The gyrations in the stock and credit markets are especially harrowing for retirees who are living off the proceeds of their investments. All the turmoil is prompting some to make choices they may not have thought about when financial markets were calmer.
I’m already retired; my money is with a financial planner. Like everyone else, (I am) taking large hits. I’m thinking about returning to work. Where should I move my money?
— James T., Little Egg Harbor, N.J.
We don’t make specific recommendation about which stock or bonds to buy: There are plenty of people out there who are happy to do so. And it turns out that the question of managing retirement finances — with all the uncertainty in the financial markets — involves taking a broader look at questions that don’t come up much during the period in your life when you’re accumulating your retirement savings.
People who spend their time thinking about these things have begun calling this the “decumulation” process — the opposite of all those years of when you were accumulating of your nest egg. That accumulation process involved more than just how much to save and where to put it. Decisions about where to live, how to educate your kids, what kind of car to drive, where to vacation all had a big impact on how much you could save toward retirement.
Now that the time has arrived, there is another set of choices, some similar but some very different than the accumulation phase.
You’ve started with one of the biggest: Do you plan to keep working? For many near-retired or newly retired, the decision to keep working is about more than income. A lot of people just aren’t cut out for playing golf or gardening all day long. With other sources of income, you now have a chance to try a lower-paying job doing work you were unable to consider when you had to pay the bills for a growing family.
There are other choices about retirement finances that can have a huge impact.
For starters, should you start drawing Social Security at 62 — at a reduced rate — or wait until you’re the “normal” retirement age and collect a little more? Or should you hold off until you’re 70 and collect the maximum payment?
If you’ve got enough saved up, or an old-fashioned defined-benefit pension, you may be better off waiting. On the other hand, about one-third of retirees have little other income to fall back on, according to the Economic Policy Institute. (The best way to decide is to run the numbers with a financial planner or a good retirement calculator.)
But there are other choices that can have a big impact on your retirement finances. Do you plan to sell the big house you raised the kids in? For many Americans — even with the recent drop in house prices — that home equity is a big chunk of their accumulated wealth. A smaller house may be easier to manage and cheaper to run and maintain, leaving you more money to invest and spend on other pursuits.
Or maybe you decide to move a part of the country where it’s cheaper to live. If you no longer have to commute to a job in a metro area, you may decide to take advantage of your new freedom to move farther away from the traffic jams and higher costs of living in or near a city.
Health care costs also become an important issue for retirees. How much insurance do you want to buy to fill in for what Medicare doesn’t cover, or to protect your nest egg from the cost of long-term health care?
To be sure, where you keep your savings and investments is still an important piece of the puzzle. But some new rules may apply.
When you’re 35, and you’ve got two decades to shepherd your investments through stormy markets, you can afford to take on more risk. As we’re all discovering, a down market can take time to play out, which is fine if you don’t need the money to live on. In general, the sooner you need to tap savings — whether for retirement, college or a new home — the less risk you can afford to take with it.
No one can tell you how much risk you can handle. But it’s a safe bet you’ll want to take on less when you’re relying on your investments to pay the bills.
In two years I am paying twice as much for everything and my pay has not increased at all. After 11 years in the same job it’s like starting all over again at today’s minimum wage rate. We still thankfully have no credit card debt but our savings has dwindled to $1,000. We have cut out travel, restaurants and extras. It’s time for the media and the politicians to pull their heads out of their ... and say it. No one else wants to say it. Then I will say it: RECESSION!!!
— Wendy,Eden, N.Y.
Last week in this space, we were taken to task for seeing the glass half-empty, harping on the bad news and otherwise contributing to a climate of consumer gloom and doom that is hurting the economy.
The latest data do seem to be pointing to a recession — especially the recent jump in the unemployment rate by more than a full percentage point. As former Fed Chairman Alan Greenspan sees it, we’re “on the brink” of recession.
On the other hand, the fullest measure of the economy, the gross domestic product, is still rising, though slowly. By definition, a recession is an economy that’s shrinking. So the signals are mixed.
Which gets us to the heart of the question: How should the media use the word “recession” when covering the economy — or the political campaign for that matter? Should we avoid the word altogether to help keep consumers in a spending mood? Does raising the possibility indicate a political agenda? Some readers certainly think so.
Or should we go ahead and just declare the economy in a recession — even though the signals aren’t clear and the “official” arbiters of business cycles, the National Bureau of Economic Research, has yet to weigh in on the matter?
For now, the best we can do is offer up the views of economists and analysts who have been looking hard at the question, without an agenda. It’s not our job to cheerlead the U.S. economy. Nor it is a good idea to use the term recession too loosely, despite the very real financial pain being felt by millions of American families.