It’s estimated that at this point investors have lost between 30% and 45% of the value of their investments. That wipes out a lot of the last few year’s 10-20% annual gains that were seen by some in the market. These losses are beginning to make many a pre-retiree reconsider their plans for a cozy, no-worries golden years adventure.

So, What went Wrong?

What got us to this point, where the vagaries of the stock market can nearly devastate our retirement nest eggs? The move by businesses from the defined-benefit pension plans, to the market-based 401k/403b retirement arrangements.

The number of companies offering pension plans has continued to dwindle to almost nothing over the last couple of decades, replaced by employee-directed company-sponsored 401k plans. The companies have shifted the burden of responsibility from themselves to their employees. You hear a lot of good buzz that you have “more choices in where to invest” and “you can make a larger profit”, but now we’re seeing the dark side of that PR spin.

It is true that when things are good you can make more money on your own, investing in whatever you choose. The counterpoint of course is you can lose more money on your own, as well. No risk, no reward. The problem is that people are gambling with the money they are going to have to live off of when they are old and possibly can’t work anymore. That’s a dangerous thing to gamble with.

Defined pension plans fell out of favor when businesses realized how EXPENSIVE they become, as your workers become older and actually start using the pension. It was fine when the pension was this far-off cost that would be handled in 20-30 years. But when those 20-30 years passed, and businesses had to actually pony up the money, that became actual COSTS. And don’t mention the costs of administrating the pension, guaranteeing that enough money would be there for the retirees, calculating cost-of-living increases, etc.

Enter the 401k plans. Businesses loved them because it removed the burden of management and administration from them, and employees loved it (sort of) because they got to ‘play the stock market’. While the last few years’ stock markets were going up, it was fairly easy for a novice investor to eke out at least some profits, no matter what they invested in. Now with a full blown Kodiak Bear market, even the seasoned, life-long investment professionals are hard-pressed to break even with their investments. Those novice investors are like deers in a truck’s headlights; Not sure which way to go, and too scared to get out of the way. Next thing you know, BAM! 40% losses, and Bambi is limping into the government bonds ’safe zone’.

Not Out of the Woods Yet

Now, over the long-term, investors are told that stocks will always go up. Many an investment counselor can trot out pretty charts and graphs to prove that over a long enough period, the stock market has always shown an increase. That’s good if you still have 20-40 years worth of work left, but if you’re an older worker, that might not be an option you were planning on.

Workers under 40 years old – This demographic can still take the long-view of the economy and probably will be able to regain most if not all of their investment losses prior to retirement. This assumes that we don’t have a LONG recession, and things get back to stability and normality relatively soon.

Workers over 40 years old – This age group has a more serious problem. Roughly half of their investments have evaporated in less than a year. Even if you were right on track for retirement, this ‘detour’ is going to set everyone back significantly. You’ll have to plan to either work twice as hard to build up the retirement, plan to work longer before retirement, or plan to live on half the amount of income you originally calculated. None of these choices are particularly fun.

Workers over 50 years old – In this age group, things are SERIOUS. There’s not that many years left to accumulate the retirement, and with the economy the way it is now, age discrimination and downsizing threaten this group much more than others. It’s become a concern to just maintain the amounts already accrued. Risking the remaining amounts of money isn’t exactly an appealing option, seeing as how easy it is to lose it. Many in this age group may be very tempted to become risk-adverse, giving up possible gains for a guarantee against loss. But no risk, means no reward. Regaining the losses of 2008 might not be possible before retirement age, no matter what strategy is used.

What’s in the Path Ahead?

I’m going to do a bit of prognosticating now on some future effects of this massive decrease in retirement investments. I may be off, so I’ll revisit these forecasts in 20 years or so.

Less Promotions – I’m betting that many workers will opt to work longer, rather than do with less in retirement. Especially the Baby Boomers, the ones that are used to a certain ‘lifestyle’ that they’ve achieved. Since these people aren’t leaving the workforce, I’m proposing that in the next couple of decades it becomes more difficult to move up the corporate ladder. While age discrimination works against older workers in the middle and lower rungs, it works FOR older workers higher up (more experience and prestige/reputation). If no one leaves, no one can be promoted.

Permanent Adjustment to Frugal Lifestyle – Of course there’s going to be quite a few backsliders, going back to their Conspicuous Consumption roots, but I think that many out there are going to continue the (enforced) habits of frugal living. That equates in a serious on-going decline in demand in this country. And that equates to businesses having years and years of lower sales. People have been burned by a sudden downshift in the economy, and are going to remember that for quite a few years. Look to people storing away money and putting off many major (and possibly ALL) purchases.

Home Ownership Increase - This one seems counterintuitive at first, but let me explain. As the HUGE glut of houses continue to flood the market, these houses are SLOWLY being sold at near-fire sale prices. Banks are taking losses as people return the keys via ‘jingle mail’ (returning house keys to the lender via mail). Those houses aren’t going to evaporate. They are going to be priced down until someone buys them, if nothing else than to get them off the bank’s books. It may take quite a while, but anyone that wants a house at a reasonable price will be able to eventually find something before things settle down completely. The real estate speculators and banks losses are our gains.

Tighter Credit, but Lots of Credit Cards - Banks have been seen by many as the villains in this play; They are the ones that issued the bad mortgage loans. They aren’t loaning any  of the stimulus money they received from Congress. They have frozen lending almost entirely. They are the ones that created the CDO debacle, along with a myriad of other ‘derivatives’ investments that even they didn’t understand completely. Add to that mess, the recent high-profile Madoff 50 billion dollar Ponzi scheme, that has defrauded even the super-wealthy. I’m not thinking there’s a lot of love in the room.  I predict that there will be quite a few new regulations, reviewers, and a whole lot more scrutiny applied to the banking system. This in turn will continue to cause the banks to act VERY conservatively, keeping credit tight.

I expect however that consumer credit cards, while they are going to suffer too with the changes imposed on them by the Credit Card Reform Act of 2008, are going to continue to be plentiful. The reasoning is because the profitability of these consumer loans and the ease in which a bank can create them, will continue to be a significant source of revenue while other sources are drying up.

The times ahead are going to be interesting, and I’m fairly confident that we’ve seen enough upheaval to cause some permanent and/or long-lasting changes. Some things might not be so bad however. Our new financial reality is what it is, and people can get used to quite a few things when they have to.

We’ll make it. We always do.

What do you think the future will look like after this 2008 financial storm? Will you be able to retire or are you making other plans? Leave us a comment and let us know.

So what does all this doom and gloom mean?!??

It’s Time To Buy!!!

Through the magic of dollar cost averaging, there probably won’t be a better time to buy stocks for a very long time, as long as you follow a buy-and-hold mindset. Your 401k is designed to be a long-term investment vehicle, yet a huge number of people are failing the ‘gut check’ and getting out of the market.

Critical Market Factors

This investor flight is actually causing the market to go down even faster, as large investment firms are ‘forced’ to liquidate their investors holdings, usually in mutual funds, at any price. More people bail out, more stock hits the market, the prices across the board go down. Lather, rinse, repeat.

That’s one of the big reasons it’s time to start bucking the trend and buy more stocks, mutual funds, and other investments for your retirement funds. There’s no way to predict exactly when the market will bottom out, but you can still stock up on high-quality investments that can see you through the winter of your retirement, at a great discount.

Dollar Cost Averaging

Dollar cost averaging is the practice of investing on a periodic basis, using the same amount of money at each investment point. That means at some points during the year, you might buy investments at a higher price, while other times of the year you might buy the same stocks at a lower price.

This spreads the risk of a purchase at a ‘high’ point in the investments sales price over a larger timer period, or ‘averaging’ the costs. You don’t make as much buying at the lows, but you also don’t spend as much buying at the highs, when you average out the price.

For those that have already seen impressive drops in the value of their investments, but still have a long investment time frame ahead (say 10 years or more) increasing your purchases now can ‘average you out’ of the losses you’ve seen, as the stock prices recover. Even if they never recover back completely, the addition of low-priced shares into your portfolio will average out your profits and earnings more than either selling off, or hunkering down and not investing during this period.

For the new investor, now is a time of opportunity! Assuming new investors are younger, your time frame until investment can be particularly long (up to 45 years in some cases). Buying stock now and holding it could prove to be the smartest investment you could make for retirement, as the normal increase in stock over the long term have historically averaged 8-10% annually. Buying even a few investments now, and holding for decades, can add up to some serious retirement benefits.

Buy, Buy, Buy!

Now is also a good time to increase your 401k contributions, at least through the end of the year. If you’ve been making periodic contributions, but haven’t reached the $15,500 contribution limit ($20,500 for age 50 and above) you still have enough time to increase contributions a bit before the cutoff.

Choose wisely, consider stocks with strong historical records but weak short-term sales. Select investments in companies here for the long haul, and you could make quite a haul at retirement time yourself.

With the AARP estimating that 401k plans have lost between 25 and 30% of their values recently, it’s hard not to cry.

So, to cheer everyone up, I’ve come up with a list of 10 Fun Things to do With Your 401k Statements.

1. Make a Bulls-Eye – Those cool little pie charts that usually tell you how your money is divvied up into different investments, makes a great little target for darts, knives, pellet guns, and even bows and arrows. Just pin them to your favorite backstop, and pretend you’re aiming for one of the hedge fund managers that caused all this.
2. Fold it into Paper Airplanes – It seems that those same funds that have just lost a third of your retirement funds, always has the money to print the statements on better-than-average paper stock. Perfect for folding. Fold that sucker and make it soar! At least that’s one way of getting your investments soaring again.
3. Make a Halloween Mask – A couple of eyeholes, some red marker to write “I’m YOUR 401k” and you’re ready to scare the bejeezus out of people. (Admittedly this probably won’t scare the kids, but the parents will take one look at you, and shy away in fear and revulsion).
4. Make a Papier-Mâché House – This one might be helpful, because it might be as close as you get to that French chalet you were originally planning on. Remember, details are important, so make your little replica as close to your dream cottage as you can.
5. Weave into a Bullet-Proof Vest – Now that your retirement funds are greatly decreased in value, it’s possible that your life insurance pay outs are much higher than your retirement pay outs. Seems like time to take precautions from that spouse that was planning on the French chalet. Can’t be too careful.
6. Use for Cut-Out Ransom Notes – These statements usually have different fonts, sizes, and sometimes different types of print. Perfect for using as cut-outs for ransom notes when you have to turn to that fall-back career (crime). Just don’t mess up and accidentally use the mailing address.
7. Make a Hamster Bed -  Giving your statement to Benny the hamster at least recycles the paper, and gives Benny a nice home. It also keeps Benny alive as a fall-back food source for when things get really bad. While you’re at it, stock up on some sea-salt and cracked pepper as well.
8. Play Liar’s Poker – A popular game around the drinking fountain, it goes kind of like this. “I can retire in 25 YEARS.”, “Well, I can retire in 22 YEARS.” “Liar! Show me the projections!” See how low you can bluff. Maybe you can win back enough money to actually retire when you say you will.
9. Re-Gift it (to Someone You Don’t Like) – This works as an “I-hate-you” kind of gift. Carefully white-out your name, and replace it with the name of someone you dislike. Maybe that neighbor that keeps bugging you about your dog barking, or the teacher that looks at you funny during all those parent-teacher conferences (that seem to happen so often with your child).
10. Make Paper Dolls – Cut up the statement into pieces you can then fashion into little dolls. You can then play with them, and pretend they’re going on a trip around the world. You can send them to Hawaii for a few months,.. then they can go to the Maldives, then maybe to England, Tibet, Egypt, Narnia, Oz, Metropolis, Olympus,. they can g o a w akljwerkt,….

(It seems the author has suffered a slight nervous breakdown, and will not be able to complete this post. Please tune in tomorrow as we believe with sufficient psychiatric help, and strong anti-depressants, we will have another article for you. Thanks for reading!)

You’ve made it into your 50’s, survived all of your turbulent 20’s and 30’s and calmed down a bit in your 40’s. Now’s the time to start thinking post-job activities.

The Financial Picture

You should be hitting the retirement funds with as much as possible to max them out. You also get to start putting away a little more now that you weren’t able to while in your 40’s. Don’t forget to take advantage of that too. The idea is to squirrel away enough to let you live how you want, after you tell your boss ‘goodbye’.

If you’re turning 50 this year, that also means that Social Security will probably be around for you, in some form or another. If you can afford it though, it might not be a bad idea to exclude it from your financial picture for now. There’s still a lot of time between retirement and now that something could change. If you don’t add it into the picture, you won’t be as adversely affected if it’s gone/reduced. If not, you’ve got a windfall of extra money.

It’s also time to simplify the life even further. The kids should be getting ready to get out of the house, and you may be left with a huge living space that no longer appeals to you (no laughter of kids, too much space to clean, live in a too cold/too hot/not nice area, etc). It’s ok to objectively think about where you might want to live.

Alternatives to Staying Put

A good friend of mine that is retiring soon has decided to ’see the countryside’. They have sold their house, and used the proceeds to buy a BIG motor home (the reconditioned bus kind). They are planning on touring the country on a continuous basis, while still working a little on the side doing jobs that don’t have location specific requirements. The money isn’t the primary motivator, but a little ‘extra’ to carry them along.

In the meantime, they get to go and live where the fancy takes them, in fairly substantial luxury.  

The Family Picture

Unless you started the family particularly late in life, your nest should be emptying out soon. Kids move on to college/a job/life and you can sit back and bask in the glow of successfully raising another adult.

Or can you?? If you have some kids that don’t show any indications of leaving the nest anytime soon, it’s time to start kicking a little butt. There are many societies where the extended family is accepted and welcomed. It’s not a bad thing to have multiple generations under one roof. But everyone needs to have the time and opportunity to make their own way in life. They need to see more of the world than just their bedrooms.

If your kids are having problems money-wise, they aren’t going to get any better until they confront and overcome them, otherwise they just ferment in your house, not getting the ‘hard knocks’ education they need to successfully confront life’s problems. Shielding your children from problems isn’t doing them a favor, and someday you won’t be here to do that. They should be able to fend for themselves in that circumstance.

That doesn’t mean you kick them out the door and slam it after them. Work with them on a strategy to get them up and going. Don’t re-enact "Failure to Launch" if you can help it.

Most Importantly, Your Picture

Keep in mind, this is your life and your retirement, you’ve worked hard for it and you should enjoy it. Find things you want to do, and DO THEM. There’s no time like the present to find new and interesting things to see and do. Do something you NEVER THOUGHT YOU’D DO. Go someplace you NEVER THOUGHT YOU’D GO TO. This is the time to explore those new vistas and activities you’ve always read about.

You’re only as young as you let yourself be, so get out there and BE YOUNG.

I hope you enjoyed this article. Here’s are the other articles in the Money Matters for All Ages series:

• Introduction: Financial Strategies for Infants and Young Children @ My Dollar Plan
• Preschoolers: Teaching Preschoolers About Money @ I’ve Paid for This Twice Already
• Children and Pre-Teens: Personal Finance for Children and Pre-Teens @ Being Frugal
• Teenagers:
  • Teach Your Teen the Basics of Money Management @ Gather Little by Little
  • Money Advice to My Teenage Son @ DebtFREE-Revolution
• College Age: College Money Matters @ Mrs. Micah
• The Twenties:
  • Money Matters for All Ages – The 20’s @ Cash Money Life
  • Financial Advice For Your Twenties @ Remodeling This Life
• The Thirties:
  • Money Matters for All Ages – The Chaotic Thirties @ Moolanomy
  • Personal Finance Advice For Your 30’s @ My Two Dollars
• The Forties: The Forty Year Old’s Wakeup Call @ Credit Withdrawal
• The Fifties:
  • You’re in Your 50s – Wake Up and Start Saving @ Millionaire Money Habits
  • Retirement Objectives in Your 50’s @ Credit Withdrawal
• The Sixties: Easing into the Golden Years- the 60’s and Beyond @ Chance Favors
• Retirement:
  • 4% Withdrawal Rule for Retirement @ Quest For Four Pillars
  • retirement in the UK @ Plonkee Money
• Wrap up and highlights: Money Matters for All Ages: The Complete Guide @ My Dollar Plan

Pictures Source – Garbage Truck Camper

Update

Friends of CW sites you might like also.

• Miss Mota Mouth – Spoiled? Car Debt and What it is Costing Our Parents

So, the 40th birthday has come and gone, and you’re closer to retirement than ever. If you’re anything like the majority of Americans, you’ve been putting off serious retirement saving until ‘later‘.

Wakeup Call!! Later is NOW!!

If you’ve been putting off thinking about retirement, time is of the essence. You only have about 25 years to build up a nest egg that will support you (and possibly your spouse) for the remainder of your life. Not to panic anyone, but this is a SERIOUS consideration starting in your 40’s.

Your 40’s are not too late to kick it into high gear and get everything in order. Remember, you’ve got some things working for you now;

• You probably have a well-established career paying significantly more than what you made in your 20’s and 30’s.
• You have an array of skills and experience that should nearly guarantee you another position should your current position ‘go away’. This gives some mental stability, and confidence to start contributing more towards retirement.
• You’re not as concerned with ‘things’ as you might have been earlier in life. The new car isn’t as appealing, the huge house, not a priority. More important things, like college funds and IRA’s start to hit your radar.

From DINK to SITCOM

As time marches on, life changes affect you and your family. You go from the Dual Income No Kids yuppie power couple, pulling down huge amounts of money, to the Single Income, Two Children, Oppressive Mortgage, family with 2.5 kids, a dog and a mortgage. How did this happen!!!  (aside from the obvious).

"Tired of lying in the sunshine
Staying home to watch the rain 
And you are young and life is long
And there is time to kill today
And then one day you find
Ten years have got behind you
No one told you when to run
You missed the starting gun"

From Pink Floyd – Time

 

So, what can the 40 year old start doing to catch up?

Start with the Basics

Planning on retirement while in your forties has to take into account whether you have been saving, or have put it off until now.

For The Tortoises (Early Savers) – You should already have nest-eggs in the making, the only thing to keep in mind now is to watch and maintain. Risk in your investments needs to be managed a little more towards the conservative side starting in the 40s, but not so much that you stall your investments. You have a long timeline still until retirement, so build with some aggressiveness, while starting to think about what you can do to protect the nest-egg you have.

For the Hares (Late Savers) – There is no time like the present to get started. You’re at a disadvantage against the Tortoises. That means that you’re going to have to concentrate a larger percentage of your income (up to 40% or more) towards your retirement, to reach a similar retirement number. 40% is a BIG number for those not used to putting hardly anything away. It’s time to modify the lifestyle.

Trim Expenses – By simplifying your lifestyle and trimming unneeded expenses (do you REALLY need that corvette or new coat?) you do two thing immediately.

1. Simplify your life In preparation for being able to enjoy the lifestyle you can afford at retirement. Get used to it now, and it won’t be such a shock at retirement age
2. Clean up your finances   This gets rid of unnecessary debt you have to support and frees up more money to put towards retirement. Also, if you enter retirement with tons of debt, it’s going to be no fun trying to support all that debt with a severe decrease in revenue.

Plan for Life Expenses – Again, a Hare/Tortoise comparison. Upcoming life events need to be planned for if not already done.

1. College Expenses If you have kids, and you want them to go to college, you should have thought out how to help them accomplish that. It shouldn’t be to the detriment of your retirement however! The kids have many more options on HOW to go to college than you have on HOW to retire. If it really comes down to which to fund,  err on the side of retirement. The kids will have to just accept the fact. It’s either that or pay for college AND take care of their parents in retirement. Talk early, and get everyone on the same page about the topic.
2. Disposition of Property Many retirees don’t need the huge house they brought the family up with, so what to do with it should be discussed and considered. The parents may want to leave it to the kids, but the KIDS MIGHT NOT WANT THE RESPONSIBILITY. Again, talk about it. You’ve got years to go before the decision needs to be made, but that doesn’t mean you can’t get everyone’s opinion on the matter.
3. Retired Life With health care getting better and better each year, it’s not inconceivable that you might be in retirement longer than you expect. Start making your "Life List" of things to do, and keep adding to it until you get to retirement. The worst thing that can happen is you get to the end of that list and say "Now What?" A happy retirement is an active retirement. If you stop doing anything, you start  doing nothing.
4. Leaving it Behind At some point, you’ll be gone. It’s not a pleasant thought, but a necessary one. Get things in order and make sure it’ll happen how you want it to. Wills, insurance policies, financial records, etc. make sure your dependents know what to do and where they are.  Let them remember you for the good times you had together, not that you died and left them in the lurch.

Looking Back

With all the preparation and the discussion about what happens after you are gone, don’t forget the most important part;

Life is to be lived! We shouldn’t strive to leave behind a good looking corpse, we should instead slide into our grave on a motorcycle, body worn and used with activity, all the while saying; "Man! That was a GREAT ride!"

Plan for the future, but don’t forget to live life in the process. 

I hope you enjoyed this article. Here’s are the other articles in the Money Matters for All Ages series:

• Introduction: Financial Strategies for Infants and Young Children @ My Dollar Plan
• Preschoolers: Teaching Preschoolers About Money @ I’ve Paid for This Twice Already
• Children and Pre-Teens: Personal Finance for Children and Pre-Teens @ Being Frugal
• Teenagers:
  • Teach Your Teen the Basics of Money Management @ Gather Little by Little
  • Money Advice to My Teenage Son @ DebtFREE-Revolution
• College Age: College Money Matters @ Mrs. Micah
• The Twenties:
  • Money Matters for All Ages – The 20’s @ Cash Money Life
  • Financial Advice For Your Twenties @ Remodeling This Life
• The Thirties:
  • Money Matters for All Ages – The Chaotic Thirties @ Moolanomy
  • Personal Finance Advice For Your 30’s @ My Two Dollars
• The Forties: The Forty Year Old’s Wakeup Call @ Credit Withdrawal
• The Fifties:
  • You’re in Your 50s – Wake Up and Start Saving @ Millionaire Money Habits
  • Retirement Objectives in Your 50’s @ Credit Withdrawal
• The Sixties: Easing into the Golden Years- the 60’s and Beyond @ Chance Favors
• Retirement:
  • 4% Withdrawal Rule for Retirement @ Quest For Four Pillars
  • retirement in the UK @ Plonkee Money
• Wrap up and highlights: Money Matters for All Ages: The Complete Guide @ My Dollar Plan