It looks like some Baby Boomers might be hanging out in the job market a bit longer.
The Center for Retirement Research at Boston College estimates that retirement accounts collectively have lost more than $3 trillion since January – $1.4 trillion in 401(k)s and $2 trillion in IRAs. That has a lot of people near retirement age nervous about their future.
“That is something that concerns retirees,” John Travis, a financial advisor with Richard Young Associates in Augusta, said. “That is a real fear.”
So far this year, the index funds often included in retirement investments have been spiraling downward – S&P 500 is down 21 percent, the Dow is down 30 percent and NASDAQ has dropped 16 percent. The bad news is that financial experts don’t think it has bottomed out yet. Analysts at investment firm Morgan Stanley foresee the S&P dropping another 15 to 20 percent.
Coupled with inflation at a 40-year high, many people are worried about future retirement plans.
Travis said that the double whammy causes some people to consider pulling out of the stock market but he urged patience.
“It is very tempting (to pull out),” he said. “It’s very emotional for folks. But now is a terrible time to get out.”
Travis said that in the past 96 years, the stock market has been down about 25 percent of the time. But historically, when a bear market bottoms out, the return is 23 percent, meaning those with patience end up not only recovering their losses but even gaining.
“We’ve had a lot of phone calls and our goal is to share that history,” Travis said. “I can’t tell you when this is going to turn around, but it’s going to be OK.”
Part of the reason for his optimism comes from his company’s planning process, which emphasizes diversification to lower risk. For most clients, the large index funds are only a small portion of their portfolio. Their planning also anticipates bear markets and recessions.
“We expect it in our industry,” he said. “No one likes it, but it happens. Our planning includes that, so when it happens it doesn’t blow up your plan.”
Even those already retired who draw a monthly income from their plans are protected in downturns. That income draws from more stable bond investments.
Travis said an important point to remember is that you still own the same number of shares, even if the price of them is decreasing. In fact, he encourages investors to buy more shares when the price is down, which will increase their wealth once prices rise again.
“The number of shares you own is the most important factor in building wealth over time,” he said.
Last week, Wall Street raised an alarm about a yield curve inversion, usually an indicator that a recession will happen within the next six months to two years. Estimates of how deep the recession will be vary widely among experts, but a number of them warn to be prepared for the worst.
Travis acknowledged that concern, since markets are down globally, not just in the United States. But he said one of the biggest battles his firm has is the 24-hour gloom-and-doom news cycle.
Whether Baby Boomers need to wait to retire depends, Travis said, on how they’re invested and how much retirement income is needed.
“That’s why we diversify,” he said. “That’s why you’ve got to have a process in place for when the market goes down.”