My So-Called Retirement

Most investors will remember October 2008 as the month the market slid into freefall, but to me, it will go down in history as the month I got old.

Maybe I should’ve seen it coming: I am on the downhill side of forty-five. But my bathroom light switch is equipped with a dimmer, so it’s been easy to stay in denial. More to the point, though, given our own investments up until then, and some expected inheritance, my husband and I felt pretty much on track for both a reasonable retirement and the luxury of sending our daughter, who is in kindergarten, to the college of her choice.

And that made me feel young — after all, I still had nearly two decades to go until I’d need that cash, and meanwhile, it was out there, nearly all in the stock market, working for me in some abstract way to which, admittedly, I paid little attention.

Then came the Big Bad and my youth vanished along with a quarter of our life savings.

After all, I now have less than two decades in which to recoup the hit we took, plus make up for whatever we would’ve gained during those years, plus save enough beyond all that to make sure that we won’t spend our old age eating cat food. Suddenly, every purchase felt weighted, not only ones I was making now but ones I’d already made — those patent leather biker boots I bought (for full price) last fall, for instance, now felt like lead on my feet. How could I have been so cavalier?
5 steps from Fidelity to keep on track

The truth of the matter

But really, was I cavalier? What else could we have done? More importantly, like every other couple with kids and mortgages and, until now, the expectation of enjoying their golden years, I wondered: What can we do now? Radically scale back? Let it ride? Is there even anyone left I can trust with those questions?

So I called up two professionals: my own financial planner — Herb Schechter, managing director of Minneapolis Portfolio Management Group, a Minneapolis-based investment firm that manages assets for investors large and small — and Peggy Cabaniss, president of HC Financial Advisors, an independent fee only financial advisory in Lafayette, California. I explained my predicament to each of them.

“You’re expressing your feelings very well,” Cabaniss said, sympathetically (like me, she lives in Northern California). “You feel like you did everything right and you’re still in this bind.”

“Exactly,” I said.

So let’s cut the shrink talk and get down to business.

It turned out, Cabaniss had looked at nine different recessions since the 1920s and Schechter had looked at 14. All yielded the same lesson: they started with a bang, but they ended with a boom.

“The market generally recovers about 25% in the final four to six months of a recession,” Schechter explained. “And in the 12 months following that, the average gain in value stocks — which is what you own — is another 43%. The worst thing you could do is pull your money out of the market now and stuff it in your mattress. You need to be positioned so that you’re ready for that bounce.

“Investing is like driving,” he added. “You always have to be alert, ready to put your foot on the brake or turn the wheel or accelerate…”

Both advisers tended toward car metaphors, I noticed. Maybe that’s in the manual under, “How to Talk Down Freaked Out Semi-Urban Moms.” Cabaniss compared our current state to a road trip in which you know the destination: it’s someplace out there, but there are no signs telling you how far it is. It may be five miles or 500.

Right, but in the meantime, how do I know how much money I’ll need to bring for gas?

“Are you spending more than you’re taking in?” she asked.

No, I answered. My husband and I are both self-employed: he is a documentary filmmaker and, as a journalist, I’m in a newly precarious industry, so we try to live a bit below our means.

“What’s your debt like?”

We drive old cars, and, given where we live, our mortgage is enviably low. We have the requisite nine-month cash cushion and have been salting away the maximum allowable SEP payment for about 20 years. (A SEP is a Simplified Employee Pension plan, generally used by people who are self-employed).

Where is my bottom line?

Then, both Cabaniss and Schechter both concluded, there isn’t much to do but hang tight.

“That’s it?” I asked. “That’s your advice? I don’t need to save more or rebalance my portfolio or anything?” I didn’t know whether to be pleased or appalled that they were in such agreement.

“Well,” Cabaniss said, gently, “how are you feeling now?”

Honestly? Like all those reassurances are very nice, but the truth remains that years of our hard work and saving have been wiped out in a matter of weeks and no one has any idea what is going to happen: when it will come back, if it will come back and whether it will be too late for us even if it does.

Cabaniss sighed. “I talk to people all day about this, and I need to stay grounded too. So, I will tell you how I view it so I don’t get it to that point. I don’t know what’s going to happen in the financial sector. It’s a mess. And a couple of big boys may go under.

“But I’m still going to brush my teeth and eat breakfast and put gas in my car so I can drive to work,” she continued. “I’m still going to go to Target and Nordstrom. I’m still going to order a computer. I’m still going to talk to you on the phone and turn on the lights. And all of the companies that provide those services that keep America working they are not going to collapse. Some companies will go under, but the whole thing is not going to collapse. I’m not going to bet a dime on Citicorp, but I will bet you two dimes on Disneyland. Those things are going to go on.”

That still didn’t resolve my jitters, of course. As every prospectus will tell you, past performance does not predict future results. But it did make me realize: at bottom, my question to Schechter and Cabaniss was not really, “What else can I do?” It was, “How do I guarantee we will be okay?” And the answer to that is simple: we can’t. We can’t know for sure about our jobs; we can’t know for sure about our health; and, apparently, we can’t know for sure about our bank accounts.

“This could be a creative time for you,” Cabaniss suggested. “A time to consider what you want out of life, what’s important to you, how you’ll last through the next downturn. Maybe you do want to increase the percentage of your portfolio in bonds. Younger people tend to think that’s boring, just for old people. But everyone has a different tolerance after going through a bad experience and maybe yours has changed. Or maybe not.”

In our case, the answer turns out to be “not.”

Our adviser insisted that letting anxiety push us totally into Treasurys or bonds with our 2008 contributions would be a mistake. We use SEP accounts since we’re self-employed, and we’ve kept our mix at about 80% stocks and 20% in cash after Schechter convinced us it would be a mistake to put more in fixed income with interest rates so low.

I hope he¹s right. Meanwhile, at least I¹ve found a way to feel better about the boots: I realized that if I¹d invested that money instead of spending it, half of it would be gone by now. At least this way, I have something to show for it.

© Peggy Orenstein. All rights reserved.