subject in previous columns, trying to encourage retirees to ride out the current financial storm, but the storm roars on, with little hope for major relief any time soon.
Prognosticators keep telling us that the Great Recession seems to be abating, but this message is lost on retirees because it's more difficult for them to join in any recovery celebration. They simply lack the time and tools to patch up their damaged portfolios.
Over the past 18 months, some $3 trillion dollars has evaporated from U.S. retirement accounts as stock, bonds, real estate and cash accounts have taken severe hits. Here are some thoughts how to react.
Do yourself a favor: Unfortunately, not all of those losses can be attributed to the economic collapse. Some are the result of poor investment decisions by retirees, some decisions going far back into their working days. They placed and have keept their investment portfolio in the hands of professional managers, ones that are too often more interested in commissions and fees than making money for their clients.
Some workers going into retirement leave their 401(k) with the company-appointed investment manager instead of rolling it over
into a self-directed individual retirement account at a discount broker, or they leave a traditional employer pension plan in an annuity rather than cashing out.
Yes, my suggestion here is that the retiree become his or her own investment advisor. Of course, they should have been doing this years ago by holding money in an IRA or IRAs and/or a taxable brokerage account.
I can now hear a chorus of boos from readers, complaining that they are not smart enough to invest on their own. One good thing: they can no longer claim that they don't have the time. Learning how to invest is no harder than learning how to make a living in any other pursuit. There may be some math involved, but unless the retiree is illiterate, which is unlikely, a bit of reading through financial books and publications is not that hard.
It's equity over debt: A pal might say that you're crazy to get into or stay in the stock market at your age. Such a pal is usually making 2 percent in a bank account or 1 percent, or less, in a money market fund or Treasury bill. The stock market wreckage looks scary right now, but, as it has done so many times in the past, it will recover. Great patience and perseverance are required here. Remember, too, to stay well diversified in the stock market. Diversity has protected more brokerage accounts than any other device.
Those aforementioned professional advisors like to load retirees up on bonds. But debt is what got us into economic trouble to start with. So pick equity (stocks) over debt (bonds) unless you can find a bond with a stable and government-protected income, such as my oft-mentioned TVA bonds and Ginnie Mae funds.
Putting investments aside, here are some other money-relieving ideas often suggested for retirees.
Turn a hobby or a passion into a part-time paying job. Many retirees are skilled at useful tasks, ones without heavy lifting, that may or may not be related to their working days. Continuing to work on a limited basis can not only be good for the wallet but can combat the let-down that often comes with retirement.
If you see the need to finally clean the garage, basement or hall closet you might find some goods that will be snatched up at a garage sale or through an online auction site. In running a garage sale, be wary of local laws, of antique dealers who try to low-ball you, and ordinary thieves. A lot of retirees move after they hang it up and with children gone the old empty nest is loaded with saleable goods.
Become a penny-pincher, but, hey, not a cheap-skate. Control discretionary spending as much as possible without taking all the fun out of retirement. Apply the main credit-card rule that you should have been applying while you worked -- pay off that balance every month.
Be wary of financial scams. Elderly retirees are prime targets. If the deal sounds too good to be true, then it is. Use common sense, which has rescued more people from financial collapse than any other process.
One of the best publications for retirees is the monthly Kiplinger's Retirement Report ($59.95 a year, 1-202-887-6558) which is not strictly a how-to-invest publication, but covers a broad stretch of subjects designed to help retirees in the new phase of their life. The articles are not drawn out, but short and to the point. The publication is thin, but ad-free.
I'm not retiring yet, but I AM going on vacation, which might last over the next few weekends. Hope you all are having a good summer.
Cliff Pletschet's Personal Finance column appears Sunday and Monday. Send general-interest questions to him at P.O. Box 28147, Oakland, CA 94604 or e-mail him at cliffpletschet@sbcglobal.net. Give your name, city and the question in brief form. To subscribe to his quarterly newsletter, Investment Educator, send $20, made out to Personal Investment Education, to the above address. Also, visit our Web site, www.investment-educator.com.
