In November 2007, let’s say a man named “Bill” is getting ready to retire. After severe losses to his portfolio in 2000, 2001 and 2002, Bill has finally recovered most losses. He is confident that, with the $2.5 million he worked hard to build up in his 401(k), he can retire in 2008, on his 65th birthday. He and his wife will enjoy the dreams and visions he’s considered for decades.
His day comes and on Nov. 20, 2008, he checks his portfolio to discover that his flourishing account — which a little more than a year ago stood proudly at $2.5 million — now squats humbly at $1.2 million.
Is it back to work? Or does he dash most of the dreams he and his wife had, and retire anyway?
Like Bill, many of us want to get out of the markets. These folks near retirement are avoiding further losses and getting out of the risk of the market rather than wait — maybe another decade — in this up-and-down market environment until, maybe, we can recover. But the monies we spend once we’re in retirement can’t be recovered.
And you’re worn out worrying about it.
Social Security offers some security, until the latest political speech scares you into thinking it will be taken away, which this planner thinks will never happen. That all things may fail is a possibility, but the last thing to be cut will be Social Security.
You and I may experience less cost-of-living adjustments in the future, but mark my words: You will always have Social Security, despite the fear tactic so well used in debates.
In retirement, you must have guaranteed income to maintain expenses and manage inflation throughout the rest of your life. The assets required to amass these so-called “sacred funds” should be invested in income-providing vehicles.
With money beyond sacred funds, you can take risks based on your age, but today I would recommend only a small amount of that.
For that risk-taking money, rely on a little rule of thumb: Subtract your age from 100, and use that percentage. Put that money in equities (stocks) or mutual funds. If you are 80, for example, you should have no more 20 percent of your funds in equities. Even then, invest it at different levels — some in equities that are a little riskier but have the potential for growth, and some in liquid cash assets like money markets and short-term government bonds.
Public sentiment drives a lot of growth of a stock, not necessarily its value. So with the stock market, in retirement or nearing same, you should invest only the monies you are willing to lose.
For Bill and others in retirement, one solution may be a well-constructed, fixed indexed annuity with a guaranteed income rider.
Taken as a whole, this broad strategy’s called security. And that comes from planning.
Jack Albertson is president of Albertson Financial in Roswell.
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