Market Plunges Have Retirees Running Scared
As equity markets continue to stagger, many retirees fear their dream of a secure retirement is going up in smoke, according to feedback being received by advisors in the field.
“Everybodys getting calls because people are worried,” says Hartman Axley, an advisor with Allmerica Financial, Denver, Colo.
“Some are concerned that its going to get worse,” says Richard English, a planner from Arlington, Texas. “The general comments are getting to the point where, to use their words, Its time to stop the bleeding.”
Some retirees have even begun making financial decisions based on what they hear on CNBC, something that can sabotage your lifetime retirement plan, according to Cheryl Johnson, an advisor with American Express Financial Advisors, Rochester, N.Y.
“I had a call from a client who said she heard on the news that she should sell all her mutual funds,” says Johnson.
“This client, who had a very low equity position because shes just gone into retirement, is not going to use those stock dollars for 20 to 25 years. She panicked.
“These blanket statements are confusing people, and if you dont have somebody who knows your situation, they cant tell you what to do,” Johnson says.
English explains that a lot of his retired clients are retreating from the equities market–reallocating their assets to more conservative accounts. “One client wants me to analyze his variable annuity. He knows the values are down, but hes willing to sell those right now and park it in a government fund or a bond fund. He feels like he wants to catch the elevator on the way back up,” says English.
“Im seeing some people who thought their risk tolerance was higher than what it actually turned out to be. They seem to be changing their new allocations into more secure positions, building up more of a bond or fixed portfolio,” says Johnson.
“I see other people who have relatively conservative portfolios and they understand that this is a great time to be buying stocks and mutual funds, and theyre doing that,” she says.
One factor that has contributed to the retreat from equities is the unrealistic expectations investors set for themselves during the 1990s, says Johnson.
“Expectations are out of whack,” she says. “I talk to people who thought it was realistic to assume that they could earn 25% on their retirement portfolio every year. And its not.
“During the 90s, people were used to putting their money in the market on Monday and by Friday they had more. Thats over,” Johnson says. “I think the majority of those people have come to the realization that its not as easy as they thought.”
Even seasoned investors who recognize there are going to be ups and downs, still get nervous when things go down, says Axley. “The less seasoned somebody is the more nervous they get when things go down.”
But planners agree that recent retirees and those nearing retirement who have done some planning should not be overly concerned with the recent downturn. “The people we work with have done their planning ahead of time sufficiently, so they have a mix of assets. They arent dependent on liquidating the assets that have gone down drastically,” says Axley.
“In liquidating those assets it really locks in loss. Our advice is clearly that the market will come back,” he says.