I recently went down to Florida to see my folks and found something disturbing as I talked to their friends.
We all know that many people who have been on fixed incomes lost 50% of more of their portfolios during the crash but what I hadn’t realized is how deeply this was impacting those retirees because their fund/pension managers have, for the most part, done nothing to adjust their investing strategies at the market bottom.
The average American has just $88,000 when they retire but we’re nottalking about them – we aretalking about the retirees we aspire to be – the upper percentileSeniors in like the ones in West PalmBeach and Boca Raton, Florida. The average couple there had closer to $1M in portflio assets before the crash and closer to $600,000 now. Even so, that can cause quite an income adjustment for a retired couple.
Fortunately most of these people own their homes and get free government health care (Medicare) so they are not as devastated as younger Americans whoare still paying off their homes and just working on saving for retirement while trying to provide health care and education for their children. With Social Security (another thing that is iffy for us younger Baby Boomers down the road) adding $2,000 a month, the average 6% rate of return on a balanced portfolio of $1M was $5,000 a month plus $2,000 from SS = $7,000 a month, generally enough to pay taxes and bills for the house, eat out once in a while, support 2 cars, do a bit of traveling and even belong to a golf club (dues in the average high-end development are $15,000a year).
The idea, of course, is to do all this WITHOUT dipping into the $1M principal that’s invested in stocks and bonds. Then came the crash. The S&P dropped from 1,500 to 666, down 55% in less than a year. Suddenly the $5,000 a month that came from investments dropped to $2,500 a month or less. Even worse, many classic portfolio mainstays like dividend paying financial institutions and American manufacturing companies were among the worst hits with dividends being canceled and some financials going to zero so quickly there was no chance to get out, especially with the do-nothing type of investment brokers that most retirees end up with.
Unfortunately, we hit a bottom (sort of) in November of last year and kept going lower through March. 6 months…
