Q. How has retirees’ investment risk tolerance been impacted by the recession?
A. Looking at retirees between ages 56 and 77 with at least $200,000 in household investable assets, our research shows that many retirees are feeling much less financially secure than they did when they first retired. This insecurity is exhibited by the change over the past year in retirees who say they are conservative when managing their household investable assets. Since the market downturn of the fall of 2008, retirees are less likely to take risks with their assets. After years of the market going up, reality hit hard and now more than 1 in 5 retirees describe themselves as “extremely” conservative when managing their assets compared to 15 percent in early 2008.
Q. Are more retirees turning to financial advisors as a result of the recent hits to their retirement accounts?
A. It appears that there has been an increase in retirees seeking out financial advisors since the recession began. The challenge to establish the right mix of assets, as well as which order of assets to take income from, during and after a recession is important to retirees if they are to make the most of their financial situation. Having a personal financial advisor can maximize the effectiveness of their assets and increase the likelihood that their assets will last a lifetime.
Q. A recent survey by LIMRA found a significant decline in the number of retirees who feel very confident they have saved enough money to live comfortably throughout their retirement. Is that related to the impact of the recession or bad long term planning strategies?
A. Feeling less confident about having saved enough money to live comfortably throughout retirement could result from a combination of both of those things – the stock market tanking and having too much invested in the market makes for a bad combination. If retirees live their retirements without a plan and fail to balance their portfolios between growing and preserving their assets, they will face declining confidence when the market retreats.
Q. What’s the best way to decrease concerns over outliving money in this economy?
A. There are several things that should be considered:
· Have and follow a financial plan that includes the types of assets and the order from which income is withdrawn; review annually and adjust if necessary
· Develop a contingency plan that strategizes what to do [financially] in case of an increase in health expenses, a decrease in income, death of spouse, etc.
· Diversify investments to both grow and preserve assets, and reduce overall financial risk
· Consider long-term care insurance to cover potential health care costs that can have a huge impact on assets and quality of life
· Increase ownership of guaranteed income products.
