As Americans, we’re accustomed to having options. There’s always another answer, another solution, another way to lick a problem. (Sometimes, though, I think that’s how we got ourselves into the mess we’re in right now. Don’t have the money? Charge it. Can’t afford the bigger house? Leverage yourself beyond sanity.)

But what if you’re retired—not “almost retired” or “newly retired,” but actually well into retirement—and the market downturn has depleted your retirement savings? What are your options?

That’s a question we’ve heard a lot recently, especially from readers of this blog. (Yes, we do pay close attention to your comments!)

Nouveau retirees, of course, might be able to jump back into the job market and bide their time waiting for the markets to recover. In this environment, that might be easier to plan for (but more difficult to accomplish), but they do have the option to try. They might even have had the uncanny foresight to cash out a few years’ worth of savings just before the markets plunged.

But what if you’re in your 70s and you’ve been retired for 5 or 10 years? What can you do if you’re depending on withdrawals from your savings to supplement Social Security and meet expenses?

No easy answers—but there are some useful rules of thumb

Consider a hypothetical retired couple. They’re both 72. Based on actuarial averages, he has a 47% chance of living to age 85; she has a 58% chance of living that long. Together, there’s a 78% chance that at least one of them will reach 85. And of course, many people these days are living much longer than that.

Thanks to the bear market, this couple has quite a bit less in their nest egg than they thought they’d have. It’s fair to say their options are limited. But in a way, that makes their predicament if simpler—albeit no easier.

If you’re in this couple’s situation, you could just cross your fingers and hope the market rebounds soon enough, and strongly enough, to get you back on track. But that’s a very risky strategy. So, what do you do?

Well, the first step is to take a close look at your expenses. The recently released 2009 Retirement Confidence Survey from the Employee Benefit Research Institute indicates that among the surveyed working population, 81% say they have reduced expenses. It would be hard to think that the percentage wouldn’t even be higher for retirees. Reducing current expenses is your first—and most important—course of action. Over 15 years, cutting costs by even a small percentage can make a big difference. (By the way, that goes for investment expenses as well. Reducing your investment costs can mean more money is available to you in retirement.)

Are there things you’ve been paying for that you can do without? Are you paying bills for children or grandchildren that they should assume on their own? If you’re carrying balances on credit cards, eliminate them as soon as possible to cut those interest payments. If you have an extra car, think about selling it.

There are a few other options to consider, such as downsizing your living arrangements, buying a fixed annuity, or setting up a reverse mortgage, but rigorous cost control may be enough.

Next, take a close look at what you still own.

Do you have cash or cash equivalents? If so, think about tapping those assets first, as you’ll delay withdrawing from your diminished equity portfolio. And consider supplementing your cash accounts with interest and dividends from your other investments, if you haven’t already. Also, if you were increasing your withdrawals annually to factor in inflation, it may be necessary to stop for the time being.

Once you’ve done all you can to reduce your cash-flow needs, look at your asset allocation and make sure it’s truly appropriate for your risk tolerance and time horizon. For example, if before the market dropped you were 70%-80% in equities and didn’t have enough cash on hand to carry you for six months to a year, it’s probably time to make some changes. Updating your asset allocation can position you to take advantage of the rebound when it comes.

No matter how you look at it—or how you try to spin it—this isn’t easy. But if it’s options you’re looking for, the preeminent one is make the best of a bad situation, and truly take control of your finances.


• All investing is subject to risks.

• Actuarial estimates are based on mortality data from the Society of Actuaries.

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