Retirement Articles
The Nervous Retiree
Robert J. Phillips
Chief Retirement Consultant
Like most of you during my working years I planned
and saved for a comfortable retirement. There is no shortage
of resources available to help with retirement planning. Numerous
books, financial institutions and consultants are available
and calculators can be used to determine how much you have
to save to have a comfortable retirement.
I have found that most retirees who took an interest
in retirement planning did a good job in implementing their
retirement savings plan. They take great pride in their accomplishment.
The problem comes after you have retired. Something
happens psychologically to retirees. They have a difficult
time transitioning from an aggressive saver to an active spender.
In other words it's hard to change that savings account
into a spending account. They see the savings as a trophy,
the culmination of a life long goal. Their entire working
life has been a savings culture now they must change their
thinking to using their investments as a resource for retirement
income.
Even more important, a major market downturn
like the one we just recently experienced makes them extremely
nervous. Many have seen their entire savings drop by 40 percent.
They worry that if they start to spend their money during
a major market downturn the money will not last. Just at the
time they should be enjoying the fruit of their long years
of saving they abandon the plan.
I have talked to many retirees. Most are afraid
to tap their savings. Some even plan to go back to work in
order to survive. Many will restrict their withdrawals and
shift their assets to more secure fixed income investments
including the money market.
Others will turn their money over to a financial
manager or put the money in an annuity for safety. The cost
for such services are typically 2 percent of the money invested.
If you are trying to achieve an 8 percent return on your investments
this cost can represent 25 percent of the income you can produce
from these investments. All of these actions by retirees reduce
their available income at a time they should be fully enjoying
the income that their savings can produce.
This is increasingly important for future retirees.
Baby Boomers will likely have most of their retirement income
coming from self-managed accounts. Companies are eliminating
funded pension plans in favor of self managed accounts. In
addition, these companies are reducing or eliminating health
care coverage for retirees, which will further strain a retirees
income needs. Also, the future of social security is in doubt.
The bottom line is that future retirees will need to actively
manage their accounts while maximizing their returns in order
to enjoy a comfortable lifestyle. |
