Retirement First Aid

If you're a member of the 55-plus set, you perhaps are pining for the good old days. We're not referring to the days of your youth, but rather the late 1990s, which in certain respects seem so very long ago.

There you were, set to exit the working world, years ahead of the conventional age-65 mark. You were looking forward to tacking a few extra years onto your retirement, so you'd have more time to do the things you wanted to do. And making all this possible was your robust, ample investment portfolio.

Now, three years later, you've left work behind. But your retirement portfolio has turned into a 90-pound weakling. It's deflated by a third, maybe more. And you're worried that your money won't last as long as you do.

What do you do now?

Stop the bleeding

Many investors' portfolios got seriously out of kilter in the late 1990s. Things were just too good back then, points out John Clarkson, a registered representative with Members Financial Services at GTE Federal Credit Union in Tampa, Fla. "In the bullish years of 1995 through 1999," he notes, "a monkey could have made money in the market by throwing darts at a board."

In that seductive environment, many people shoved aside some of the age-old wisdom about how to invest. Getting richer by the month, they abandoned diversification and didn't reallocate their investments as they got older. Even when at or close to retirement age, they kept a hefty portion of their portfolio--perhaps all of it--in stocks. And oftentimes that stock was all in one industry, such as technologies, or even one company, usually their employer.

"If you're retired, whether you're 55 or 75, you shouldn't be in an aggressive portfolio," says Vicki Navarro, a registered representative with Members Financial Services at Seattle Telco Credit Union. "But a lot of people are. They never changed out of that because they were making money hand over fist [a few years ago] ... What they need to do now is to stop the bleeding."

But, Navarro emphasizes, avoid overreacting and thereby worsening the condition. The answer is not to shift everything into safe investments that earn meager interest. "People don't understand that a savings account has risk, too," she explains. "Every year your value gets lower because of inflation."

In other words, sure, you'll keep that $100,000 you have today, even if it earns paltry dividends. "But," Navarro points out, "a year or so from now it will buy only $96,000 worth of goods."

Strike a balance

One risk in today's market, advisers say, is that retirees' fears may push them to flip from one extreme to the other in their portfolios--from too aggressive to too conservative. Some investors are switching from concentrating too heavily in stocks or stock mutual funds, to completely abandoning stocks and buying nothing but sure-bet, low-earning investments, such as certificates.

Ultimately, the individual investor has to decide what to do based on his or her tolerance for risk, Clarkson emphasizes. "But what I typically tell people," he adds, "is to take a step back and be more realistic. They can manage this through a balanced approach ... Using risk tolerance quizzes and other tools, we can come up with the right allocation. And every member is different."

Still, no one is denying that today's market is scary, especially if you need your nest egg to live on now. No one can predict when we'll see a recovery, or how much that will be. Just don't lose perspective, Navarro urges.

"If the stock market goes down, you don't sell your house," she says. "If bread is on sale at two loaves for $1, you buy two and put one in the freezer. You don't wait until it goes up to $1.25 a loaf. But in the stock market, people do the exact opposite from what they do in their daily living. What I tell people is that right now it's like Nordstrom's annual sale on Wall Street."

So, don't surrender your portfolio, Navarro advises. Rather, rebalance it to meet your needs. And keep a proportion of your portfolio in growth investments, even now, to hedge against inflation.

Rethink your plans

It may take more than rebalancing your investment mix to get you through the rest of your retirement. You may have to face other hard choices. "I've had to tell some people to consider getting employment," Clarkson says. "They'll just have to."

The prospect of going back to work seems dismal to some, especially if you have your heart set on being work-free. On the other hand, some retirees choose to go back to work, part time or full time.

AARP surveyed 1,500 workers age 45 to 74, including those currently unemployed, for its Staying Ahead of the Curve: The AARP Work and Career Study, published in September 2002. More than two-thirds of respondents said they plan to work during their retirement years, not only for income but also for other benefits, such as enjoyment and a sense of purpose.

Another course of action is to take a hard look at how you're spending your money. Your nest egg has shrunk, and you don't know how much of that you'll recoup--or when. But it has to stretch to cover the remainder of your years. Tightening your belt a little now in the early phase of your retirement may spare you some dire years later on.

Of course, changing your spending patterns is impossible if you don't know what they are. "Sometimes it takes some education," Clarkson points out, "about 'Where does my money go?' " If you have trouble answering that question, sitting down with a financial adviser may help you get a handle on your current cash flow and where you could trim expenses.

In fact, it's a good idea to talk to an adviser about your entire financial situation at this juncture. "We don't always make the best decisions when we're in a panic situation," Navarro says, "because we're not thinking logically. At times like that, you don't want to do anything by yourself. You need to talk to someone who can give you a different perspective."

Published November 18, 2002