John Dicke, 61, has saved enough to retire any day he wants — but he won’t.
A bear market in stocks and a shaky economy have made the Morrison attorney reluctant, even fearful, about leaving his sources of income behind.
“I’m afraid to look at my statements, and I’m sure a lot of other people are too,” he said.
Even if a government bailout plan stabilizes credit markets, it could take years to clear excesses in the system and get the economy back on track.
“We are looking at a decade of no growth,” he said. “What is anything worth right now?”
Frank Birgfeld, who knew the investing world intimately as a former securities regulator, wants to retire but realizes that may not be the best move right now.
The 65-year-old Centennial resident plans to keep working as a consultant so he can delay tapping Social Security and more importantly his nest egg.
Birgfeld considered rolling money into a fixed annuity so he could lock in a steady payment until death. For a $1 million investment, a fixed annuity would pay $5,800 a month.
After AIG, the nation’s largest insurer, failed, he had second thoughts about going with just one firm and thought four might be better.
But then he realized if things got bad enough to cause one to fail, the others would be vulnerable as well, he said.
Nowhere to go
Not knowing what will happen next week, much less a decade or two down the road, makes it harder for those nearing retirement to plan, especially in times when, as poet William Butler Yeats wrote, “the center does not hold.”
Major U.S. indices are down about 25 percent from their peak nearly a year ago, taking a hefty bite out of many retirement portfolios.
Investors bailing out in the bear market of 2000 to 2002 could jump into real estate, but home values are falling, and that market is behind the current crisis.
“Traditionally conservative assets are not holding up well,” said Pam Dumonceau, a financial adviser with Consistent Values in Aurora.
Blue-chip stocks, corporate bonds, municipal bonds and even money market mutual funds have not proven the refuge many had hoped.
Bank stocks and mortgage-backed bonds, once considered respectable investments, have been among the worst performers.
Workers who invested aggressively because they started saving for retirement too late or saved too little may be especially vulnerable in this current crisis.
The strong run in U.S. and global stock markets from late 2002 through October 2007 caused many investors to become too concentrated in equities, said Joel Javer, a principal of the Denver financial planning and investment management firm Sharkey Howes & Javer.
Those investors could be facing losses of 15 percent or more this year. That’s less than the overall market, but severe enough to delay retirement another year or two, Javer estimates.
Another motivation for delaying retirement is to pay down debts. Themes of the housing bubble included extracting every last penny of home equity and folding other debts into the mortgage.
As a result, more people than ever are carrying a mortgage into retirement. Homeowners age 50 and older account for an estimated 28 percent of all delinquencies and foreclosures in the current mortgage crisis, according to AARP, which represents senior citizens.
The credit crisis reconfirms why it is important to pay off debts before entering retirement.
“I don’t have a mortgage on my house and not writing that mortgage check is a . . . relief,” Birgfeld said.
While advisers may disagree on the details, another general rule is to invest more conservatively as retirement draws closer.
Craig Carnick, a fee-only financial planner in Colorado Springs, advises his clients near retirement to set aside at least three years of spending money in liquid investments.
In the current environment, five years’ worth might be what is needed to give markets enough time to recover.
Having living expenses set aside allows for more risk-taking in a portfolio and reduces the temptation to go entirely to cash.
That allows a portfolio to harvest greater returns when the market does recover.
“Making the decision to go to cash is very easy. The difficult part is when to get back in. What will it take?” Javer said.
Another area where new retirees get into trouble is when they draw down a portfolio that has taken huge hits. Taking 5 percent out of a portfolio down 15 percent only compounds the damage.
Don’t lock in losses
Another mistake is to lock in losses by rolling a 401(k) or other employer-sponsored plan into an Individual Retirement Account with different holdings.
Beaten-down investments that are likely to be tomorrow’s top performers are replaced by today’s hot performers that will be tomorrow’s losers.
“Don’t cement in your losses,” said Carnick, who recommends staying with the original plan if that is allowed.
Given that the economy is expected to soften and layoffs increase, people near retirement have another motivation to hang on.
Workers with the longest tenure typically get the richest severance packages, making it worth waiting to get pushed into retirement rather than jumping.
And as tough as it might be to do now, that income stream can fund fresh investments into a depressed market.
Birgfeld said he still kicks himself for not buying petroleum stocks during the dot-com bust when oil was at $11 a barrel.
“This is a moment of immense opportunity, but the question is where is it and if I lose my bundle, what do I do?” Birgfeld said.
Dicke said he learned his lesson from the tech-stock bubble. He held value stocks that got hammered in the late 1990s when investors rushed into technology shares.
About the time he joined that rush, the market had topped, and he suffered losses. He recovered eventually and was conservatively positioned ahead of the crisis.
Dicke, who writes mystery novels on the side, said stories his mother told of the Great Depression shape his current thinking on what a credit crisis means.
She would speak of coming back from college to visit her home in Ohio.
“There wasn’t an extra penny in the house. There was no food in the house,” he said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
