How the Recession Has Changed Retirement Planning

The economy may be recovering, but some of the changes brought on by the Great Recession may be long-lasting. If you are planning for retirement, (and you should be!) you need to take these changes into account.

Only 14 percent of Americans say they are very confident they’ll have the money to live comfortably in retirement, according to a 2012 survey by the Employee Benefit Research Institute. “People in their 40s and younger have some time to retool their plan, but Baby Boomers need to think with more urgency,” says Philip Rousseaux, founder and president of Everest Wealth Management, Inc.

Many Baby Boomers had all of their retirement investments in the stock market and may have lost some of their principal and most of their gains — now it will take some time for them to recoup. Other investors moved their money to short-term savings, like CDs, but with interest rates so low, they’re actually losing money when you factor in inflation. Those are the two most common mistakes people make in retirement planning – having everything in either stocks or short-term savings is a bad idea, Rousseaux says.

Here are suggestions for ensuring you’re part of that 14 percent.

Don’t take risks you can’t afford. This is another common mistake. Don’t put the bulk of your assets into anything that makes your principal vulnerable. Gambling that you’re going to win big on the market, or any other investment, means you also risk losing big.” A portion of your investment should have a guaranteed return.

Seek guidance from independent financial advisers. This has two benefits: advisors who aren’t marketing their own products have no conflicts of interest. You wouldn’t go to a commissioned salesman for advice on buying a high-tech product. Instead, you’d probably turn to a trusted friend or an independent expert source, like Consumer Reports. Take the same care with something as important as your retirement. The second benefit is that independent advisers can devise creative, innovative solutions to meet the needs of individual clients.

Consider alternatives to the stock market. One of the effects of the recession is that the public realizes Wall Street is not a safe retirement plan that is used to be. With pension plans a luxury of the past and Social Security not a guarantee for the future, Rousseaux says whatever your age, it’s important to start planning now for retirement by creating your own private pension. “The good news is, our life expectancy grows every year,” he notes. “It’s up to you to ensure that you have a great quality of life when you decide you no longer want to work.”