For retirees already on a fixed income, what effects has the recession caused?
The problem for fixed-income retirees is that the cost of "ordinary goods," such as groceries, gas and utilities, is currently increasing at a faster rate than the official (Consumer Price Index). This can seriously damage the real purchasing power that retirees have at their disposal. Although we are by no means in the same situation yet, the last time that retiree purchasing power was badly damaged was in the 1970s, when high inflation hurt retirees and the poor harder than any other segment of society.
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How can an individual plan for retirement and determine the total amount he or she needs once retired?
Each individual's plan is unique. It depends on when they want to retire, what sort of lifestyle they want to live during retirement, the amount of savings they accumulate, and their investment styles. Everyone serious about retirement should work with some sort of qualified financial adviser to answer those questions.
In light of the currently volatile financial world, individuals should be prepared to save more and assemble a well-diversified portfolio in order to ensure they reach their investment goals. Although this may seem counterintuitive right now, a well-constructed portfolio should include some real assets such as real estate.
What significant impact has the economic meltdown had on investment plans such as a 401(k)?
Most 401(k) and IRA plans have produced lackluster returns over recent years since they usually mirror the market fairly closely. Unfortunately, there is no magic elixir to this situation. It's plausible that the next decade could produce similarly poor results.
Individuals cannot make markets perform; they can only react to them. Investing is more a function of discipline and persistence. Intelligent investors, in conjunction with their advisors, should set a plan, reassess it frequently and make adjustments such as setting more funds aside to invest and/or adjusting their risk/reward investment profile.
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What are some of the financial risks for people in retirement?
The great challenge for retirees is that they are in a "wealth preservation" mode. Lagging market performance and rising costs are the enemies of happy retirement. Retirees should be cautious in assessing their lifestyle costs, as the current economic situation may continue for a prolonged time frame.
Is there any advice you would like to give to individuals who are planning for their retirement?
Prudent investing should be the byword. Consider that the present economic malaise is similar in some ways to the Panic of 1873, which was notable not for being the worst recession ever but rather for one whose impact lasted for quite a long time.