Is the Economy Forcing You to Change Retirement Plans?

-- Expert Business Source, 7/16/2008 8:07:00 AM

As the markets continue to be volatile and the economy stays weak, many Baby Boomers are rethinking their retirement dates and plans as well as shifting their lifestyles and investments.  Before you make drastic changes, however, consider taking a deep breath, getting some advice, and avoid making impulsive decisions which could hurt your future financial situation.

Several recent surveys indicate that even affluent Boomers who are nearing retirement are feeling financial stress and reacting in various ways.  According to a national survey conducted in April 2008 by Bell Investment Advisors, 25% of affluent 60-year-olds are changing their retirement plans and 40 percent "downsizing" their lifestyles.  An article entitled “High Net Worth Changing Retirement Plans” by Colleen O’Connor-Grant on May 19 in Financial Advisor Magazine cites this survey, which indicates that 69% of respondents say they are planning to invest in more conservative instruments.

The survey revealed that many Boomers nearing retirement  are making changes:  22% are reducing their charitable contributions, 21% are contributing less to charity, 21% are cancelling, shortening or postponing a vacation and 18% are reducing retirement savings.  Most shockingly, however, is the 11% who report that they will postpone retirement altogether.

Another recent study, "The Economic Slowdown's Impact on Middle-Aged and Older Americans," commissioned by Washington-based AARP, indicates that a number of Boomers are actually raiding their 401(k) plans.  The study showed that 27% of people 45 to 64 said they had postponed retirement plans.
If the economy is causing you to rethink your retirement or your investments, there are some important things to keep in mind.

Carefully consider a reallocation -- If you are not on the edge of retirement, needing funds in the next year or so, changing your allocation to more conservative investments may, in fact, be a strategy that could backfire.  Unless you are in an inappropriately aggressive allocation, you may sell during a market low and not capture the upside that will ultimately fuel your retirement.  Carefully consider whether changing now will help in the short run but hurt in the long run.

Try, try, try to make retirement plan contributions –  While many Boomers (as well as younger individuals) are feeling the squeeze, cutting contributions to a retirement plan is one way to put your retirement in further jeopardy.  Especially if your employer matches your contribution, look for ways to cut corners in other areas.  Continuing to save is critical or you may find yourself working much longer than planned.

Try, try, try not to raid your 401(k) – Borrowing money from your retirement plan (whether it is a 401(k) or another type of plan) should be an option of last resort.  Unless you are in a dire situation, look for other alternatives for cash.  Not only will you likely incur penalties, you will halt potential growth – both actions that will put you farther away from retirement.

Consult an advisor for some perspective – Many individuals are responding to our current economic situation with panic and are making changes in their financial lives based on impulse.  While cutting down on expenses can never hurt, changing retirement plans and investments requires some study.  One of the best investments you could make may be consulting with an advisor who is familiar with your situation and with the economy in order to gain some perspective.  That individual may be able to help you find ways to make your retirement work, or may be able to help you reconfigure your expenses in order to weather the current stormy markets.

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.