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Bankrate's 2008 Retirement Guide
Turbulent times
Retirement plans for many are in jeopardy. Understanding the problem is the first step to recovery.
Turbulent times
Multiple crises sabotage retirement plans

The Dow suffers another triple-digit loss, real estate values plunge another 4 percent, more banks fail, credit tightens further and the value of the dollar is dropping. If it seems bad for most Americans, it is only worse for those who have already retired or were getting ready to leave the workplace for good.

By early October 2008, the Congressional Budget Office revealed, stock market turmoil had wiped out roughly $2 trillion of American's retirement savings over the previous 15 months. According to an Employee Benefit Research Institute analysis of 2.2 million participants, individual 401(k) losses ranged from 7.2 percent to 11.2 percent in the first nine months of 2008 before the big losses even hit.

While the recent plunges in the stock market have affected 401(k)s and IRAs, it is only one part of a wave of attacks that are eating away at retirement funds and plans. Throw in the downward spiral of home values, higher inflation and a declining dollar, the credit crunch and banking crisis, and retirement may be nothing more than a mirage for many.

Sinking stock market
For those at or near retirement, it's been downright terrifying. On Oct. 10, Wall Street ended one of its worst weeks ever with a loss of $2.4 trillion in just five days. From highs exactly one year before in 2007, the Dow Jones and S&P 500 each lost more than 40 percent of their value. Investors have suffered staggering losses and those near retirement may not have time to wait out the market.

Tom Rogers, principal and Certified Financial Planner with Portland Financial Planning Group in Portland, Maine, has seen a number of clients postpone retirement and stay in the work force. "It is pretty remarkable how quick and painless the 1987 crash was in hindsight. No one is expecting that to happen this time around. It has got to be highly stressful for someone who is on the verge of retiring or worse yet, has retired," says Rogers.

History has shown that those who wait out bear markets not only can recover their losses but profit handsomely. On average, investors have come out even two years after bear markets. But with multiple financial and economic problems unfolding at the same time, some investors are worried just how low the market may go or how long it may take to rebound. Near retirees are faced with the options of cashing out and locking in their losses or holding on for a turnaround that may not come in time. Chris Miles, a financial coach and mentor with Engenuity Financial in Salt Lake City says that fear can perpetuate and make market declines worse.

"I think you are going to see a lot worse in the future because you have baby boomers that may soon start pulling their money out of their 401(k)s and IRAs like crazy," says Miles.

-- Posted: Nov. 10, 2008
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