Market woes strike fear in older workers

The upheaval in the stock market is sending tremors through a wave of baby boomers eyeing retirement -- and their stock portfolios, North Coast financial advisers say.

"The biggest concern is they don't want to run out of money," said Rick Duarte, who has been getting a steady flow of calls from older clients. "When you just start off nearing retirement, you don't want to see your portfolio dropping."

Unlike younger workers, boomers in their late 50s and early 60s are nearing the time when they'll no longer be putting money into their 401(k)s but taking money out.

Memories of how the dot-com collapse wiped out 401(k) investments are still fresh, and experts say some older investors are starting to get the market jitters, fearing a similar collapse.

The blue chip Dow Jones industrial index, down 8 percent since the beginning of the year, is on pace to log its worst January since 1960.

This week, investors will be watching as President Bush gives his State of the Union address tonight and the Federal Reserve Board meets Tuesday and Wednesday amid speculation that it may reduce interest rates further.

Several local financial advisers said many of their older clients are picking up the phone to inquire about the state of their investments, a reaction to a barrage of negative news about the stock market.

Joan Gipe, a semi-retired college professor who lives in Healdsburg with her husband, said her 401(k) never recovered what it lost during the dot-com meltdown. Gipe works part time for an online university and her husband works for Mendocino College in Ukiah.

Current market troubles are all too familiar as she watches as her investment's "bottom line number" keeps going down.

"It hasn't reached a point where I'm really frightened, but who knows," Gipe said.

Duarte, owner of Crumbley Financial Services in Rohnert Park, said his advice differs with each client depending on a number of factors, including the size of a person's portfolio, whether there's a need for investment income and tolerance for risk.

The closer you are to retirement, the less time you have to bounce back from stock market lows and the more likely you are to feel the pain of an agressive investment portfolio, says one that has 80 percent of funds invested in stocks and 20 in fixed-income bonds.

"Would it be best to move back to 50 or 60 percent stocks?" Duarte asked.

The 401(k) plan has been around since the late 1970s and has become increasingly popular, especially because some businesses supplement the plan with company contributions. For some employees, it is the only private retirement fund offered.

Economist Robert Eyler said investments in general have become much more diversified in the aftermath of the dot-com bust, when some 401(k)s were heavily invested in higly speculative and overvalued growth companies.

And history shows that long-term investment in equities is the best investment to make from a rate-of-return standpoint.

But Eyler said that once a person reaches the age of 60 or 70, risk becomes less attractive and what people want is a guaranteed revenue source that does not lose principal.

Shirlee Zane, chief executive director of the Council on Aging, said that traditional financial wisdom for retirement no longer applies.

"The retirement goal was always to have the three-legged stool, savings, pension plan and Social Security," said Zane.

Pensions have disappeared and baby boomers have not done a good job saving money, she said. "The tripod has become very wobbly."

Many experts say that retirees and those near retirement should not let volatility drive them out of the equity markets because it's one of the only investments that can keep them ahead of inflation.

Brett Hammond, chief investment officer for TIAA-CREF, said his firm's Lifecycle Funds allocate as much as 50 percent of retiree portfolios to stocks, with the rest in fixed-income investments such as bonds.

"There has to be still some element of growth in that retirement plan," said Ambler Cusick of Smith Barney. "They can't just go to cash or bonds or CDs 100 percent. All those things are strictly securities that pay an income but have . . . no real growth prospects."

Duarte said that without equity, a retiree's purchasing power will quickly erode.

"Just because you're going to retire soon, doesn't mean your portfolio has to retire," he said. "You still have to maintain equity positions in your portfolio because people are living longer."

Zane said that many baby boomers are pushing retirement age back and having to work five or 10 years more "to have sufficient funds to retire."

Michael Randolph, a financial adviser and board member of the Council on Aging, said that when he sits down with someone nearing retirement age, his calculations assume that his client will live until they are 95 years old.

"We used to sort of run things to 85," he said. "But we are living much longer and medical science has pushed the envelop."

But the downside of living longer, he said, is the likelihood that people will have to spend small fortunes on medical costs.

For these reasons, Randolph and other financial experts say that living with some level of equity risk is necessary.

You can reach Staff Writer Martin Espinoza at 521-5213 or martin.espinoza@

pressdemocrat.com.