Five Don’ts When Planning for Retirement in a Bad Economy

SBLI of Massachusetts

December 15, 2010

For those on the cusp of retirement, the market crash of 2008 couldn’t have come at a worse time. A study conducted by Fidelity Investments, America’s largest administrator for retirement plans, revealed their average 401(k) lost 27 percent of its value in 2008, with much of the losses coming in just three months. The market continued its free fall in early 2009, and no one knows for sure if the worst is over.

What’s a Baby Boomer to do?

Even if you have lost a substantial part of your balance, history tells us the best thing to do may be nothing at all.

Here are five things soon-to-be-retirees shouldn’t do in tough economic times:

Don’t panic.
You have already endured the fall. Why not enjoy the ride back to the top? Every time the market falls, it has always recovered—and quickly. Even at the bottom of the Great Depression in 1932 and the painful recessions in 1974 and 1982, the market regained at least 60 percent of its losses in just nine months and eventually reached new highs.

Staying calm does not mean you shouldn’t consider changing your portfolio’s investment blend accordingly. Speak to a certified financial planner to see which blend of assets works best for you.

Don’t retire…yet.
After decades of working, this is probably the last thing you want to hear. However, given downtrodden retirement funds, a decline in traditional employer-sponsored retirement and health plans, and an increase in Social Security’s retirement age, more and more Baby Boomers are realizing the value of continued employment.

Continuing to work does not mean you cannot enjoy more personal time. Many companies value the wisdom of experienced workers and are happy to have them on the payroll as contractors, part-timers, or under flexible schedules. Other seasoned  professionals may decide to give consulting a try, or perhaps pursue a different industry which has intrigued them over the years.

In any scenario, working for another year or two will help. By delaying retirement, you will catch the market on the upswing and recover the retirement money you have lost.

Don’t stop investing.
Continuing to invest in a down economy may seem counter-intuitive, but again, history shows the market always recovers. If you can afford it, consider this a great time to invest in undervalued assets. Consider reinvesting any dividends, and even a small investment of an additional two percent of your paycheck will ultimately yield a nice return once the market regains momentum.

Don’t dip into Social Security, at least right away.
Upon turning 62, you will be eligible to begin receiving Social Security benefits without penalty. But even in a good economy, waiting a little longer is beneficial. According to investment firm T. Rowe Price, for each year a 62-year old making an annual salary of $100,000 delays collecting Social Security benefits, that person will receive at least an additional 6 percent of retirement funds per year, assuming a $500,000 nest egg.

Don’t forget about annuities.
Skeptical about a swift market recovery? Invest in an annuity.

An annuity is a contract which provides individuals with guaranteed retirement income. It also provides the peace of mind of knowing your funds will yield stable, predictable earnings through guaranteed fixed interest rates.

SBLI offers deferred annuities which combine tax advantages and a dependable source of retirement income. They provide high current interest rates. SBLI annuities also boast an outstanding renewal rate history, which means your ensuing interest rates will typically be much higher than those of other companies’ annuities.