Unsure economy has people rethinking their golden years

For years, Don Rohling has dreamed of slowing down when he turns 65 and working part time.

Now, with the economy on shaky ground and a 401K plan that he expected to use for income after his semi-retirement losing money, the 59-year-old Florence resident worries he might have to wait a few more years to live his dream.

"I received a report on September on one of my funds and it had gone down 23.9 percent since the first of the year. I'm sure it's gone down even more since then," Rohling said while eating breakfast at Staggs Grocery in Florence. "You can't help but worry. I've got a few more years before I'm 65; hopefully my 401K will rebound before then. If it doesn't, I guess I will keep working five days a week."

Rohling is not alone in wondering if the sagging economy will affect his retirement plans.

The impact of the economic downturn is a popular topic of conversation throughout the country.

As stock prices fall, so do the savings of those who invested money in the stock market, many of whom planned to use the earnings from the investments as retirement income.

A recent Associated Press-Yahoo News poll found that 53 percent of the respondents worry they will have to work longer because their retirement savings have dwindled.

Lelia Wissert, a regional agent for the Alabama Cooperative Extension System who specializes in financial planning and management, said while it's natural to worry about retirement savings, it's important to remain optimistic.

Cashing in a 401K early and paying all the associated penalties and taxes or selling off stocks at a low price would be a mistake, she warned.

"For someone who is close to retirement and has become discouraged with the current changes in the economy, don't panic," Wissert said. "Many times while prices are down, it is a good time to buy a good stock or shares in a mutual fund."

Mac Hisey, president of Massachusetts-based AARP Financial, warns against allowing emotion to take control of financial decision making.

"This is the type of environment the small investor tends to really get hurt the worst," Hisey said. "They get caught up in the emotion of the time. It's understandable for people to be very upset, concerned, distressed and scared. But it's important for them not to panic and to remember that no matter how bad things may seem now, they are going to get better."

Robert Brooks, a professor of finance at the University of Alabama, recommends anyone seeking to create a nest egg for their retirement and willing to make a long-term investment take advantage of the low stock prices. He said the stock market has risen and fallen throughout its history and investors who gobbled up low-priced stocks and waited for prices to rise have reaped big benefits.

"In good times, stock prices rise. In bad times, they fall," Brooks said. "That is the risk you take when investing in the stock market and the reason stocks can have such a high rate of return on an investment. In a down economy, it's the stockholders who suffer first. But when the economy is good, stockholders can do very good."

Hisey said 401K plans are still a wise choice for retirement savings.

The key to making money on stock-related investments is to be able to weather the bad times and not bail out when prices fall, Brooks said.

Wissert said anyone considering investing in the stock market or making any retirement-related investments should consult a trusted financial adviser.

Hisey said just talking to an adviser is a good way for investors to calm their fears about the turbulent economic times.

AARP has a toll-free hot line at (866) 218-6142 where anyone with questions about retirement savings can talk to an adviser.

There are several financial planners with offices in the Shoals who can provide advice about retirement savings.

Mary Stone, director of the Culverhouse School of Accountancy at the University of Alabama, warns against making knee-jerk reactions when it comes to retirement savings.

"The one thing you don't want to do is panic," Stone said. "You probably don't want to listen too closely to all the people you see on the news telling you to do one thing today and do exactly the opposite thing tomorrow."

Stone said it might take several years, but she expects the stock market to rebound as will the retirement savings of those who have invested their money in stocks, 401Ks and mutual funds.

She recommends people in their 20s to early 50s invest most of their retirement savings in the stock market. For those in their early 50s to retirement age, she recommends investing more in fixed-rate bonds, IRAs, treasury notes and other investments where the return might be less, but so is the risk.

Wissert said it's important for a retirement savings plan to be diversified with a mixture of stocks, bonds and other secure investments. She warns against depending on Social Security as the sole source of retirement income.

"Social Security is only designed to keep you from having to live on the streets," Wissert said. "It was designed to be a supplement to the savings people are expected to have when they retire."

She said many retirees whose only source of income is Social Security struggle to make ends meet.

Stone expects Social Security to be available for those who need it most for many years but warned the program could be scaled back for affluent retirees.

A company-provided pension program is another source of income for some retirees, but like Social Security, pension fund payments can fall short of covering all living expenses, Wissert said.

Stone said pension funds are usually safe even in lean economic times. The money is insured by Pension Benefit Guaranty Corp., and even if a company fails, employees will still be eligible for benefits when they retire but the monthly payments could be less than they expected.

With many companies eliminating or reducing pension benefits, Wissert said it's important for everyone to create a budget for how much money they will need after retirement and begin a savings program to ensure they will be able to meet those expenses.

In addition to having a savings plan, Wissert said it's important for people nearing retirement age to begin reducing their spending and to pay off high-interest credit card debt and as many other debts as possible before they retire. She said many people who are old enough to retire have to continue working just to pay their monthly credit card bills and other expenses they should have eliminated when they were younger.

"Credit cards are great to have for traveling and things like that, but it's a mistake to try to live off of them, especially after you retire," she said.

Brooks said one good thing that could come out of the current economic mess is that people are going to stop living above their means and become less dependent on credit. He said the number of people who can no longer afford their mortgage payments and credit card bills and the impact it has had on the economy should serve as wake-up call to all Americans to become more thrifty.

Rohling remains confident that there are brighter days ahead for the nation's economy.

"I remember eight or 10 years ago my 401K lost about 20 percent of its value, but it bounced back," Rohling said. "It might take a while, but it's going to bounce back again. I believe in America, and I know the economy is going to come back stronger than ever."

Dennis Sherer can be reached at 740-5746 or dennis.sherer@TimesDaily.com.