If declining market has altered your retirement plan

Are you among the retirees or those approaching retirement who are thinking of altering their retirement plan because of the down stock market? Here are some suggestions for how you might manage a change in plans -- or even keep your original retirement dream intact.

Is it as bad as it appears?

It's natural for investors to focus on their biggest losers rather than on their overall portfolio. Investors in high tech stocks have particularly felt the brunt of the down market, in some cases watching those securities decline 50 percent or more in value. Yet because some of those hot stocks you were so confident about a year ago have nosedived doesn't mean your entire portfolio has also plummeted.

A well-diversified portfolio, with a mix of domestic and international stocks, bonds, cash and perhaps real estate, might be down only slightly, especially compared with where you were two or three years ago. Calculate how your overall portfolio is actually doing before changing retirement plans.

Ride it out

Let's assume that the market has hit your overall portfolio pretty hard. Certainly many people jumped on the high tech bandwagon, often late in its run, and are now looking at big losses. Many Certified Financial Planner practitioners are recommending that most investors not sell unless it's necessary, or if you've lost confidence in stocks. If you haven't already locked in your losses by selling, consider hanging on to your losers for now.

The market as a whole -- though not necessarily specific individual stocks or mutual funds -- almost certainly will recover. The question is, how quickly? Since 1949, the median bear market, from peak to valley, has lasted around 12 months, with a median decline of 23 percent, according to Dow Jones & Company. The longest decline during this period was 22.8 months, from 1973-74, with a 45 percent decline in value. The shortest was less than three months.

The current bear market has run over 14 months, but there are signs that the U.S. economy is not as bad as many prognosticators feared, and the market itself has also recovered some of its losses.

Sell

The advantage of selling losers now is to cut your losses in the event the market and the economy are only taking a breather before dropping more. Selling also may bring your portfolio closer to the investment mix you originally designed, which will benefit you in the future. Selling, of course, locks in your losses, so consult with your financial adviser before selling.

Re-examine your portfolio

The fact that some people approaching or in retirement feel compelled to alter their retirement plans suggests they have the wrong investment strategy and a poorly diversified portfolio. Many financial planners believe retirees should stay in stocks in order to combat inflation, but they typically recommend keeping anywhere from two to five years of retirement assets in lower-risk investments, such as money market funds, short-term bonds and certificates of deposit. Retirees can draw on these cash equivalents for living expenses while the higher-risk stock portion of their portfolio recovers.

Revise your personal finances

Those approaching retirement may be able to compensate for some of the down market by cutting expenses and investing more between now and their original planned retirement date. Cutting expenses can be good practice for retirement, anyway, and if your current portfolio rebounds with the market, then you'll have that much more money to enjoy.

Scale back your retirement vision

A substantial real decline in your portfolio value may, unfortunately, require you to scale back your retirement goals. Those close to retirement may have to work longer than intended. This allows you more time to add to your retirement accounts (buying stocks at "bargain prices"), increase the size of your Social Security and pension benefits, and shorten the number of retirement years your nest egg must fund. Current retirees may have to return to work, at least part time.

An alternative is to reduce your planned retirement lifestyle. Scaling back also offers the possibility that your investments will recover substantially during future market climbs, allowing you to recoup your original retirement dream.

Wm. Gerry Keene III, CFP, RFC, is a Certified Financial Planner practitioner with Keene Financial Group in Cape Girardeau. He is a registered representative offering securities through FFP Securities Inc., member NASD/SIPC, and a registered investment advisory agent offering services through FFP Advisory Services Inc. (1-800-827-1929, 33KEENE 335-3363 or )