Why retirees should feel very worried right now Published: Oct 8, 2018 10:00 a.m. ET

Why retirees should feel very worried right now Published: Oct 8, 2018 10:00 a.m. ET

You know the old adage that “a rising tide lifts all boats?” What if you don’t own a boat in the first place? That rising tide won’t do much for you, will it?

And so it is with this historic bull market, which, if it continues, will enter its 11th year—11 years!—come March. Vast amounts of wealth has been created, lifting many boats; some folks have gotten even bigger boats.

But most Americans—perhaps you—haven’t benefited much. 54% of middle-income households (defined as income ranging from $48,000 to $95,000) don’t have enough saved to maintain a decent retirement. That’s the same percentage as in 2010, when the stock run-up was in its early stages, according to a study by the Center for Retirement Research at Boston College.

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What happened? Why have so many Americans been left out? The study blames the usual culprits: high debt, surging and often unforeseen health care costs, and investment mistakes.

Let’s focus on the last issue, investment mistakes. Folks seem to forget that even with the market’s incredible run since 2009, there were two devastating crashes within the space of a decade: 2000 to 2002, when the S&P 500  SPX, -0.04%  fell 49% over 30 months and an even bigger disaster between 2007-09, when the S&P 500 plunged a staggering 56% in just 17 months.

Some investors got burned in the first crash (AOL, Webvan and Pets.com, anyone?); others, who loaded up on things like housing and mortgage lenders, got nailed by the second one. Some poor souls, no doubt, were hit twice.

 

The net effect of this is that millions of retail investors, spooked by the market’s one-two punch, have stayed away—thus missing out on what may turn out to be a once-in-a-lifetime gain. Hindsight being 20/20, in retrospect, had investors simply closed their eyes and hung on during the carnage of a decade ago—turned off CNBC, stop opening their 401(k) statements, not allowing their emotions to get the best of them—they would have more than recovered.

The question is, what now? Here’s the part where the mainstream media may hurt more than it helps. “Is it too late to jump back into the stock market?” a blaring CNN headline asks, suggesting that getting into stocks after they’ve soared—the S&P 500 is up some 335% since it bottomed out in March 2009—was worth considering.

Meantime, what about those proverbial boat owners, whose wealth has soared? They’re taking their chips off the table. A survey of millionaires by Spectrem Group found that wealthy Americans “are more likely to increase cash and bonds than stocks in the next year,” and “may be amassing dry powder for better opportunities to buy into the market.”

All this contradictory noise—it’s not too late to get in the market, yet the “smart crowd” is getting out—is bound to confuse.

Both views lead to another classic investing mistake: Each suggests that investors can time the market, when in fact, no one has shown the ability to do so on a consistent basis. Even the greatest investor of the past half-century—Warren Buffett—calls market timing a fool’s game.

“I never have an opinion about the market,” he has said, “because it wouldn’t be any good.” So if the Oracle of Omaha can’t time the market, what makes you think you—or the blow-dried pundits on TV—can?

Keep in mind, the Boston College data point above focuses on middle-income households. Lower income households are in even more precarious shape. For both groups—which comprise the bulk of the U.S. population—there are no easy answers. Consider that if retirement used to be considered a three-legged stool—comprised of a pension, Social Security and personal savings—then all three aren’t what they used to be. Just 9% of workers in their 50s have a pension, for example, down from about 25% three decades ago, and 46% don’t even participate in a retirement plan at work—not even an IRA or 401(k). Savings are meager, and as we’ve warned before, the Trump administration says unless something is done to shore up Social Security, payouts could be cut about 21% come 2034—which is closer than it sounds.

All of this suggests that uncomfortable choices loom on the horizon: Working longer. Accepting a lower standard of living. Perhaps both. Don’t worry if that proverbial rising tide of a growing economy and stock market didn’t help you very much. Your goal now is to make sure you’ll be OK if, one day, that tide goes out.