Wealth - Rethinking for Retirement


Are you tweaking your investment strategy for the long term?

A City of Palm Springs employee for almost 17 years, Phil Kaplan walked out of City Hall in September deciding the time was right to retire. He owned a classic Alexander house in Vista Las Palmas and had a healthy amount saved for retirement between personal retirement investments and work-related deferred compensation investments. A nice monthly pension check added to his security. Kaplan is one of the lucky ones. According to Bloomberg.com, the global financial markets lost $30.1 trillion in value in 2008.

“In July, I decided to adjust my retirement investing strategy because I just didn’t want the risk,” Kaplan says. “I sold my three mutual funds and went into stable, value-fixed income.” Currently that’s throwing off about a 4 percent return. “I wasn’t trying to outsmart the market; I was just being conservative,” Kaplan recalls.

He is holding onto the funds in his Roth IRA, which has taken about a 40 percent hit over the past year. “I don’t need that money right now,” he says. “And since they are good, solid funds, I figure I’ll hold onto them and maybe in four to five years they will recover. If I sell them now, then I definitely lose out.” For now, Kaplan is on the sidelines. “If I do invest, it would be in a few stocks that pay dividends and make products that people really need.”  

Rethinking retirement investing strategy is painful when you tally up hefty losses. But make no mistake; it’s necessary. Though many of us simply want to pull the covers over our heads for the next 18 months or so, we can’t. A stringent portfolio evaluation and possible asset reallocation should be at the top of your to-do list as tax time approaches.

Here’s a suggestion worth considering from Greg Owens, a certified financial planner at Alaska Trust Co. “For high net worth individuals, this is a great time to offload underperforming stocks to the next generation as a  gift. This and many other estate-planning strategies are extremely advantageous when stock prices and interest rates are low. If your stocks are low, you can transfer them to a child or grandchild (either outright or in trust); and when the stocks begin to perform and increase in value over the next few years, all of that growth happens out of the donor’s estate. The next generation can benefit with the increased value and have it in their estates.” Anyone is entitled to give an annual gift of up to $13,000 to any one person, with a lifetime gift exemption of $1 million.

If you bailed out of your stock portfolio before the fall, you can play the waiting game. That’s what San Diego attorney and investment consultant Todd Williams, president of TW Consulting Inc., is doing. Heavily invested in certificates of deposits and cash equivalents, he’s unconcerned about the miniscule return he’s earning. “I am cautiously bargain-hunting in stocks and real estate,” Williams says. He is only looking at properties with attractive debt-servicing opportunities and ones best poised for the upswing when it happens. In markets like Florida and Nevada where prices have fallen as much as 50 percent, his strategy could work both short and long term.

To weather the perfect economic storm we are experiencing, Jim Casey, president and CEO of Integrated Wealth Management with offices in Palm Springs and Beverly Hills, recalls that his clients in active retirement “can withstand this because of the amount of cash and fixed-income vehicles they had on hand at the beginning of 2008.” Casey saw people burned using equities as income. His lesson on the balance between fixed income, cash, and equities is one that makes sense no matter where you are in retirement planning.

“Every year no matter what the market is doing, you review your portfolio and current income needs,” Casey advises. “Never let the amount between equities and fixed-income investments get unbalanced, regardless the market climate.”  

If you are in your 50s and your portfolio has taken a dramatic drop, now is not the time for a major reallocation. Your losses are there in indelible red ink. It’s more important to stay in and reposition for growth once the market comes back. Consider that may mean working a few years more than originally planned.

“I’ve changed several things regarding my retirement,” says Rick Weiss, a 50-year-old semi-retired Palm Desert lawyer and avid golfer. “I’ve switched from a golf club where I paid $670 a month to one where I now pay $260 in dues. I dine out less. … How many extra years that I will have to work that I didn’t plan on is what is most painful to me.”

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