It was just a few years ago when most investors expected to be earning double digit returns for as far as the eye could see. Risk taking was still very much in vogue and the credit bubble and stock market crash had yet to occur.

That was then, this is now. We’re currently mired in one of the deepest recessions in a generation. Meanwhile, the lingering psychological, emotional as well as financial effects of the crash continue to alter the way we think about retirement.

Instead of seeking the highest possible investment returns, many people instead are seeking safety over growth. This strategy will put retirement savers who are middle- aged (side note - when did I become middle aged - Oy!) and younger in better positions to weather stock market downturns. But for those on the verge of retirement, playing it too safe with your investment portfolio is paradoxically a risky strategy.

Markets Matter

Just as it matters how the economy is doing when you first enter the job market, it also matters how the economy is doing when you retire. The same holds true for the stock market. Retire and have the market perform well during the first 10 years of your retirement and unless you went crazy with spending, your golden years will indeed get off to a golden start.

On the other hand, say you retired mid - 2007, unless you were invested entirely in bonds, your retirement got off to a rocky start, to say the least.  And if your retirement plan was to rely on your savings and investments in old age, you’ve awakened to the unpleasant new retirement reality that your future is likely to be far riskier than you had anticipated.

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?

Check back tomorrow for Part Two of "How the New Normal is Reshaping Retirement Planning."