g Text Version
Beauty & Self
Books & Music
Food & Wine
Health & Fitness
Hobbies & Crafts
Home & Garden
News & Politics
Religion & Spirituality
Travel & Culture
TV & Movies

Bored? Games!
Take a Quiz
Rate My Photo

Family Travel
Southwest USA
Irish Culture
Home Finance
Comedy Movies
Romance Novels

All times in EST

Full Schedule
g Investing Site

BellaOnline's Investing Editor


The Stock Market and Retirees

Guest Author - Tony Daltorio

Perhaps the group most at risk during the current period of financial markets turmoil are retirees or near-retirees. Unlike younger generations, this generation cannot afford to wait for stocks to rebound in the "long-term".

For retirees, financial ruin means that they outlive their assets. The largest risk of financial ruin for retirees lies in the stock market. If a retiree is forced to liquidate assets during a down stock market cycle, the results could be devastating.

Here is why. Many financial advisors will use an average annual 4% withdrawal rate for retirees from their pool of assets, which is a reasonable assumption. Now using this assumption, let's look at the prior bear market cycle to the current one.

For 17 years, beginning in 1966, the stock market was flat and the economy experienced the highest inflation on record. There are few financial advisors who use this period for their glossy illustrations. Here is why they don't.

According to William Bernstein's 2002 book - "Four Pillars of Investing" - NO asset allocation model avoided bankruptcy when a 4% withdrawal rate is applied to a $1 million portfolio using stock market returns from that time period! Simply stated, if retirees were in the stock market at that time with a large portion of their assets, they were wiped out.

We may perhaps be facing a similar time period and most retirees were ill prepared for the current bear market. Data from the Employee Benefit Research Institute showed that more than 30% of rear-retirees or those in their early retirement years had more than 80% of their money invested in stocks at the beginning of the current crisis.

According to mutual fund firm T. Rowe Price, if a person gets negative returns in the first five years after retirement, the odds of outliving your money over the next 30 years more than double from 26% to 57%. Unfortunately, I'm sure there are many retirees who now fall into that category.

The problem is that both retirees and their financial advisors made a mistake which is very common in all human beings. Human beings have a tendency to extrapolate whatever the current trends are indefinitely into the future. Think California housing bubble.

People expected the good times to continue and for the bull market in stocks to go on and on. Obviously, it did not. Any person approaching their retirement years with a nest egg today should keep in mind the lesson from the last bear market - that any investor liquidating principal in a down market can't rely on the "long-term" to bail them out.

Please feel free to contact me directly with comments or questions about this article.

Add The+Stock+Market+and+Retirees to Twitter Add The+Stock+Market+and+Retirees to Facebook Add The+Stock+Market+and+Retirees to MySpace Add The+Stock+Market+and+Retirees to Del.icio.us Digg The+Stock+Market+and+Retirees Add The+Stock+Market+and+Retirees to Yahoo My Web Add The+Stock+Market+and+Retirees to Google Bookmarks Add The+Stock+Market+and+Retirees to Stumbleupon Add The+Stock+Market+and+Retirees to Reddit


RSS | Related Articles | Editor's Picks Articles | Top Ten Articles | Previous Features | Site Map

For FREE email updates, subscribe to the Investing Newsletter

Past Issues

Printer Friendly
tell friend
Tell a Friend
Email Editor

Content copyright © 2014 by Tony Daltorio. All rights reserved.
This content was written by Tony Daltorio. If you wish to use this content in any manner, you need written permission. Contact Sandra Baublitz for details.


g features
Your Assets and Liabilities

Retire Early Book Review

Investing Red Flags

Archives | Site Map


Past Issues

Less than Monthly

BellaOnline on Facebook

| About BellaOnline | Privacy Policy | Advertising | Become an Editor |
Website copyright © 2014 Minerva WebWorks LLC. All rights reserved.

BellaOnline Editor