Financial advisers address common concerns amid economic slowdown

The Columbia Business Times posed two questions to prominent local financial advisers to give readers insight into the minds of baby boomers and retirees amid all the negative news about the United States economy. The participants are Andy Stewart, managing principal at Waddell & Reed; Douglas Moore, senior vice president and investment officer at Central Trust & Investment Co.; Lon Brockmeier, branch manager at Raymond James Financial Services and Williams Keepers Financial Services; and Jerry LeSeure, financial consultant at A.G. Edwards/Wachovia Securities.

Columbia Business Times: Most people now believe the U.S. economy is in a recession, and many retirees and baby boomers are seeing a decline in the value of their investments from their high points. They also are dealing with the mixed consequences of interest rate reductions. In light of current market conditions, what are common concerns you’ve heard from retirees and those nearing retirement? In general terms, what is an example of the advice you are giving them?

Stewart: A common concern during an economic slowdown, or a recession, is “Will I have enough money for retirement?” The media have put a lot of effort into reporting that the U.S. economy is in, or is headed for, a recession. What is not getting as much press is that economies around the world continue to thrive, despite the slowdown in the U.S. If we got on a plane and flew around the world, we would see examples of how strong the current global economy is today.

The S&P 500 had a return of only 3.53 percent in 2007. In a flat or downward market, you probably do not want to own an index. Security selection and fund manager selection are crucial because there are a lot of opportunities to take advantage of the strength of the global economy. It is not simply a matter of investing in the U.S. or international stocks. Rather, we can look for opportunities to invest in U.S. companies with international exposure. John Deere, for example, just built a new plant—in India. With the population growth that is expected, they are positioning themselves to take advantage of the opportunity.

My advice is to develop a strategy designed to meet your financial goals and help you answer the question “Do I have enough money for retirement?” with “Yes, I do.” An advantage to working with a financial adviser is to design your personal financial plan and to ensure that you have a properly diversified portfolio—to help minimize the risk of being overexposed to one economy, sector or security.

Moore: The concerns we hear most often from retirees and those nearing retirement have been fairly consistent, no matter the market conditions. They may just be a little more intense during downward-moving stock markets and low-interest- rate environments. The questions are:

• Will I run out of money?

• How much can I safely take each year?

• Will I have to go back to work?

We have found these concerns to be stronger during the first year or two of retirement, regardless of market conditions.
It is important in retirement years to set expectations at a realistic level. A number of studies have been done to show the probability of retirement funds lasting the rest of one’s life at various payout levels, given a variety of stock and bond allocations in a portfolio. The results of these studies have led us to recommend that most people plan on taking annual distributions of 4 percent to 5 percent of their retirement savings and investments.

This level of payout generally should give the retiree the ability to recover a little more quickly after a down market, as compared with taking a higher payout. Making sure investments are allocated to include some growth should, over the long run, help the distributions keep pace with inflation.

The other important aspect of investing after retirement is making sure that the investor is comfortable with the asset mix in the portfolio. Controlling risk is important, but doing so in an informed and intelligent way will help reduce some of the anxiety associated with living off of retirement savings.

It is important to continue to plan, make adjustments when needed, and stay informed. Then spend some time doing something you have always felt passionate about but didn’t have time to do during the working years.

Brockmeier: As we work with thoughtful retirees or those nearing retirement, the three most common concerns we hear are:

• Will we have enough income to pay for the retirement we want to enjoy now and through our retirement?

• Will we have enough assets to comfortably continuing paying us the income we will need over and above our Social Security and pension benefits?

• How can we best manage our investments safely, given the extreme volatility today’s markets are experiencing?

Our advice to clients and those referred to us with these concerns is to follow an individualized investment/ financial management program based upon:

• reaffirming your personal financial-management goals in retirement, being specific as to dollar amounts, timeframes, risk tolerance, concerns and measures of performance;

• evaluating your current investment resources (investment assets and income sources), financial management strategies, and financial resource people and organizations in light of the standards you need to keep to continue meeting your goals;

• rebalancing your investment mix to align with your asset allocation and investment diversification targets within the risk tolerances you have established;

• taking corrective action where appropriate to remove under-performing investments, discarding nolonger- suitable financial management strategies and replacing resource people or organizations who aren’t meeting your service needs; and

• developing a schedule to regularly monitor how well you’re doing.

And if a concerned retiree or near-retiree doesn’t have such an investment/financial-management program, we recommend they work with a financial adviser in whom they have confidence to create such a plan personalized to their needs. After all, retirement is a stage of life meant to be enjoyed, and a plan individualized to the retiree’s and spouse’s needs can provide a lot of peace of mind so they can focus on grandkids or that next trip.

LeSeure: The most frequent question I hear is, “How long is this going to last?” That is usually followed by, “Should I get out of the market?” I also have some clients asking if they should sell some stocks and buy bonds to increase the percentage of fixed income in their portfolios.

I try to remind my clients that the kind of sell-off we have seen since the October highs takes place about every five or six years, on average. I also remind them that their retirement is probably going to last from 15 to 25 years or more. This is a temporary and normal market movement that we are experiencing. Most all of my clients over 50 have lived through several of these market corrections over the last 25 years. I believe everyone likes to have someone reassure them that things are not as bad as they might think, and it is my job to assure my clients that they have made good-quality investments for long term results.

As to the second part of the question, I am advising my clients not to panic, to be patient and to have faith in the good investments they have made. I am also telling my clients that this is not a good time to invest in any type of fixed income, i.e. CDs or bonds with a maturity of more than two years. If they are looking for income, I have recommended that we look for good-quality companies that have a long history of paying and raising their dividends. Several good companies currently pay quarterly dividends of more than 4 percent.