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How to Get Your Retirement Back

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"How am I going to retire now?"

That question has been on lots of people's lips since, oh, the first week of October or thereabouts. An awful lot of paper wealth has evaporated since then, even for those who weren't in Mr. Madoff's Magical Money-Munching Machine. Madoff's scheme has captured the big headlines lately, but even investors who thought they were doing everything right have seen holdings in recently well-regarded stocks like Apple (Nasdaq: AAPL  ) , General Electric (NYSE: GE  ) , and American Express (NYSE: AXP  ) dwindle to disturbing degrees.

What about your 401(k)? The mutual fund industry and its vaunted active management didn't escape the market meltdown, either. Morningstar (Nasdaq: MORN  ) -- another well-regarded stock that got clobbered -- noted last month that every domestic and international equity fund available in the U.S. had lost money over the last year. Every one. That's more than 11,000 funds!

It's probably small comfort, but if you're nearing retirement age and worried about your nest egg, you're clearly far from alone. But will you all have to work until you're 90?

Not necessarily.

It's up to you
Let's get this out of the way right now: Unfortunately, there's no magic way to restore your missing paper wealth, aside from investing well and waiting for the market to do its thing. That will take a while. I have no special tricks up my sleeve to speed up the process, and I advise you to be very wary of anyone who claims to have an easy answer.

But there are a number of ways you can buy time for the stock market to do its thing without knocking your retirement plans too far off course. Moreover, you can speed up your recovery by structuring your portfolio to take maximum advantage of the market's eventual upswing.

To get a sense of where you're at, confront the numbers: Draw up a lean but realistic post-retirement budget, and compare it to your anticipated income sources. Add them all up -- Social Security, pension payments, interest or annuity income, and anything else that comes to mind. How big is the annual shortfall? Is it bigger than 4% of your current nest egg?

If so, you'll need to reduce spending, increase your income, increase the size of the nest egg, or all of the above.

The three goals
There are three goals to this plan, all interrelated. We want to:

  • Buy as much time as we can to rebuild that nest egg;
  • Invest to take maximum advantage of what the market gives us;
  • Reduce spending where possible.

Last one first: There's lots of advice out there on reducing spending, particularly in retirement, so I won't rehash it at length here. Some key considerations: Can you move to a smaller house, or a cheaper part of the country? Keep that old car longer? Cut expenses in other ways?

Cutting expenses -- now and in retirement -- helps you buy time. Of course, the biggest way to buy time is to work longer, and that may need to be a serious consideration for you. Working longer increases the amount you can save now, and the amount of your eventual pension and Social Security payouts later -- all good things.

As depressing as "work longer" may sound, keep in mind that it isn't forever -- delaying retirement by just one or two years can add significantly to your eventual monthly income. And while you're working, you can keep contributing to your 401(k). Even if your employer has suspended its match, as Motorola (NYSE: MOT  ) , FedEx (NYSE: FDX  ) , Eastman Kodak (NYSE: EK  ) , and many others have done recently, you can still contribute as much as $22,000 in 2009 if you're over age 50 -- money that will come in handy later.

Another advantage of buying time: By pushing off the day when you'll have to tap the stock portion of your investment portfolio, you give it more time to grow -- and the market more time to recover. Work another year, cut expenses, and tap the CDs and bonds you have first. It could be five years or more before you have to sell any stock, and by then, you may see a nice recovery.

Of course, you'll maximize your recovery by investing well, starting right now. Making the most of your retirement investments requires a solid asset allocation plan, a realistic understanding of risk, and the ability to evaluate the pros and cons of the investment options available to you. Even if you were doing "pretty well" until recently, there's almost always room for improvement.

Of course, this is why some people hire professional investment advisors. But before you make that expensive commitment, take a free trial of the Fool's Rule Your Retirement newsletter service. You'll find great advice on maximizing your income in retirement, how to make best use of the investment options found in most plans, and some of the best asset-allocation guides I've ever seen.

A full year costs less than a meeting with many advisors -- and 30 days of full access costs nothing at all. Click here to learn more.

Fool contributor John Rosevear owns shares of Apple. American Express is a Motley Fool Inside Value selection. Morningstar, FedEx, and Apple are Motley Fool Stock Advisor selections. The Fool owns shares of Morningstar and American Express. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (11) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 19, 2008, at 3:59 PM, trc3156 wrote:

    This is the rub. We don't get our retirement back. We now have to work much longer because of events out of our control. Thievery by both unscrupoulous bankers and sheer stupidity and complicity by our own government. I may get some of my investments back but I won't be retiring earlier and that was the whole point of saving, living within my means.

    The situation sucks and this article is trite.

  • Report this Comment On December 19, 2008, at 4:44 PM, TMFMarlowe wrote:

    Thanks for the comment. What would a non-trite article say?

    John Rosevear

  • Report this Comment On December 19, 2008, at 5:41 PM, glongcih wrote:

    I can relate to the comments about not getting my retirement back, but I think I would like to have a revenge component to make me feel better.

    On the news I saw Maddoff walking down a New York street to his $7MM house after posting his $10MM bond . Where did he get the money? How can he post that kind of bond. I have no doubt that many have done illegal things to get us where we are and someone needs to pay for it.

    As the FBI agent in National Treasure said "Somebody has to go to jail". That would make me feel better about some semblance of justice for the little guy if some of these fatcat cheats spent their retirement in the slammer and not in a NY penthouse.

    The corruption is like a third world country.

  • Report this Comment On December 19, 2008, at 6:03 PM, TMFMarlowe wrote:

    Madoff should be able to go home to his house. Not to defend the guy, but remember that as of right now, he has been convicted of nothing. This is still the US and we are all still innocent until proven guilty. I have no doubt that if and when he is convicted, the legal system -- backed by public officials bent on the sort of revenge you mention -- will thoroughly trash what remains of his life.

    John Rosevear

  • Report this Comment On December 19, 2008, at 6:13 PM, dyadco wrote:

    Dear John,

    an interesting article, but the options you have given, although practical, are not necessarily realistic for many people...particularly those in or nearing retirement.

    For me the key is to accept the present situation and slowly reposition oneself for the eventual upturn.

    Frankly, I see too many problems with the US economy (in particular the current and ever expanding debt situation and the Fed's total willingness to just print more and more dollars) to be comfortable in solely investing in the US.

    Sure, its a market we know, despite all its problems, but that shouldn't deter any of us from looking beyond our shores to economies that offer more security (either perceived or real) than what is perhaps in store for us here.

    To be frank, I have a paper loss of 48% on my equity holdings. The market will eventually make up for some of this loss. However, it is the value of potential currency loss that concerns me as much.

    That is why I am slowly buying equities in countries that to me offer a safe haven: in particular Singapore and Australia. (The later having ALL (4) of its major banks AA rated out of 17 in the world..and giving a dividend yield of around 9%).

    I hope this helps others in the same position as myself in getting OUR retirement back.

  • Report this Comment On December 19, 2008, at 8:18 PM, TMFMarlowe wrote:

    "For me the key is to accept the present situation and slowly reposition oneself for the eventual upturn."

    Well, that's what I'm suggesting -- that folks deal with the present as best they can (by reducing spending and taking other steps to raise in-retirement income and increase savings before retirement) while repositioning their investments.

    Your point about looking overseas is well-taken. I'll be writing more about that next week.

    Thank you for the comment.

    John Rosevear

  • Report this Comment On December 19, 2008, at 8:27 PM, jimmyjazz0 wrote:

    I am 56 yrs young and have worked for the county in which I live for 30 yrs. I am going into the 5 yr. DROP plan the county has seyup for the employees. I am SUPPOSED to start the DROP in march 2009. At the end of it, I will have aprox. 700,000.00 to live off of and with the way stuff is, I am wondering if I should just keep working. I have discussed this with a few Money people and they tell me to go for the retirement at age 62, as designed. So, I have a few decisions to make soon. You might have figured after all the years of service to one company, I have to face this junk. Merry Christmas my fellow Fools.


  • Report this Comment On December 20, 2008, at 12:46 AM, dyadco wrote:

    Dear John,

    thanks for taking the time to respond.

    I look forward to your next article.



  • Report this Comment On December 20, 2008, at 9:10 PM, ARJTurgot wrote:


    I'm 56 with 25 state years. Lots of things to ponder, but few of them lead to regrets. We didn't come out rich, but we did come out whole and mostly sane. I've been blessed to have worked with the salt of the earth who were trying to make life better for people rather than enriching scumbags like Madoff.

    Believe it or not, you can still live well in this country with 700K in savings. What you won't lead is a full-on consumption obsessed parody of a life. If you are 56, you probably grew up in an America that was much less materially affluent than today. I seem to recall having a happy childhood without Nintendo. Odds are you watched your grandparents and parents live on a lot less.

    I've postponed and re-prioritized, and discovered many things. Rather than really doing a couple of years touring Europe, I will probably do the USA instead. Cheaper, and I like the people more - nothing wrong with Americans. In the end I figure I will be better off remembering Yellowstone and fishing the Snake than some old church or collection of pictures from someone that died 300 years ago. Multiply that into other categories and I figure I can keep myself entertained for another 40 years and still leave some stuff for my kids.

  • Report this Comment On December 21, 2008, at 8:49 PM, TMFMarlowe wrote:

    1werd, I like how you're getting more subtle with the Randy Swan spams you attach to so many of my articles. Eventually maybe I'll mention him in an article... perhaps talking about what happens to people who insist that "the rules have changed".

    John Rosevear

  • Report this Comment On December 22, 2008, at 7:54 AM, clubandy2002 wrote:

    OK guys----I got tired of US 3 years ago---moved from Seattle to Shanghai. Things did bother me at first here but I see it was a right choice. The corruption in China is nothing in comparison to what is happening in the USA. I even have a Starbucks on the ground floor of my bldg. I do not trust the government here---but trust me it is no worse than the one we have in the US. May God bless China.

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