Periodic market downturns may result in significant investment losses, particularly within retirement accounts.  If you are faced with this situation, you may have to reconsider when, or even if, you can retire.

The Effects of a Decline

Historically, the stock market has had its ups and downs.  How any substantial market change impacts your retirement outlook may depend on how close you are to retirement.  If you plan on working and contributing to your retirement savings for many more years, you may have time to recoup losses to your accounts due to poor investment performance.  But if you're closing in on retirement or you're already there, a dip in your savings may affect how much you can safely withdraw and how long your savings can last.

To demonstrate, assume you and your spouse have $1 million in retirement savings, expect an annual average rate of return of 7%, and estimate that you presently need $100,000 annual retirement income for both of you to live comfortably, of which $30,000 will come from Social Security.  Presuming withdrawals increase by 3% each year to offset the effects of inflation, your savings will last about 22 years, as shown in the chart below (scenario 1).  Continue reading...

The Markets

February helped the equities markets recoup some of their losses since the beginning of the year.  However, concerns about financial stability in several  European countries and mixed economic data left stocks fighting to regain positive territory for the year.

The Month in Review

• Concerns about the possibility of default on sovereign debt by several European countries brought the euro to its lowest level against the dollar ($1.35) since last May.  Other European nations pledged to assist Greece, which faces a severe budget deficit and high debt-to-GDP ratio, but were vague about how any aid might be provided.
• The Bureau of Labor Statistics announced a drop in the unemployment rate from 10% to 9.7%--the lowest rate since August.  However, at the same time, 20,000 jobs were cut from nonfarm payrolls.
• The Federal Reserve Board raised the interest rate it charges banks for short-term emergency loans from 0.5% to 0.75%.  However, Chairman Ben Bernanke reiterated that the economy is not yet strong enough to raise the target rate, which affects consumer interest rates.
• Consumer inflation remained moderate at a 2.6% annual rate.  However, the Bureau of Labor Statistics said wholesale prices were up 1.4% for the third consecutive month, putting the annual wholesale inflation rate at 4.6%.
• Sales of both new and existing homes slowed substantially from the previous month.  New home sales fell 11.2% to their lowest monthly level since the Commerce Department began keeping records in 1963.  Home resales dropped 7.2%, but housing starts were up.
• Gross Domestic Product (GDP) actually grew 0.2% more in Q4 2009 than the original estimate of 5.7%.
• The SEC voted to adopt an alternative uptick rule, which would curb short selling in a stock once it has fallen 10% in intraday trading.  The new rule, which will go into effect 60 days after publication in the Federal Register, requires that once that circuit breaker has been tripped, any short sales for the rest of that day and the next must be executed at a price above the current highest national bid.  Continue reading...

The Markets

Back to black:  Domestic equities clawed their way back into positive territory for the year, with small caps continuing to lead the way.  A lackluster week with continued light volume finished strong with a 122-point jump in the Dow and the sixth straight up day for the S&P 500.  Bond investors took heart from strong demand for an auction of Greek bonds.

Last Week's Headlines 

Yes.  One of the most tragic estate planning mistakes is unintentionally disinheriting an heir.  Here are some of the most common ways this unfortunate situation can occur.

One of the biggest causes of accidental disinheritance is the simplest: failure to make a will.  In this case, property passes according to the intestacy laws of the state in which you're "domiciled."  Continue reading...