All across the nation, Wall Street’s wild swings and steep losses have been throwing retirement accounts into disarray. With the Dow Jones losing more than 40 percent since its record high close a year ago and suffering an eight-day loss of 22 percent in early October, investors have racked up more than $8 trillion of losses this year.

It’s not a pretty picture for anyone watching their retirement account shrink on a daily basis, but it’s important to realize that this chaos has totally different meanings for a 28-year-old and a 62-year-old. Age — much like income and lifestyle — plays a huge role in retirement investing. In the current environment the life stage you’re in can mean the difference between boon and bust.

Retirees sent reeling

For those who have already left the workforce and are living off their investments, the current economic problems likely is having a profound impact. Many retirees have taken big hits in their bond funds and even stocks that were generally considered conservative have been beaten hard in the past year. Depending upon their asset allocations, some near retirees may be forced to stick it out in the workplace for a few more years or learn to live on less.

“When you have to withdraw (money) from your portfolio and it is already down, that is kind of a double whammy. You are exacerbating a bad situation,” says Christine Fahlund, a senior financial planner at T. Rowe Price.

Fahlund says cutting back significantly is not realistic for a lot of retirees. One option would be to avoid the temptation to increase withdrawals for a couple of years and try to live off the same fixed income without compensating for inflation. Those little changes, she says, can make a big difference in how long the money will last because it keeps more capital working. Even in the current environment, Fahlund says, retirees still need to have some stocks in their portfolio for growth and to protect against inflation.

“For retirees, the mantra there is to cut your withdrawals and hang tight with your long-term investment plans. There’s a fear they might run out of money and the way to avoid that is to focus on the withdrawals,” says Fahlund.

The freezing of the credit markets is also having an impact on retirees. Tom Rogers, principal and certified financial counselor from Portland Financial Planning Group, says that even though retirees may not be in the market for new homes and vehicles, they are indirectly impacted by the effects on the bond market and fixed income investments. For examples, as of mid-October, the conservative Vanguard Intermediate Term Tax Exempt Bond Fund (VWITX) yielded a one-year loss of .33 percent and the Vanguard High Yield Tax Exempt Fund (VWAHX) showed a one-year loss of 4.10 percent.

“Many people knew there would be volatility with the stock part, but they never anticipated losing money in their bond portfolios,” says Rogers.

Not all those near or in retirement are cowering in fear. Anna Ibrahim, an Ameriprise financial advisor from Rockville, Md., says a 63-year-old client with retirement assets in excess of $1.4 million just sent her another $55,000 to pump into the market. Although many are concerned, few of her clients seem panicked and she attributes the ability to ride out the market to proper financial education and understanding. In fact, Ibrahim says she is doing very little selling and has been overwhelmed with buy orders.

“There’s not much panic for someone who is educated and understands what is going on. I think it is the fear factor we are putting out there that is scaring people,” says Ibrahim.

Caution reigns for those in midcareer

Depending on how much they’ve got stashed away in retirement accounts, those with a decade or a little more still have time to catch up. Jim Parker, a 47-year-old telecommunications product line manager from Dallas generally feels confident and is sticking to his investment plans. Parker stayed in the market during the downturns of 2001 and 2002 and says that in 2003, his portfolio “took off like a rocket ship.”

“I’m essentially doing the same thing now. Considering my age, I am still investing heavily in stock-based mutual funds. I was richly rewarded in the last turnaround for staying in the market,” says Parker.

Parker has made slight adjustments including shifting a little more money into bonds and Treasury Inflation-Protected Securities (TIPS) because he fears the financial bailouts will increase inflationary pressures. After seeing many banks fail, Parker also spread some of his cash holdings to multiple institutions. And when it comes to real estate, he isn’t worried since he doesn’t plan on selling his home and has never counted it as a retirement asset.

Those in the middle of their careers not only can make up losses but still have the time to profit off badly beaten stocks. Since 1922 there have been 16 official bear markets — defined as a major stock index drop of 20 percent or more in one year. Of the 9,194 stocks tracked by Standard & Poor’s Compustat research service, 3,518 are now trading at less than eight times their earning over the past year.

Some financial advisers point out that while it may be a good time to buy stocks for the long haul, fear often drives many out of the market. Anna Ibrahim, an Ameriprise financial adviser, says many of her clients are rebalancing their portfolios. She is finding that some in their late 40s and 50s are confused while those in their 30s to mid-40s are calling in to find out how they can reallocate and take advantage of the current market. For those in the middle of their working years, it’s tempting to run for cover but, she says, it still makes sense to invest more money at a time when stock prices are at historical lows. Ibrahim recommends investors take a long-term view, do their homework and look for undervalued companies.

“It’s all about time. Some (investors) with 15 years to go just aren’t opening their statements and (have faith) that it will come back, but others are starting to get the message that this is a huge opportunity that may not come back for a very long time,” says Ibrahim.

A golden goose on the loose for youth

For those in their 20s or 30s, the current economic conditions might be more of a blessing than a bust. The stock prices of many rock solid, cash-rich and profitable companies have been hit hard in the downturn despite the fact that their businesses and financials haven’t changed. Companies such as Exxon-Mobil, Microsoft, Apple and General Electric have fallen well off of their 52-week highs and now have very low price-to-earnings ratios. That means the stocks are considered bargains and can be very attractive for those willing to buy and ride out the storm.

Ben Rosenzweig, a 26-year-old from Detroit, says he’s unconcerned about the recent market declines. With more than 30 years until retirement, he understands what he calls the “roller coaster” of investing. Rosenzweig hasn’t changed his investment plan, utilizes dollar cost averaging and says that he is now buying his stocks at heavily discounted prices.

“It scares a lot of people because most read the headlines, freak out and say they don’t want to invest now. But to have it when it is going up, you have to buy it when it is down,” says Rosenzweig.

Many Gen Xers and Yers have little confidence that Social Security will be there when they hit the magical age. Even if it is still around in 30 years, gradually declining benefits are expected to cover only 36.7 percent of the pre-retirement income of the average worker in 2030. That lack of faith in entitlement programs is actually a blessing, says Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., because they are taking more control of their retirement planning.

“More than any other generation, these people need to be dependent on themselves. They really need to be saving and providing for their own future because we don’t even know if they’re going to get social security or Medicare and we know they won’t get a pension,” says Adam.

With time and the power of compounding, a disciplined person in their 20s or 30s can still accumulate a respectable retirement sum even at low appreciation rates. Even with a 5 percent return, a $500 monthly investment over the course of 30 years can yield a sum of $420,725. At a 7 percent annual return, that sum will grow to $610,000. And a 25-year-old who aims to retire at age 60 with $1 million only needs to start investing $575 per month to reach that goal. If the market averages out to its historic return of 10 percent, that individual will accumulate $2,073,233 by age 60.

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