Retirement and Recession, Where Do You Stand?

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Millions of people spend years planning for retirement. Many invested their income into stocks expecting investment returns of at least 8% and others expected their homes to have appreciated in value by 10% each year. Their expectations have been shaken to the core during this recession and long periods of economic uncertainty.

Because a large portion of people nearing retirement are not going to have as much to retire on as they initially thought, many are facing some serious questions that must be answered: How much more will I have to save? Can I retire on what I will have saved? Or they may wonder just what it was that happened to their dreams of a financially secure retirement.

How did this happen?

Scapegoating is easy but what are the causes and results? People all over the western world in particular have been hit and many believe it is due to the banking industry. This is not entirely wrong but the blame should be shared with the government and authorities who ruled and actively encouraged lending and spending during the ‘good times’. They were too afraid of a stagnant market and missing out on potentially lining a few pockets.

Let’s talk about the now, the facts

The facts speak for themselves. The UK stock market grew somewhere between a measly 1% and 1.4% compare this to the 2.1% growth in 2010, whilst the US grew only 1.8% in the third quarter of 2011. For the UK this looks like the market could be heading back into a recession (double dip recession), which will directly affect the next generation trying to enter retirement that is, if they can keep hold of a job.

This leads nicely onto unemployment rates, some at an all time high since records began in 1992. It’s estimated that around 2.62 million people are out of work in the UK, a rise of 129,000- of which 1.04 million are young people (the first time it’s exceeded 1 million since 1994). Nearly half of these unemployed people would have been looking to start IRA’s (Individual Retirement Accounts) or something similar in order to start saving now. Again, these hopes would have taken a massive hit. The US unemployment rates have seemingly taken small steps towards improvement with unemployment falling from 9.1% to around 8.5%- staying above 6% until at least 2015.

What options do I have?

Current forecasts and upside down mortgages paint a bleak picture, but the fact is that there are a few options left for those who are fortunate to still have a job. Those that wish to trump the poor economy and still have a secure retirement can:

  • Eliminate/minimise any debt that they may get into/already have. Times are hard but you need to make sure they don’t get harder. This means paying off credit cards, auto loans and, when possible even your mortgage. It is easier said than done but if one lesson is learned from this economy, it should be financial discipline.
  • Invest in a retirement fund now to ensure that the money saved will earn more over time. Spread money over a few investments; do not put it all into one place. Options to consider include investing in stocks, bonds, exchange traded funds, index funds, and mutual funds. Consider investing in options that are in countries that are more financially stable. These are not just for the “1%”!.

Despite this economy there is hope that you can still retire as planned but, in order to do so, you have to start planning now. New economic realities include declining wages, higher retirement ages, inflation, high unemployment rates and a longer period of time to find new employment opportunities.  Clear up debts and invest wisely. Always stay on top of where your money is and what it is doing, and in the end, you may be surprised by how much income you will have for retirement.

Jem Mosley, is a Freelance writer and a bit of a finance freak specialising in equity release. He is also, like you, a member of the public and will be hit hard so he aims to share any information he posses that might help – for free! You can learn more by following him on twitter at @writerjem


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