MONEY matters

Mark Zaifman's thoughts on money, global economic trends and politics

How the New Normal is Reshaping Retirement Planning - Part Two

Mark Zaifman   |    Fri, Nov 12, 2010 @ 02:01 PM

retirement planning in the 21st century

So how does the current state of the economy and the state of the stock market in the year you retire, influence the retirement income you have to live on for the rest of your life?

Lower Investment Returns

A stock market slump in the years leading to retirement could affect your investment income decades into your retirement. That’s because instead of your investments growing by 7-8 or 9% annually, they may only grow by 3%. Take out 3% inflation from that return and you’ve basically remained flat for those growth years. Less growth means less retirement income down the road.

If you do reach retirement age when the stock market is declining, having a retirement income strategy that deals with this reality is crucial. Some people may need to alter their lifestyles to accommodate this new reality - others may opt to delay retirement. In either case, you’ll need to accept what’s happening and plan accordingly or else you may find yourself flying blind and headed towards retirement
Unplanned Early Retirement

Delaying retirement isn’t an option for everyone. Many older workers find themselves pushed into an early retirement after a layoff or a buyout. Those who can’t find new jobs may begin to reluctantly refer to themselves as retired.

If you’re at least 62 when you were laid off, you’re eligible to apply for social security benefits, but monthly payments are reduced for early claimers. A baby boomer born in 1946 eligible to receive $1,000 a month if you sign up at age 66 will receive $750 a month at age 62. Regardless of the amount, the need to develop a dynamic and flexible retirement income strategy is critical.

This unplanned early retirement could be the best thing or the worst thing that ever happen to you - it all depends on your attitude and your resiliency. If you find yourself needing some inspiration on next steps, I highly encourage you to read:  Work Less, Live More, written by Bob Clyatt and published by Nolo Press.  (If you don't know of Nolo Press - check them out - they publish DYI how-to legal guides, forms and services. Everything from Personal Finance and Retirement to Creating a Livng Trust to Taxes and Estate Planning - they have it all)

Luck of the Draw

If you retired when both the economy and the stock market were booming and the labor market was going gangbusters – consider yourself lucky.

Yes, you might have planned well, you might have met with a fee-only financial advisor to design and map out your retirement plan, but you must admit, retiring during boom times like the kind I’ve described, might be considered the luck of the draw. 

On the other hand, if you retired sometime in the past three years or are getting ready to retire soon - your retirement scenario is the complete opposite.  With our current economy you are entering a very different and likely difficult retirement reality.  

I hate to be the one to break it to you – but until things turn around fiscally in this country - we have our work cut out for us. It’s just the way it is right now - but don’t get discouraged. We’ll all need to roll up our sleeves, sharpen our pencils, go back to the drawing board and get busy on making our retirement a painless and successful transition. It’s the new normal in retirement planning.