Planning Ahead May Be Just as Risky as Rewarding

In the wake of big investment losses many have turned to Plan B to strategize and rebuild their retirement nest egg, according to Consumer Reports latest retirement survey. There is a lot of ground to recover, 51 percent of retired readers and 55 percent of those just short of retirement are facing investment losses of at least 20 percent in the past 12 months.

The Consumer Reports National Research Center surveyed more than 19,000 Consumer Reports online subscribers between the ages of 55-75 and found about half have already made strides to generate more cash, including eating out less and cutting back on entertainment.  About one-third have cut their credit card use and spent less on groceries and household goods.

When bad investments happen to good people, they have to work harder to slash debt, cut spending and save more. Switching to Plan B means seizing the reins in every areas of your financial life  over which you have control,” said Noreen Perrotta, Consumer Reports Money editor.

The Survey also found that consumers who planned ahead were more satisfied with their retirement prospects, even in the current economic climate. Among pre-retirees 90 percent planned ahead by reading books or articles, consulting professionals, using online software, taking courses or conversing with family and friends. The more planning methods used, the more satisfied the respondents were. .

Forty-three percent of respondents that did four or more planning activities said they would now delay retirement a year, compared with 28 percent of those who had done nothing. Greater losses might have forced the decision.

Consumer Reports February issue offers a complete guide with 17 moves to help retirees, pre-retirees and younger workers rebuild the nest egg and secure their financial futures in the wake of a down-turn economy. Here are some of the highlights:

Retirees:
1.Consider your withdrawal rate. In general, financial planners say an annual withdrawal rate of about 4 percent from your total investments is optimal to ensure the money lasts as long as you do.  However, when your assets fall in value, you’ll have to withdraw at a higher rate to have the same income. The alternative is to withdraw and live on less or invest more conservatively, risking that you will run out of money sooner.

2.Pick up extra money by working. For those with the ability, working even part-time can help mitigate a financial burden. Twenty-two percent of CR’s respondents said they’re working part-time, and 22 percent of those who are fully retired said they wish they could work again. Employers might be willing to hire experienced older workers.

3.Don’t abandon moving plans. Your $400,000 home may have lost $100,000 in value, leaving you with less to spend on housing elsewhere. But values are down in many areas, and moving to a lower-cost area might still be worth that trade-off.

Pre-retirees:

1. Reset your retirement clock. If you’re eligible for a pension, and assuming your employer’s plan is healthy, working more years can add to your payout, which is often based on salary and number of years worked. Even those without a traditional pension can use that time to shore up the nest egg. If you’re 50 or older, you can contribute up to $22,000 this year to tax-deferred accounts such as 401(k) plans.

2. Keep on contributing. At the least, put enough in to get the full employer match. If your employer no longer matches, try to contribute at least as much as before. If you’re able, make up for the match with a higher contribution.

3. Borrow with caution. If you are eligible for a reverse mortgage, proceed with caution are even stronger for younger eligible homeowners. If you live long enough to spend the loan—a possibility if you’re in your 60s—you could be back at square one but with far less home equity. Another option, borrowing from your 401(k), if possible, also has pitfalls. For one, if you leave your job or lose it, the loan must be repaid in full or it becomes a taxable distribution.