The stresses of the stock market and the turbulence of the economy are trickling down to those transitioning toward retirement and those who have retired recently.
SEATTLE / The Seattle Times / Nation & World / November 1, 2008
By Stuart Eskenazi, Seattle Times staff reporter
After selling his indoor-air-systems business last summer, Dennis Heller figured he would glide into retirement.
His plan was to work as a consultant for the new owners for a little more than a year, then officially call it quits. His wife, Mary Jo, would precede him into retirement by a few months. The librarian at Einstein Middle School near their Shoreline home, she planned to retire next June, at the end of the school year.
The Hellers are free spirits, but when it comes to money they have played by the rules, planning out their financial future with intelligence and discipline. Then the game changed. The value of their investments plunged, including a key piece of their retirement portfolio that has lost 40 percent of its worth in six months.
"That was the biggest blow," said Dennis Heller, 62.
The stresses of the stock market are trickling down to those transitioning toward retirement and those who have retired recently. In addition to visiting the grandkids, more and more are making appointments with professional financial planners, who advise that the first rule of surviving an economic meltdown is to not make major investment decisions during anxious times, as they can prove injurious in the future.
"The one concern everyone has is outliving their money," Heller said.
The concern magnifies as an abundance of baby boomers begin to enter their retirement years. Washington's Office of Financial Management estimates that 1.25 million people — or 19 percent of the state's population — fall between the ages of 50 and 64.
AARP recently released two national reports that give an ominous glimpse into the financial security of soon-to-be retirees. Of Americans 45 and older, 13 percent are tapping into their retirement investments to cover day-to-day expenses, and 20 percent have stopped contributing to their retirement accounts in the past year.
Another AARP survey found 27 percent of workers 45 and older were postponing retirement and two-thirds reported having more difficulty paying for essentials such as food, gas and medicine. That survey was in May — before the economy turned from bad to worse.
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Facing the economic downturn, Dennis and
Mary Jo Heller haven't changed their retirement
goals, but she might decide to work an extra year.
Dean Rutz / The Seattle Times
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Tips for retirees and those about to retire
Barbara Boren, a financial adviser in Seattle with KMS Financial Services, offers this advice:
Stay calm: Making investment decisions when you're upset and anxious can result in poor choices.
Consult with a professional: Hire a financial adviser who listens and addresses your concerns clearly and respectfully, and who doesn't push specific products.
Review your portfolio: The closer you are to retirement, the more conservative you should be. Build a foundation of safer investments and then layer in growth investments that match your risk tolerance and time frame. Be guided by need, not greed.
Plan distributions wisely: Add up your savings and retirement accounts and calculate what a 4 percent annual withdrawal would provide. Then add in your anticipated Social Security benefits and decide if you can live on that amount.
Factor in health-care costs: Medicare benefits likely will be cut and premiums increased in the years ahead. Will you need supplemental insurance? What about long-term-care insurance? What would an unanticipated medical event do to your savings?
Consider delaying retirement: Working one additional year increases your average annual retirement income by 9 percent, according to the Urban Institute. Delay receiving Social Security and you'll be rewarded by an 8 percent increase to your benefit for each year delayed until age 70.
Consider a Roth: A Roth IRA or Roth 401(k) is funded with after-tax dollars. If held either five years or until age 59 ½, whichever is longer, it is tax-free when withdrawn. Roth income is neither included when determining whether Social Security benefits are taxable nor considered in Medicare premium payment calculations.
Stay calm, Part 2: Downturns are inevitable, but the market historically corrects itself. When it does, assets grow again in value.
Source: www.barbaraboren.com
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"We're hearing from an increasing number of current retirees who are having to consider going back to work," said Jason Erskine, AARP spokesman for Washington state. "Although they have a lot to offer, older workers are struggling to update their skills to react to a changing workplace."
The Hellers realize they are in a better financial position than many. As such, they have kept intact the retirement goals they set years ago.
He is aching to bicycle across Europe, and she's willing to tolerate it. After a few years of travel, the couple plan to join the Peace Corps, which could send them to South America, Africa or the South Pacific.
But they may have to postpone their travels. Dennis still plans to retire as scheduled, but at 59, Mary Jo might work an additional year.
"You want to avoid retiring too soon," she said. "What if five or 10 years later, you find that you have to go back to work? What could you do? Be a greeter at Wal-Mart? Work at McDonald's?"
Hoping to stay footloose
Like a lot of retirees these days, biotech scientist Karen Longin of Mount Baker is taking an elevated — albeit somewhat maudlin — interest in the day-to-day fits of her investments.
Yet she is determined not to let the drama keep her from doing what she wants — at least not yet.
"It's going to take a few years for the markets to recover," she said, "and fortunately I'm financially secure enough right now to continue to travel."
Longin, 66, who retired from Amgen in January 2006, is well into her three- to five-year plan of driving cross-country in a 19-foot Roadtrek motor home she bought used before she retired. She'll go as far as her arthritic knees can take her.
She has visited friends and family across the country. She drove to Hope, Ark., to see former President Clinton's boyhood home, and stayed overnight at the RV campground behind Heartbreak Hotel in Graceland. She's been to the Grand Canyon, Grand Teton, Yellowstone and Yosemite.
A mother of four, Longin began working at 42 after she got divorced, her first job paying $5 an hour. She retired from Amgen with stock options that she cashed out to pay off the mortgage of her vintage house. At the time, the stock was at optimal value.
"Thank heavens," she said.
A frugal shopper who gravitates to Grocery Outlet and Goodwill, Longin has socked away money in an IRA and what she calls her "sanity account." She pays for her travels, the maintenance on her van, property taxes and prescriptions through that savings account — without having to dip into her retirement investments.
Although those investments are down about 20 percent, they are diversified and performing as well as she could hope.
"My real security blanket — my last nest egg — is the value of my home," Longin said. "What if no one could get a loan to buy it? That's certainly a fear."
Stayed in market
Michael Wasserman, a chiropractor who began collecting Social Security in January at age 61, figured it might be a good idea to pay off all his debts by taking money out of his IRA.
So he sought the advice of a financial planner, who dissuaded him on the theory that the IRA would earn more than the 4 percent interest he is paying on his debts.
"And within a week, the market crashed," said Wasserman, who saw the value of his IRA drop accordingly.
Although modest in value, Wasserman's IRA is an important piece of his retirement security. A fill-in chiropractor with no office of his own, and therefore no overhead costs, he is starting to phase out his career, limiting his income so as to not have to pay taxes on his Social Security benefit.
His expenses are low, the biggest payouts going toward property taxes on his house a block from Green Lake and $400 a month for medical and dental insurance. Wanting to avoid the risk of additional loss on his investment, Wasserman went against the ethos and made significant changes to his IRA distributions, converting the equities into cash equivalents.
"The money's just sitting there right now, as if it's hidden under my mattress," Wasserman said. "When the market goes down, I feel really smart. When it goes back up, I feel really stupid. But overall, I'm content to not have my money tied up in all of this mess."
The way Wasserman figures it, he has come out ahead as the IRA, which he bought more than a decade ago, is worth more than what he put into it. He reserves the right to switch the IRA back into equities, but only if it doesn't risk his financial future.
"I have no interest at all in making a lot of money, I never have," he said. "I have interest only in being able to do what I want to do."
He said he enjoys simple pleasures, which in the past have included extensive travel. In Spain, he met a local and she became his girlfriend. Now, though, he is content to stay closer to home, where he can be near his new grandson.
"I still want to travel some," Wasserman said. "But mostly, I just don't want to have to scrimp too much."
Stuart Eskenazi: seskenazi@seattletimes.com
Copyright © 2008 The Seattle Times Company
