The Retirement Danger Zone

The collapse of the housing market in 2007 wasn’t a surprise to anyone in real estate. Had the 2008 recession merely been the result of a crash in housing prices, our economy could have weathered it; that’s happened before. What took down our financial system, and nearly the entire economy, was banks and investment houses selling bundles of toxic securities. While anyone paying attention to home prices could have seen the real estate market meltdown coming, the resulting financial collapse was a surprise to all but a handful of insiders.

That shock meltdown of our financial markets also hurt a lot of people who were in the danger zone, anywhere from five to ten years before retirement, who had too much money in the stock market. The average investor lost twenty-five percent of his or her stock portfolio, which means even greater losses of forty and fifty percent were not unheard of; reverses that can take decades to recover. Millions of Americans hoping to retire were suddenly faced with working another five or ten years, if they could dodge getting a pink slip in the ensuing crisis. Many not only had to work for years instead of retiring, but had to do it at menial jobs for substandard pay.

Avoiding the Danger Zone as You Near Retirement

You would think after such a monumental meltdown as the Great Recession the lesson about having too much money in stocks when nearing retirement would sink in, but you’d be wrong. As shocking as it seems, there are people approaching retirement with all of their 401(k) funds invested in equities! One can forgive a generational memory loss of the crash in the early 1930s but forgetting one that’s less than ten years old? Come on!

Getting Defensive in Your Old Age

Having some money in stocks as you approach retirement is okay, provided the percentage is appropriate for your age, and ability to absorb losses in an increasingly unstable market. What stocks you do retain might shift to emphasize income, in defensive sectors like utilities and food.

Hard Assets

Hard assets are a way to protect both your wealth and the buying power of your cash from the ravages of inflation and the vagaries of the Federal Reserve. Hard assets can be anything from high quality liquid hard assets, like gold and silver coins from the U.S. Mint to antique guns, stamps, farmland, and income-producing property and machinery. The key with hard assets is to keep it simple and minimize your storage and transaction costs. The term used in financial circles is “liquid” hard assets, meaning they’re easily exchanged for cash. Antique automobiles might qualify as a hard asset but the storage and transaction costs are quite high. It’s the same with any type of real estate. Farmland might qualify as a hard asset but, due to the bloated overhead of real estate transactions, it doesn’t qualify as a liquid asset. High quality gold and silver coins from the U.S. Mint are liquid hard assets and can easily be stored in a properly structured gold IRA.

Play it Smart

If you spent a lifetime contributing to your employer’s 401(k) plan and putting a little cash away besides that, then good for you! That fact alone puts you ahead of the vast majority of your peers. The last thing you want is to see a large chunk of it vaporize right before you really need it. Sure, you might want to work longer, but that should be a personal choice based on your health and preferences, not one forced upon you by a financial cataclysm.

The defensive funds in your portfolio, the gold in your IRA and income from municipal bonds can make your journey through the danger zone before retirement a lot less perilous.