Retirement Income Blog

This article is retirement help on how you can recover the $150,000 loss in your 401k in the next 6 months (for tactics to employ now, see my post at ).  This article is about understanding how and why that $150,000 evaporated and why you will not get it back in the next 6 months or likely the next 6 years.

The recent financial crisis is NOT a temporary drop in the market, your 401k and your IRA savings. It is a PERMANENT adjustment in the valuation of assets that became overvalued.  So don’t think of your 401k as down.  It’s now about the right value.  A year ago, your 401k and your house value was artificially inflated due to excessive credit.  Valuable retirement help is to tell you the truth–adjust your retirement plans downward.

Be realistic, how can an economy survive when

1. people can buy houses with 0% down and without the income to make the payments
2. stocks of companies involved in the housing balloon trade as if those houses are worth what the appraiser says

People now see that the emperor has no clothes.  The retirement help we can provide is to advise that you adjust your retirement plans downward and not think that the market will adjust itself for you.

The house that sold for $500,000 has a true value of $250,000. And all of the people involved in the housing market–the Realtors and the mortgage brokers are unemployed.  The lenders who made these ridiculous loans now realize that the loan, carried on their books at $500,000 must now be written down to $250,000, wiping out the lender’s capital.  The person who resided in the home gets foreclosed on and he might also lose his job because the housing calamity ripples through the entire economy (i.e lenders have stopped making loans to individuals or business).  People who had been taking vacations, buying cars, buying second homes and enjoying the good life by borrowing against their home equity can no longer do so as they have no equity.

So the value of real estate and assets in generally, reflected in stock prices, has now returned to a sustainable valuation and not some value created by a mass fantasy.  We all engaged in a fantasy that life could be so good without paying for it.  Reality does not work that way.  Now that you’ve swallowed the truth, let’s get to some retirement help.

Most Americans need to adjust their standard of living downward.  If you planned to retire at age 62, that will now be 66.  That’s four years less of doing as you please and instead, reporting to work.  The 3,000 square foot house you had planned as your retirement residence, better make that an 1800 square foot condo.  Your plans to remain in high cost Southern California, better think about a comfortable community in low cost Texas.  Unfortunately, all of the visions of retirement that you thought could be must now be scaled down to reality.  The best retirement help and advice we can offer is to make your adjusted and realistic retirement plans now. The good news is that you won’t go bankrupt and you won;t miss any meals.  But the fairy-tale visions we all held about a comfy retirement must now be exchanged for the truth.

Its not so bad, it’s just reality.

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Allocate Your Investments to Achieve Your Retirement Goals

Your retirement concerns may include income to live on, travel, gifting, and making bequests to heirs and charity. Which of these goals will you achieve and how? The value of your investments and their allocation among various investment categories suggest statistically what is realistic for you to achieve–but not what you will achieve.   The following retirement investment advice will bring your actual results closest to your potential.

Entering retirement is a good time to strategize on how to best allocate your resources to achieve what you can. Maintaining your strategy will keep you on track. Let’s review the basics of retirement investment advice.

Entering retirement at 55 to 65 years old gives statistically 20 or 30 years to live, based on current mortality rates. The best retirement investment advice we can provide is that you don’t plan for an early death.  Odds are, scientific advances may have you living 40 years in retirement. That is a long time period for a nest egg to last. But if you will need to live on part or all of your investments, then you better maintain them so they can provide you with income for the duration. If you have plenty of income from pensions and investments to live on, then any excess investments can be invested for long-term performance (e,g, higher risk). Deciding your situation on income and excess investment determines your allocation strategy.  To determine your personal spending needs, use the retirement planning calculator.

The fourfundamental investment categories are stocks, bonds, commodities and cash. They have their many renditions as mutual funds, ETFs, money markets, unit trusts, certificates of deposits, etc. that produce stock-like, bond-like, or cash-like performance. These four investment classes historically suggest fundamentally different statistical return and risk categories to choose from. Their historical performances determine what is realistic to expect for investment growth and at what risk.

The best retirement investment advice is to combine a mix of these four categories because they are inversely correlated.  When one is up, the other is down.  Currently, stocks are down, gold (a commodity) is up, bonds are even or rising and cash is great to own as you get ready to buy stocks cheap.

Stocks have historically had the highest returns over time, but the greatest risk. To gain these higher returns, investors need both the time and a willingness to ride out market downturns. This requires a long-term strategy (at minimum ten years and higher).  Since you have 20-30 years for your nest egg to last, you have plenty of time to make stocks work. Critical retirement investment advice:  if you’re investing in stocks for ten years, then stop looking at them everyday and watching CNBC!

Bonds are generally less volatile than stocks but offer more modest returns. Investors approaching a near term (six months to five years) need for income might increase their bond-type holding because of their reduced risk of loss. Do not include high-yield or junk bonds here and out retirement investment advice is to avoid high yield bods and choose stocks instead.

Cash and cash equivalents–such as savings deposits, certificates of deposit, treasure bills, money market deposit accounts, and money market funds–have almost no risk. But they are most vulnerable to inflation. Store only assets in this category for immediate (within six months) use.  Although retirees may have a preference for these “safe” low risk assets, their low return will increase the likelihood of depleting your assets early.  Sound retirement investment advice means that you MUST take some risks in order to have a sufficiently high portfolio return.

Retirees generally lean toward a lesser risk portfolio of investments because of their nearer term need for income. Typical percent allocation of a portfolio among stocks–bonds–cash category types is 40 – 40 - 20 or 20 – 60 - 20.   We urge you to read the Grangaard Strategy, a book that explains how to get higher returns without ever sacrificing your retirement income to stock market risk while having a significant portion of your income working in stocks.   To get retirement helpemploying this strategy, the author’s web site has a listing of trained advisors.

Lastly, you do not want to depend on one stock or one bond in each category. Companies can default or go under. Be sure to diversify your investments within each category (e.g. mutual funds, ETFs, etc). That is where all the various diversified funds and managed accounts come into play.  If it all makes you crazy, you may choose to annuitize your assets and get a safe lifetime income.  Consult the annuity calculators.

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Retirement is not just about the size of your nest egg.  There are several considerations for a comfortable senior citizen retirement experience in addition to a financial retirement plan.  These considerations extend to where you live, housing options and healthcare quality and choices.  Most importantly, what activities will you do in retirement to stay mentally and physically fit?  Here’s a short list of considerations to add to your retirement checklist.

Healthcare Needs for a Healthy Senior Citizen Retirement Experience

1.      Do you have insurance that will cover catastrophes?

2.      Do you live in proximity to medical specialists you may need to consult?

3.      Is your HMO or health plan available where you plan to have a second home or move?

4.      If you plan to travel outside of the US, does your health plan cover you?

5.      Do you have long term care insurance (don’t make the mistake of thinking that Medicare pays)

Senior Citizen Retirement and Moving Your Residence

1.      What are the tax rates in the new community—property taxes state income taxes, state sales tax and do they tax retirement income and social security income differently than other income?

2.      If you reach and age where you cannot drive, will the public transit take you to your favorite places?

3.      Is the climate satisfactory in all months?  How about allergy months (e.g. spring time)

4.      Is there an adequate selection of senior housing complexes, assisted living facilitie4s and nursing homes and what is the cost

5.      Is there an active population of retirees in the new area and people you can befriend

Senior Citizen Retirement income

1.      Does one spouse have a pension that ends upon death?  Your retirement consultant can show you how to possibly replace that income

2.      If both spouses are eligible for Social Security income, there may be ways to maximize the benefit—check with a retirement planner

Fortunately, a senior citizen retiring in 2008 and beyond gains the benefit of technology when phone, computers and medical technology allow you to get much of the retirement help you need no matter where you reside.

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