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How to deal with a crazy market

By Jennie L. Phipps ·
Monday, June 24, 2013
Posted: 5 pm ET

If you've been watching the financial markets for the last few days, you probably have retirement planning jitters.

The benchmark 10-year Treasury rate rose Monday to 2.52 percent, up nearly a full point from where it was in July 2012. While this increase could be good for savers, it isn't so good for current bondholders, many of whom are retirees. When Treasury rates go up, the value of bonds and the net asset value of bond funds decline.

Rising Treasury rates also aren't so good for someone considering the purchase of a home -- or for someone selling a home. The 10-year Treasury rate drives mortgage rates, which have risen to 4.36 percent from 3.94 percent last week -- an additional $61 a month on a $250,000 30-year fixed mortgage, according to's overnight averages and its mortgage calculator.

Meanwhile, anyone investing in stocks was hit as well. The Dow Jones industrial average was down Monday nearly 5 percent from May 28, when it closed at a record high. Even gold is down 28 percent from its peak in October.

All of this can leave a retirement nest egg looking skinnier than it did a month ago.

What can you do now to mitigate the pain?

Take the long view. Bruce Ferris, an annuities expert at Prudential Financial, says the 2008 meltdown is still fresh in people's minds. "People have memories of four or five years ago. That leads to bad financial behavior," like selling indiscriminately, he says. The wiser plan, he advises, is to get smart financial advice and then "stay the course."

Delay taking Social Security. The longer you wait, the more you get. From full retirement age to age 70, the amount of Social Security you can collect will rise 8 percent a year, plus the annual cost of living adjustment. Most people can't get that kind of return elsewhere these days.

Save more. Putting aside a larger percentage of your income will compensate for increased longevity and what appears to be a long-term trend toward lower returns on investment. Ferris points out that the longstanding "4 percent rule" just doesn't hold any longer. He says experts at Morningstar are recommending that retirees spend no more than 2.8 percent annually from their nest eggs. That means if you have $500,000 in your 401(k), the recommended annual spending limit starts at a meager $14,000.

Consider guaranteed income annuities. Not surprisingly, Ferris, whose job includes selling annuities, is bullish on them, but they are worth a look. As the Center for Retirement Research at Boston College reports in a research brief released last week,  "Changes in interest rates never hit annuity payouts with full force, because the principal portion of the payout is unaffected by interest rates."

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