The Principal Financial Group has just published a whitepaper online that gives guidelines for possible actions and alternative strategies that may help generate and sustain retirement income before and after market downturns.
Author Noelle Fox explains that, "The year 2008 tested the mettle of even the most risk-tolerant investor. It is estimated that investors experienced $10 trillion in market value decline. For investors nearing or entering retirement, the market decline may prompt questions about how sustainable their retirement income may be in light of lower asset values."
The paper explores the sequence of returns risk, or the risk of poor returns reducing savings early in retirement versus poor returns later in retirement, and illustrates how recent market volatility has made this risk more visible than ever.
Next, it shows that investors who wait longer to retire can generally absorb more market declines -- although ongoing monitoring of retirement savings is critical for most retirees.
Finally, it provides some alternative strategies that may help improve the sustainability of retirement savings. These strategies are illustrated proactively for someone at the point of retirement and reactively for anyone who has experienced 15 months of poor market performance. These strategies use market conditions from 2008, one of the worst periods of market returns in U.S. history, as the starting point for retirement.
"By illustrating this scenario, we hope to demonstrate that planning and guidance can
potentially help, even in extreme markets," says Fox. "We believe the role of a financial professional is more critical today than ever. Two major events have collided to create an enormous need for guidance: 78 million baby boomers are approaching and entering retirement just as the worst economic crisis since the Great Depression wreaks havoc on retirement savings."
According to some industry sources, 61 percent of investors nearing retirement indicate that the financial crisis has seriously impacted their long-term plans. And many of these near-retirees will turn to financial professionals for guidance and strategies to help maintain retirement income despite the unpredictable timing of market returns, Principal Financial concludes.