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3 Ways to Overcome Your Retirement Doubts

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During the depths of the market meltdown, millions of people feared that they would lose everything that they had worked so hard to save. Yet more than two years later, after a huge stock market rebound and a supposed economic recovery, most workers still aren't very confident that they'll be able to retire comfortably in their old age.

Pessimism running rampant
A recent Gallup poll asked working Americans whether they believed they would have enough money to live comfortably in retirement. A majority of those surveyed, 53%, said that they don't think they'll have enough to retire. Surprisingly, that figure is even worse than it was during the worst of the financial crisis in 2009.

The poll has a number of other interesting conclusions:

  • Workers 30 to 49 were most pessimistic about their retirement prospects, while younger workers were most optimistic despite also having the least confidence in having Social Security as a source of retirement income.
  • Over the 16-year history of the survey, the percentage of those expecting to retire after age 65 has more than tripled, from 12% in 1995 to 37% today.
  • Six in 10 workers believe that they aren't likely to get any Social Security benefits.

It's easy to understand why workers are pessimistic about their retirement prospects. Despite the rebound, current conditions are tough not just for the economy overall but for investors in particular. Those who aren't familiar with long-term investing trends probably have misconceptions about whether some challenges they face right now are permanent. Let's go through three of them.

1. Stocks will never go anywhere.
Pointing to the Lost Decade, new investors have no reason to be confident that stocks go up over the long run. While more experienced investors who lived through the bull market from 1982 to 1999 know just how powerful stock returns can be, those who've relied on vanilla S&P 500 index funds haven't gotten much bang for their investment bucks since the beginning of the millennium.

But the mistake that many investors make is to look only at the most popular market measures, such as the S&P 500 or the Dow. Consider these alternatives:

  • The iShares Russell 2000 ETF (NYSE: IWM  ) , which tracks small-cap stocks, has risen an average of 7% annually over the past decade.
  • The mutual fund that gave rise to the Vanguard MSCI Emerging Markets ETF (NYSE: VWO  ) has had even stronger returns, jumping 16% per year since 2001.
  • The fund precursor to the Vanguard REIT Index (NYSE: VNQ  ) is up 11.4% annually.

A diversified portfolio wouldn't just have had large-cap U.S. stocks. With the right combination of investments including the funds listed above as well as a large-cap-holding fund such as Vanguard Total Stock Market (NYSE: VTI  ) , you wouldn't even have had a lost decade -- and you wouldn't expect one now either.

2. I can't get any income.
Whether you trust banks or bonds, it's hard to find safe income these days. With interest rates at extremely low levels, banks are stingy about paying customers to park their money.

But where income has become more prevalent is in dividend-paying stocks. In the Dow alone, three stocks -- AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Merck (NYSE: MRK  ) -- pay more than 4% annually in dividends, and seven more have yields of more than 3%.

True, owning dividend stocks involves more risk than a bank CD. But it also gives you greater potential for growth -- the growth that many wannabe-retirees absolutely need to stretch their nest eggs as far as they can go.

3. I'm doomed without a pension.
Most workers today don't have the protection of a pension that their parents and grandparents may have had. As a result, many workers throw their hands up and figure they have no chance to navigate the complicated world of investing successfully.

But investing doesn't have to be difficult. With many companies supplementing worker contributions to 401(k) plans with profit sharing or employer matching, it often pays to make even small additions to your retirement plan at work. And discount brokers have made it easy to manage the rest of your money, whether it be in IRAs or through regular accounts.

Don't give up
It's not always easy, but no matter how dire you may think your financial situation is, others have faced similar challenges and gotten through them. As long as you stay confident that you can get the knowledge you need to face your own particular retirement roadblocks, you'll eventually get through them.

Learn all the basics of financial planning with our 13 Steps to Investing Foolishly. It'll get you on track to a great financial plan in no time.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger has his doubts about many things, but not about retirement. He owns shares of iShares Russell 2000 ETF and Vanguard Emerging Markets and REIT Index ETFs. AT&T is a Motley Fool Inside Value selection. The Fool has created a ratio put spread position on iShares Russell 2000 Index. Alpha Newsletter Account, LLC has opened a short position on iShares Russell 2000 Index. The Fool owns shares of Vanguard MSCI Emerging Markets ETF. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. About the Fool's disclosure policy you need have no doubt whatsoever.

Read/Post Comments (2) | Recommend This Article (7)

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 April 28, 2011, at 11:11 AM, pastreet wrote:

    Save more, start young, invest conservatively, dollar cost average, reinvest dividends. That is all.


  • Report this Comment On April 29, 2011, at 1:15 PM, wolfman225 wrote:

    Hi Dan. Great article, but I have a question for those of us either getting a late start, or having to rebuild after some "life changes".

    I'm 47 and starting over from zero. I'm currently debt-free and making $45K. Realizing that I will need to be fairly aggressive if I have any hope of retiring around 67, I am putting 20% of my pre-tax earnings into a 401k. The employer match is small, only 1.5% of gross income. I'm 100% stocks, spread over large cap value and small/mid-cap growth funds, with 10% in emerging markets funds. I am also putting $5K annually into a ROTH made up of dividend paying blue chips, as a way too potentially offset some of the taxable income from the 401k with the tax free income from the ROTH.

    What more can (or should) I be doing? Using retirement calculators on various sites I'm either doing very well, or failing to reach my goal. If I factor in SS, I will have more money at age 87 than at retirement at 67 (based on avg growth of 8% and withdrawals of 4% annually from the 401k). However, if I depend solely on my own efforts over the next 20 years, I will run out of money by age 85.

    I realize that being 100% in stocks is not without risk. However, if I take a more conservative approach (say 60/40 stocks/bonds) I have no chance of retiring before 75. I drive a semi truck, I don't really think anyone would be comfortable of me piloting something 75 feet lond and upwards of 75,000 pounds in traffic at that age.

    What can those of us without current significant assets do? Or do we need to resign ourselves to working well into our 70's?

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