Where Can I Put My Retirement Savings So IT Won't Get Whacked By The Stock Market?

By Walter Updegrave, RealDealRetirement @RealDealRetire

It seems I keep losing money in my retirement accounts these days. Is there a safe place I can invest my savings so that at least it won’t be affected by the stock market?

—L.W.

Sure, there are plenty of places you can put your retirement nest egg to protect it from a possible setback in the stock market. You could move it into cash equivalents such as a money market fund, an FDIC-insured savings account or CDs. Some investors have even been flocking to gold lately as a refuge for uncertain times.

But the question is should you?

Cash equivalents are very secure and stable, but they yield virtually nothing these days. So you’re paying for security by accepting very low rates of return that may make it difficult for you to build an adequate nest egg that can support you in retirement.

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And while gold has shown that it can hold up well, or even thrive, when stocks run into trouble, it’s not as if gold is a model of stability that rarely drops in value. On the contrary, gold can be even more volatile than stocks and is given to steep periodic losses, witness the fact that, after soaring to nearly $1,900 an ounce back in 2011 amid concerns about European debt levels, gold has since declined to just over $1,200 an ounce, a slide of about 35%.

Fact is, while moving your retirement stash to one of the alternatives mentioned above, or other putative havens for that matter, may be “safe” in the sense that it can shield you from a market downturn, it leaves you vulnerable to other risks. So in trying to protect yourself, you may actually be doing the opposite.

So what do I recommend instead?

Basically, I suggest you try to achieve a balance between the security you seek from short-term downdrafts in the stock market and the long-term returns you need to achieve goals like accumulating enough savings to support you through what can be a long retirement. To my mind at least, the most sensible way to do that is by investing your savings in a low-cost mix of stocks and bonds that’s conservative enough to afford reasonable protection from market turmoil but aggressive enough to generate the long-term returns you’ll need to achieve your financial goals.

The appropriate mix of stocks and bonds can vary from person to person for any number of reasons, including age, the size of your nest egg, how much you have in the way of other resources to fall back on and how you react to investment losses. But the best way to start figuring out what blend of stocks and bonds makes sense for you is to get a sense of how much risk you can comfortably take on, which you can do by completing a risk tolerance-asset allocation questionnaire like the one Vanguard offers free online.

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After answering 11 questions that get at such issues as how large a loss you can handle before you freak out and how long you expect to keep your money invested, you’ll receive a suggested mix of stocks and bonds, as well as access to stats showing how that mix and others more conservative and aggressive have performed in both good and bad markets. While those stats can be helpful, I recommend you go a step further and also estimate how the suggested portfolio would have performed in a severe bear market like the one that began in late 2007 and continued through early 2009, when stocks lost nearly 60% of their value and bonds gained almost 8%.

Such an exercise can give you a better feel for how you might react should you have to deal with a similar market meltdown. For example, a blend of 70% stocks and 30% bonds would have lost roughly 35% from the peak of the last bull market to the trough of the bear (assuming no rebalancing). If seeing the value of your savings decline by that amount would have had you bailing out of stocks in a panic, then you might want to rein in your allocation to stocks a bit.

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That said, you don’t want to lean so far towards security that you end up with anemic returns that make it harder to achieve your goals. So when you think you may have a stocks-bonds mix that’s right for you, test it again by plugging it into a good retirement income calculator. That should tell you whether your investing strategy, combined with how much you’re saving (or spending, if you’re already retired) will keep you on track toward a secure retirement. Once you’ve arrived at a suitable portfolio, don’t mess with it, except to rebalance periodically, do the occasional portfolio check-up and perhaps shift more toward bonds as you near and enter retirement.

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Going through the exercise I’ve described above won’t completely insulate you from stock market setbacks. But that’s not the aim. Rather, the goal is to provide enough protection to allow you to ride out the inevitable stock market slumps and then participate in the recoveries, which is a more effective strategy than trying to anticipate the market’s ups and downs.

So by all means keep some of your portfolio in cash equivalents—enough to cover at least three months’ worth of expenses during your career and anywhere from one to three years’ worth of spending in retirement. But aside from such an emergency cushion or spending reserve, the rest of your savings should be invested in a way that gives you the best shot at getting through periods of market turmoil without sacrificing too much in long-term gains.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

13 Steps to Organizing Your Accounts and Assets

From MarketWatch

With identity theft rampant in the digital age, it’s never been more important to keep proper track of your assets and accounts, and making sure that someone you trust is also aware in case help is necessary. The following is a list of 13 ways to help organize your world.

(This information should also be shared for the most part with your accountant, attorney and financial advisor as a precaution in case you become unable to act or pass on suddenly.)

1. List all of the accounts, logins, passwords and websites you use, including email accounts.

2. List social media, including login and passwords for Facebook,  LinkedIn  Twitter, Google+, Pinterest, etc. Be aware that each social-media site has a different set of rules governing how to close an account and remove the profile of a deceased user. Some are relatively easy while others may require a copy of an obituary notice or even a death certificate. For more information on who gets access to a deceased person's digital accounts including state by state laws on access to digital accounts after death check this report from the Pew Research Center.

3. List any sites including logins and passwords you use to purchase or sell products and services like eBay, Amazon , Craigslist, Zappos, etc.

4. List all credit cards and retailers where you have open accounts.

5. List all business- and service-related online accounts like banking, utilities, cable, phone, Internet, etc., including logins and passwords.

6. List all accounts in which you use automatic transfers or payments via a credit card or checking account withdrawal. Discuss with your spouse or family as to whether you want these accounts closed or transferred when the time comes.

7. List the contact person, if you have one, at each account, as well as passwords and login information and make sure to include all financial, banking and credit-card sites. These are areas that have the biggest possibility of creating problems if you are not available or able to act.

8. Instruct the appropriate person (family member or friend) whether you wish some kind of message or notification sent out via your social-media sites including various alumni list-serves indicating your passing or incapacitation.

9. Provide a copy of this information to your spouse/family and to your accountant and attorney along with instructions of how these matters should be handled.

10. Indicate the location of your will, any vehicle title, title to property, mortgage documents (even if they are paid in full), loans owed or payable to you, insurance policies, tax documents (owed or due).

12. Include a recent financial statement, if you have one. If you do not have one prepare one.

13. Include the names and contact information of your accountants, lawyers, advisors, physicians, insurance agents and all professionals with whom you do business.

It is important to protect credit and assets against "ghosting" in which an identity thief steals the identity of a dead person.

If you wish to download or print a form listing your assets and where they are located you can do so here.

Close to Retirement? Can You Build A $1 Million Nest Egg From Scratch At 50?

By Walter Updegrave, RealDealRetirement @RealDealRetire

I’m almost 50 years old and have virtually nothing saved for retirement. But I plan to start now and would like to build a seven-figure nest egg by the time I retire. Is that goal realistic and what should I do to make it happen?

        —Steve, Texas

Obviously, you would have a much better chance of accumulating $1 million or more in savings had you begun saving and planning for retirement 20 or more years ago. But assuming you do actually get started now—as opposed to merely planning to start—you still have plenty time to dramatically improve your retirement prospects.

As to whether you can realistically expect to accumulate a seven-figure nest egg by the time you retire, well, that depends on a number of factors, but mostly boils down to how diligently you save and how long you’re willing to continue working. Even with very optimistic assumptions, however, I’d say you’re most likely looking at a long shot.

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For example, a 50-year old starting from scratch who earns $80,000 a year, gets 2% annual raises and earns a 6% annual return on investments would have to save 30% of salary each year for the next 20 years to crack the $1 million mark. Saving that large a percentage of salary year in and year out would require a Herculean effort under any circumstances. I think it’s fair to say it’s even harder to go from saving nothing to 30% virtually overnight.

At the risk of sounding Pollyana-ish, however, I don’t think you should feel discouraged. Granted, you’re probably going to have to make some significant lifestyle changes if you want to ramp up your retirement savings. But there are a number of ways you can put yourself in a much better position to retire than you are now—and certainly make yourself better off than had you done nothing at all.

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Any viable catch-up plan has got to start with saving, and in your case, the harder you can push yourself the better. Let’s return to that hypothetical 50-year-old I mentioned earlier. If he socks away 15% of salary each year (which is what many retirement experts say you should be saving throughout your career) and earns a 6% annual return on what he saves, he would have just over $320,000 by age 65. If he continues that regimen three more years to 68, the tally jumps to nearly $440,000 and if he keeps working and saving to age 70, his nest egg would total roughly $530,000. Boost the savings rate to 20%, and the respective figures range from roughly $430,000 to just over $700,000. These figures fall short of $1 million, but you’re still talking about serious sums of money that can materially enhance your retirement standard of living.

Let’s not forget that you’ll also have other resources to draw on, starting with Social Security. The Financial Engines Social Security calculator estimates that a 50-year-old man like the one described above might qualify for Social Security benefits of $25,100 a year in today’s dollars at age 65 and $35,900 if he waits until age 70 to claim. That translates to nearly $550,000 and almost $620,000 respectively in total estimated lifetime benefits (although, of course, you can get this amount as a lump sum).

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And if you own a home that’s worth substantially more than you owe on it, you may be able to convert that equity into spendable cash either by downsizing to smaller, less expensive digs or by taking out a reverse mortgage (or, for that matter, downsizing and keeping the option of doing a reverse mortgage later on).

Assuming you’re up for it, there’s always the possibility of boosting your retirement income by working part-time in retirement. You can check out job listings geared toward older workers and retirees—and also find advice on how to land such jobs—at such sites www.RetiredBrains.com

And if you really want to think outside the box, you might also consider relocating to an area with lower living costs, so you can effectively squeeze more spending out of whatever nest egg you do manage to accumulate during your career. To compare the cost of living from one city to another both overall and in categories such as housing, health care, food and transportation, you can check out the Sperling’s Best Places Compare Cost of Living calculator.

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In short, while saving as much as you can over the next 15 to 20 years is the surest way to enhance your retirement outlook, there are a number of steps you can take, individually and in concert with one another, that can also help improve your chance of being able to maintain an acceptable standard of living throughout out retirement.

One caveat: while reaching a seven-figure nest egg may be a nice target to aspire to, you need to be careful about getting too hung up on any particular number. What really matters is whether you’re saving enough so that draws from your nest egg plus Social Security plus income from other resources will give you the spending cash you need for a secure and comfortable retirement.

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The best way to tell if you’re on track to generate the income you’ll need is to go to a good retirement income calculator one and plug in such information as your salary, savings rate, how much (if anything) you already have saved and when you plan to retire. Based on that information, the calculator will estimate your chances of reaching your goal if you stick to your current regimen. If your estimated success rate is uncomfortably low—say, below 80% or so—you can then re-run the analysis to see how saving more, retiring later, working in retirement or making other changes will increase the probability of achieving your goal. By going through this exercise every year or so, you can see whether your plan is working and, if not, what you must change to boost your odd of success.

But it’s all got to begin with serious saving, the sooner, the better. Because unless you start socking away some significant bucks pronto, all the other moves I mentioned probably won’t be enough to allow you to retire in anything close to your current lifestyle.