Deschutes 401(k) Advisor
Sensible Solutions for Retirement Planning
4Q 2002
The Future of Retirement (May be Working)
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One of our goals at Deschutes is to help you get and stay on track in saving for your retirement. In our efforts to accomplish this, we talk a lot about what retirement might look like. We often refer to taking up hobbies, traveling and spending time with family as your ultimate goal. New psychological studies on aging are suggesting a different view of retirement by those who are nearing retirement or are already there. |
According to a recent article in The Journal of Financial Planning, Psychologist Ken Dychtwald, Ph.D. thinks retirement is “dead”. In Dr. Dychtwald’s studies conducted on retirement and the forces of aging over almost 30 years, 95% of people said they expect to be working in retirement. AARP (the Association for the Advancement of Retired People) has reported similar findings. 1. Don’t completely abandon your stock funds.
In its own study, 80% of people said they think they will be working in retirement. These studies also indicate that over half of the people who are currently retired and not working are not happy. One of the major reasons retirees cite for dissatisfaction is they miss the feeling of purpose and self-worth that working provides.
The definition of “working” however is changing for people nearing retirement age. Many say they want to work in retirement, but on their terms. They want flex time, part-time jobs, and more time to do leisure activities. As baby boomers hit retirement age in large numbers, many experts are predicting a change in the look of the American work force, with more and more older people staying at least partially employed.
Retirement, in fact, is a fairly new concept when placed in historical context. Retirement didn’t even exist until the first half of the 1900s. As unemployment soared to 25% during the 1930s, the US Government looked for ways to employ the masses of young workers and made room for them by encouraging older workers to leave the work force. Social Security as we know it today was born in 1935 to facilitate the transfer of labor to younger workers.
The average retirement age for Americans has gradually decreased from age 70 in 1930 to age 62 today, while life expectancy has increased significantly over the same period of time. As a result, retirement came to be seen as the “Golden Years”. Retired people became more affluent and healthier in old age and entire leisure industries grew around them, supported by their active life-styles.
If there really is a shift occurring away from this vision of retirement and you see yourself as part of these retired “workers”, you may think you don’t have to save as much. But, think again, what if you can’t work? What if your aging body won’t keep up with you? What if there aren’t enough jobs to go around? The reality is that we all need to be prepared to have a choice.
To work or not to work. That is your choice, but working in retirement may be a necessity and not a choice if you don’t plan well now.
Visit www.deschutesadvisors.com for more information on savings and investing.
Check out the back page for our comments on the financial markets during 2002 and some advice on how to invest your 401(k) plan account right now
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Your 401(k) Questions Q: My company is changing record keeping firms and I've been told I can't move my money during the "black-out" period. The money is being transferred out of my old funds into the new ones. Should I be worried about losses? A: You probably don’t need to worry. Usually, the old funds are mapped directly to very similar funds with the new provider. What this means is that if your old small cap growth fund is down, your new one probably is too, so even if you “sell low” you will “buy low” into the new fund and things will likely even out. The most important thing you can do to prepare for a black-out period is to make sure your funds are allocated appropriately before the black-out begins. You should stay invested, but make sure you are invested appropriately since it can be anywhere from 2 weeks to 2 months before you can change your investment allocation again. It all depends on how fast the old record keeper gets needed account information to the new record keeper. |
Market Update and Outlook--Buying High & Selling Low
After experiencing the worst single quarter of stock market performance since 1987, investors bailed out of stocks during the 4th quarter of 2002 (selling $7.7 billion in stock mutual funds). This mass exodus from stocks coincided with the S&P 500 and NASDAQ indexes hitting lows on October 9th. Since then, the S&P 500 and NASDAQ indexes have recovered 15% and 24%, respectively, as of mid-December . Conversely, money market funds and bond funds saw record inflows at a time when interest rates hit a 41 year low.
At Deschutes we view this investor behavior (bailing out of stocks and jumping into bonds) as predictable. Although chasing performance may be human nature, it is not the best choice, especially for 401(k) plan investors who should be adhering to a long term investing strategy. Many investors are now completing a cycle of “buy high” (growth stocks in 1998-2000), “sell low” (growth stocks in 2002), and “buy high again” (bonds in 2002) that is a recipe for disaster for an individual portfolio’s long-term returns.
Although no one can predict where the market’s going short-term, as we mentioned in our 3rd quarter 2002 newsletter, there are some positive factors that point to an impending market recovery. First, stocks remain undervalued by approximately 30% according to the Federal Reserve model. Second, we are entering the 2nd half of the current Presidential cycle, which historically has a positive effect on the financial markets.
We maintain our conviction, that once the economy picks up (which it will eventually) the forecast going forward should be for much better returns. Patience and a long-term focus are crucial for investors now.
Diversification remains the key...
Our current recommended models are shown below. Visit your plan web site at www.deschutes401k.com for model portfolios customized to the funds available in your 401(k) plan.
If you would like assistance from a Deschutes financial advisor, notify your Benefits Representative or call (503) 223-2500, toll-free (800) 566-2323.
If you are unsure about your own asset allocation strategy, please visit the Planning Calculators at your plan web site to find on-line tools or request asset allocation advice.
Our Current Recommendations
The models below are our current recommendations for short-term/conservative, moderate, and long-term/agressive investors.
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Short-Term Strategy
(0-3 years until retirement) |
Long-Term Strategy
(10+ years until retirement) |
The Deschutes 401(k) Advisor is a quarterly publication educating 401(k) plan participants on the current issues related to retirement planning and investing.
Deschutes Investment Advisors is an independent firm dedicated to developing optimal strategies for corporate retirement plans, endownment and foundations, and individual investors. We can be reached at 503.223.2500.
Editor: Katrina Bell
Editorial Committee: MacGregor Hall, Bryn Torkelson, George Battistel, Ph.D.,
Dan Sholian, Jim Titus, Dennis Munsey, Diane Bella
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