Retirement Finances: What Do You Do Now?

Strategies to minimize the impact of the current economic climate on retirement plans, from Pasadena planner Mitchell Kauffman

Published: Tuesday, March 31, 2009 | 2:00 PM

So, what do you do now? With portfolio and home equity values having fallen by 1/3 or more over the past year, many planning for or already in retirement are asking this painful question as they hope to enjoy their “Golden Years.” Sadly, over 65% of workers age 45+ expect to delay retirement and work longer as a result of the current economic turmoil. (This is according to recent AARP survey that can be found by clicking here.)

Even before the economic meltdown, psychologists have long described retirement as one of the top 10 “Life Stressors.” This is due to the obvious financial and emotional challenges that must be addressed. Arguably, our current economic dilemma may have moved this up the scale considerably.

There are a number of key strategies that can make a significant difference as you plan for or re-evaluate your retirement during these tumultuous times:
Review Your Living Expenses: Categorize your outflow into three groups; 1) Survival, i.e. those like food, housing and health care that are essential; 2) Desired, which are discretionary lifestyle extras like entertainment and vacation; and 3) Legacy, which include gifts and inheritances to others. This prioritization will be valuable should your income decrease and as a basis to project your retirement needs.

Don’t Time the Market: While tempting, studies show that timing only accounts for 1.8% of total portfolio performance (adapted from Financial Analysts Journal). Another study by Putnam Investments showed that if you missed just 10 of the top performing days over the 20 year period (1/1/87-12/31/07) your portfolio would have underperformed by almost 5% per year! Remember, by the time you see performance it is usually too late.

Re-Balance Your Portfolio: During any business cycle there are winners and losers. Make sure your investments are balanced and diversified according to your risk tolerance, timeframe, growth and cash flow needs.

Be Skeptical of Doomsayers: Especially during tough times, prognosticators abound. Economics is a ‘soft’ science at best wherein even the brightest Nobel Laureates are wrong a significant percentage of the time. There is an old saying, “put 5 economists in a room and you’ll get 10 different opinions.”

Seek Objective Expert Advice: Many blame Wall Street’s “sales” mentality for some of its economic woes. Just as surgeons don’t operate on family members themselves, it is good to have an outside opinion. Get advice from an independent Certified Financial Planner who has no bias from their employer’s proprietary products. A “client centric” model that focuses on your needs first and foremost, and integrates investments with the rest of your financial picture, may be the best road to success.

Update Your Retirement Plan: Everyone can benefit from having a plan that can provide lifetime income and establishes the feasibility of their retirement goals. If you don’t have one, get one. If you have one, update it to see what adjustments may be needed. Remember, those who fail to plan, plan to fail.

Consider Getting a Second Opinion: Just as in medicine, a qualified second opinion can never hurt even if you believe you have all your bases covered.
Dollar Cost Average: If you have extra cash, consider investing a specific amount each month. If you are eligible for a 401K or other retirement plan through your employer, keep funding it. The DCA automatic process is a disciplined method that helps you buy fewer of the expensive shares and more of the cheap shares as markets fluctuate. While no guarantee, it can over time mean a lower average cost and the potential for more profit.

Keep the Long Term Perspective: Despite what you may hear, we are no where near another Great Depression where unemployment exceeded 25% at its height (our current unemployment is just over 7% by comparison). The reality is we are at or near the trough of a business cycle that has been exacerbated by an extended period of economic growth. Just as when we were in the midst of the “good times” and no end seemed in sight, it is tempting to see the “tough times” as going on forever. The unprecedented, world wide government efforts to stimulate our economies will pay off and we will get through this.

Remember the Pendulum Principal: Investor behavior is prone to excesses and deficiencies much the way a pendulum often over-swings its mark. One need only look at the current near zero or negative yields on Treasury Bills to realize that the flight to safety may be overdone. Just as we had the “Tech Bubble” and the “Real Estate Bubble”, we are likely in the midst of a “Panic Bubble”. Resist the temptation to “follow the herd” in making emotional decisions that you may regret later.

The irony is that people are not naturally wired for investment success; they typically sell low and buy high because of emotional reactions. Study after study cites this as the number one factor in explaining why individual investors chronically underperform the markets. It is another reason why it is critical to have an objective plan that can provide guidance during unnerving times. ?

Mitchell Kauffman

Mitchell Kauffman is an independent Certified Financial Planner located in Pasadena and may be reached at 626-795-6874 or He is teaching a unique 3 session workshop designed specifically to address these issues. The class, “Honey I’m Home…. For Good!” combines his expertise as an independent Certified Financial Planner (25 years experience) with those of Clinical Psychologist Dr. Joanne Moran (30 years experience) to bear on the most pressing challenges facing those who are within 10 years of retirement as well as those who are already retired. The course is offered through Pasadena City College’s Adult Education (course number 0366X, cost $49 including materials; phone 626-585-7608 or visit