Will We Be Forced to Work Until Death?

A 71-year-old Arkansas woman looking to retire in a few months is worried about her financial security after watching her investment portfolio plunge more than 55 percent in the recent market collapse. She can't decide whether to cash in everything now or wait for a rebound.

Question: I feel that the market will come back sometime in the future, and I don't expect to need my money for several years, but I don't want to lose everything that I have saved all these years for retirement. If I stay in the market for at least three to five years, do you think there is a good possibility that I will lose everything? I hate to take it out, at this low point, but something is better than nothing. Also, are these losses tax deductible in any way? I am very uncomfortable about my retirement, but I am also 71 years old, and want to retire! Will we all be forced to work until we die?

- C.E. Marion, Ark.

Answer: Despite current conditions, I doubt we will all be forced to work until we die. But the fact is this year's market plunge does mean many people nearing retirement will be working at least a few years longer than they planned. For those in their early 60s, I'm not sure that's a bad thing.

With average life expectancies growing longer, it is plain unrealistic for many of us to think we can stop working entirely at 63, the age by which most Americans retire, according to U.S. Census Bureau data. After all, in 1935, the average 65-year-old could expect to live until age 77½. Today, an average 65-year-old can expect to live until age 83, the Social Security Administration says. The money for those five and a half extra years needs to come from somewhere.

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That said, retirement by age 71 should be a realistic goal for every American. The question is can you make it happen amid the current economic turmoil?

There is not enough information provided in your question to say how you will fare yourself in retirement, given the investment losses you describe. However, let me offer a few observations.

Managing Your Portfolio at Retirement

First, if you indeed did lose 55 percent of your portfolio's value in this year's market decline, then it's clear to me your asset allocation was way off for somebody so close to retiring. Even if you had been invested 100 percent in a portfolio tracking the Standard & Poor's 500 Index -- a broad measure of U.S. large company stocks -- then you'd be off about 38 percent over the past 12 months.

And given I would never recommend an all-stock portfolio for a 71-year-old investor, your losses should have been even less than what the S&P 500 has suffered, maybe something more in the range of 20 percent to 25 percent down if you had an appropriate mix of cash and bonds.

This all means you should first review your current asset allocation and settle upon something that includes a good mix of conservative investments, such as short-term bonds and bank CDs. I wouldn't give up entirely on stocks because those are what protect us against inflation over the long haul. For most investors in their 70s, a stock allocation of less than 50 percent is appropriate. Depending on your situation, you might go as low as 30 percent on stocks.

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