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Retirement Planning When Retirement Seems Troubled July 29, 2008

Posted by retirementwithaplan in retirement.
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This is an all-inclusive retirement disaster. It is also one of undetermined length, unpredictable breadth, and because we as investors (which we have been so called due to our involvement in our future retirement plan) have allowed this to unfold, unknown depth.

Nicholas von Hoffman recently declared the system dysfunctional and pointed the finger directly at Wall Street. And although I have offered words of comfort suggesting it might not be totally your fault, it is easy to assume, as bystanders we could have done something, anything.

What Mr. von Hoffman suggests is that given the opportunity to gamble with our future, under the poking and prodding of Wall Street to make it grow into a coffer full of investment riches, we have become co-conspirators. We too became greedy.

The scenario was easy to buy into. “The way the private, you’re-on-your-own retirement system was supposed to work had individuals, during their younger, working years, investing in stock through tax-sheltered accounts. Almost nobody who is not breaking the law can choose among individual stocks and make money, so future retirees have been encouraged to buy mutual funds run by professional managers, who are supposed to be able to pick the winners.”

Mr. von Hoffman adds that now, most folks are left with a future that relies on “Social Security” which as he ponts out, “is too narrow a ledge to stand on through the years between retirement and death.”

It is truly problematic. Not only is Social Security key to many folks retirement, the antiquated and cast-to-the-side-of-the-road pension now has new prominence. These have become economic stabilizers. The costs of retirement have not necessarily risen – we were all more than happy to fork over fees in return for outsized gains but once the waters got a little choppy, we wanted off.

There a couple of ways to outlast this downturn.

First: whatever your retirement savings has dwindled to, it is still off limits as a source of emergency cash.

Second: Any value investor will tell you that now is the time to buy, not sell. If you are unsure where and how to invest that cash, use index funds. In other words, shift your investments and if you can afford it, increase your pre-tax investment percentages.

Third: Downsize your lifestyle. The pain will be temporary – no slump has lasted forever. What is also temporary (and this is unfortunate) is the memory of that pain. If you can take anything from this economic morass we all seem to be treading through, it would be this: remember what it was like to be on the edge when you appear to no longer be there. While there are not many Depression era survivors still around, those that are still practice austerity. Lesson learned.

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