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The new normal
Investors changing approach to retirement since Great Recession


February 2014

With the Great Recession becoming a distant bad memory, people are once again thinking about the future ≠ó including retirement planning.

But the recent economic setbacks have left many wary of the market and the security of their retirement investments. Many question whether once-standard advice like the 4 percent rule, which recommends retirees withdraw their retirement savings at a rate of 4 percent per year, still holds true.

So how are financial professionals advising clients on retirement planning in these uncertain times?

"Since the Great Recession, more people seem willing to come to us for advice," says Aaron Kowal, a financial adviser with the Kowal Investment Group in Waukesha. "They donít want to be shocked again."

According to a study published by The Pew Charitable Trusts last May, between 2007 and 2010 every age group experienced a significant loss of wealth. Early boomers lost 28 percent of their median net worth; the rest of the American population fared even worse.

"2008 was like a bucket of cold water," says Karen Ellenbecker, president of the Ellenbecker Investment Group in Pewaukee. "What I see now is that people are skeptical about being able to retire."

With the uncertainty of inflation, the volatility of the stock market and the rising cost of health care, people are unsure how to move forward.

"People need to try to insulate their portfolios by being well-diversified," says Ellenbecker. "We advise our clients to have the equivalent of five to seven yearsí worth of fixed income available in cash reserves."

Betty Wellhoefer Hill of Crescendo Wealth Management in Grafton says she has seen allocations to investment portfolios change during the past five years. Many are favoring more secure investment options like bonds and mutual funds over the potentially volatile stock market.

"Thereís definitely some PTSD (post-traumatic stress disorder) going on in the market," Kowal says. "People are still worried."

Those nearing retirement today are saving more, spending less and working longer, says Michael Sadoff, a portfolio manager with Sadoff Investment Management.

For those who stayed the course and continued to put money away during the recession, Kowal says their retirement portfolios have rebounded for the most part. "Nothing can bring us back to 2008," he says. "But those who stayed consistent in making contributions are sitting pretty well."

Sadoff agrees. "A lot of people are back on track," he says.

But with the market rebounding, Ellen-becker cautions that many people are already forgetting how much the economic downturn impacted their investment portfolios.

"Now people are hearing how well the market is doing and theyíre losing sight of their investments again," she says. "You always need to keep a percentage of your portfolio safe."

As a general rule, many financial planners recommend saving enough to replace 70 to 100 percent of your preretirement income when you leave the workforce.

"It can be difficult to determine the best way to allocate your assets," Hill says. At the very least, she says, people need to plan on having enough guaranteed income to meet their basic needs in the event of another economic downturn.

"Bonds can be risky right now," Sadoff says. "More people are relying on stocks because of the appreciation."

For retirees and people nearing retirement age seeking to rebuild lost savings, financial vehicles that offer high rates of return can be a tempting option. But thereís one major drawback to this approach ó investments that offer high rates of return also carry the greatest risk. "The question is how much risk can you afford ó financially and emotionally," Ellenbecker says.

What Clients Donít Tell Their Financial Advisers

Withholding personal information from your financial adviser can adversely impact your financial investment performance. Yet many investors donít realize the risk involved in not disclosing personal matters like debt and health problems.

"Personal matters can profoundly affect a familyís financial stability," says Betty Wellhoefer Hill of Crescendo Wealth Management in Grafton.

According to a 2013 survey by Securian Financial Group, nearly one-third of respondents confessed to holding back critical information that could affect their finances. Health and marital difficulties rank high among the critical subjects clients donít openly discuss with their advisers.

"If clients keep secrets theyíre ultimately taking on more risk," Hill says.

Karen Ellenbecker, president of the Ellenbecker Investment Group in Pewaukee, says clients arenít always forthcoming about the actual amount of debt they carry.

According to Securianís findings, 25 percent of clients surveyed admitted to carrying debt their financial advisers donít know about.

"A lot of couples donít talk about their spending habits, and, as a result, the debt they report to their financial adviser may not be accurate," explains Ellenbecker.

Ellenbecker also has encountered clients who are reluctant to reveal how much money they lend to family members.

"People sometimes donít want to admit how much theyíre helping out their adult children financially," says Michael Sadoff, a portfolio manager with Sadoff Investments.

Health issues can be another sore spot. Aaron Kowal, a financial adviser with the Kowal Investment Group in Waukesha, recalls a conversation with established clients who suddenly disclosed that long-term health insurance was a priority.

"A sound financial plan is totally dependent on the information provided by clients," he says.


This story ran in the June 2013 issue of: