The stock market's gyrations are making retirees and near-retirees nervous, causing more people to seek advice from financial advisers.
People are growing increasingly anxious as they react to gloomy news about the volatile stock market, ailing housing industry, and rising food and fuel costs.
20 percent increase in activity recently.
Frankie Flaherty of Flaherty Financial Services in Missoula said she urges people not to make rash decisions. She's also had an increase in calls and appointments for advice.
“I tell people that investing in the market is like walking upstairs with a yo-yo,” Flaherty said. “For a hundred years, the market has climbed, but it has bounced up and down like that yo-yo. I want people to understand that even if the market is down, it will come back. They will make a gain over their initial investment.”
For people about to leave the work force, a downturn in the economy can diminish a nest egg. If a $1 million portfolio suddenly dives to $800,000, then one's planned 4 percent annual withdrawal of $40,000 is cut to $32,000.
Inflation also erodes buying power, especially for retirees who see their fixed income hit by the rising costs of groceries, gas and home heating.
Seidenschwarz and others counsel their clients to review their portfolio to ensure there is a mix of stocks and bonds - both domestic and international - as well as cash, home equity and other sources. He then gives them “cold hard facts” about what to expect in various market conditions.
Some couples have taken a different approach. Missoula residents Nancy and Paul Svelmoe are planning for their retirement by investing mainly in real estate. They've owned a rental house in central Missoula for about 12 years and also have rented a house in Las Vegas since 2005.
They are now hunting for a single-family residence in Las Vegas, which was overbuilt and where home prices have dropped considerably.
“We've always felt that real estate is the most solid investment, even with the ups and downs,” said Nancy Svelmoe, 58. “It is something tangible that you will always have.”
She said the couple is confident that Las Vegas' real estate will recover.
“We feel people moving from California, where there is no place to grow, and the snowbirds will be part of the upturn in Las Vegas,” she said.
With longer lifespans, people have to plan for 20 to 30 years of retirement.
In mid-July, an economic study by the Ernst & Young accounting firm said Americans are at high risk of outliving their retirement savings. About 72 percent of Montanans face this prospect, according to the study, unless they reduce their standard of living.
The study was commissioned by Americans for Secure Retirement, a coalition of more than 50 small business owners, agriculture, life insurance associations and others.
David Mack, a spokesman for the Washington, D.C.- based group, said it is asking Congress to create federal tax incentives that encourage Americans to invest retirement assets in life annuities.
Keith Jakob, assistant professor of finance at the University of Montana's School of Business Administration, said there are more people in the stock market these days than in the past. More people are managing their own retirement accounts or hiring someone to do so as companies shift from traditional pensions, or a defined benefit plan that promises a specified monthly benefit at retirement, to defined contribution plans, such as a 401(k) plan.
“It isn't so much that the markets have changed, but the responsibility has shifted to the employees,” he said. “If they make a bad decision or pay a manager too much to run it, they may not be able to retire.”
For people who will retire soon or within five years, Missoula area financial planners suggest moving some funds out of stocks and investing in bonds and cash, including certificates of deposit and money markets.
“When you get erosion both because of a slowing economy as well as investor confidence, you get whacked from both sides,” Seidenschwarz said. “What you get now is the fear factor - they think, ‘I've been getting all this income for years and can I continue to count on it?' ”
Flaherty urges people to plan based on their timelines and comfort level for risk instead of what is happening currently in the market.
“We have had a number of calls from people who hear in the news that the government hasn't had to bail out an investment bank since the Depression. They are afraid and want to move out of the (stock) market and into CDs, insured savings accounts or money market accounts,” Flaherty said. “But between taxes and inflation, we tell them they are going broke safely.”
She estimated about 20 percent of her firm's 450 clients are retired and another 25 percent to 30 percent will retire in about five years.
Flaherty helps people shift into more secure investments when they are within about five years of retiring. And she's counseling people not to panic.
“What we're telling them is this is not a good time for them to make a change. They probably bought their shares at higher prices and if they sell, they'll be locking in a loss,” Flaherty said. “If they can ride it out for a year or two, then maybe they can shift into a more conservative position.”
For people in their 40s and 50s, she and others suggest buying while stock prices are low.
Most experts, including economists at the University of Montana, expect the stock market's volatility to continue for a year or two.
Kirk Flynn, 58, is trying to plan for his retirement in about four to eight years. He said he seeks advice from experts, but makes his own decisions on his three retirement accounts.
He said he's worried about the volatility in the stock market.
“Here is what concerns me: The savings-and-loan scandal, the energy scandal with Enron and what has happened with the subprime” mortgages, he said. “The ripple effects go through the entire market.”
Until the markets settle, brokers and financial planners said they are trying to reassure their clients.
“We're seeing more and more retirees coming in for estate planning because of the markets,” Seidenschwarz said. “We're in a bubble and it will take several years to get out of it.”
Reporter Pamela J. Podger can be reached at 523-5241 or at pamela.podger @missoulian.com.
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