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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Jdaasoc who wrote (85785)	6/25/2002 11:10:35 PM
From: Rich1	Respond to of 99280

Talk about Pain... "TOUGH TIMES AHEAD FOR RETIREES" By Paul B. Farrell; CBS marketWatch.com Anytime I see an article concerning retirement I grab it immediately. Such an article appeared on CBSmarketwatch.com recently by Paul Farrell called "Tough Times Ahead For Retirees." If there ever was a growing crisis being ignored it's that of Americans who are nearing retirement age who bought into the Internet/tech boom and who as a result are now sitting with a 201K instead of a 401K. This is so serious that it is life changing for most, but I fear that many out there who are caught in this crisis are still stuck in denial about its implications. That goes for brokers too. Consider the example of Mr. Jones, age 52, who was planning to retire in 10 years at 60, five years ahead of time. A pretty common scenario, right? Now he finds that by accepting wholeheartedly the "buy and hold" theory of risk management he has lost 50% of his retirement equity. Basic arithmetic suggests he will need to experience a 100% gain in his remaining funds just to get back even. If the market returns 7% a year, every year, fail none, it will take him 10 1-2 years to get back even, that puts him at age 62 ½. And that is if everything goes well. But what if this market falls into what we have coined as a "Structural Fair Market", where there is something for both longs and shorts much like 1965 thru 1982, then the returns Mr. Jones gets will shrink to something closer to the 1% annual compounded rate of return of the 65-82 period. But let's be generous and say the average is 7% per year. This means that if Mr. Jones wants to stick to his retirement goal of age 60, now just 8 years away, he must put up more money, probably in a taxable account, above and beyond what he is allowed to fund into his 401K. Remember, 401k contributions have annual limits. Even if Mr. Jones suddenly finds a windfall from an unexpected source, he can's simply turn around and bring his 401k back to where it was two years ago. This then suggests that Mr. Jones' life style must suffer for the foreseeable future. No more vacations, no more new cars, no more anything above and beyond investing his money. This is a new and harsh reality for many investors. Mr. Jones might wonder how he can make up the deficit faster. He can choose to take more risk, keep rolling the dice at the technology table. This could get him back to where he was much faster, however he risks losing all that he has left. He can also choose to simply defer his retirement for another decade to make up the deficit. If we go through a few more dismal years, and I could give you a litany of reasons why this could happen, then his whole life will be turned upside down.