As stocks drop, Americans put off retiring

It sounded like a good idea at the time. Buoyed by a heap of General Electric stock that was generating more money than Midas, the Broughtons carved out a plan as grand as their imagination would allow: Expand their modest suburban home into a family compound.

Recently retired from successful corporate careers, Robert and Lee Broughton of Raleigh, N.C., made plans for a major expansion in hopes that, someday soon, one of their sons could move back home with his family.

Today, those plans are on hold.

As stock markets have fallen from 20 percent to 60 percent from their peaks a year ago, GE stock has plummeted, and the Broughtons (not their actual name) have gone from dreams of opulence to the practical realities of the post-boom economy.

For the first time in years, Americans on the cusp of retirement are looking to the future with concern. In general, the stock losses have not been deep enough yet to cause serious financial hardship.

But for investors who were tempted to the edge of prudence by the markets' remarkable run, the downturn has meant a return to more-modest expectations for retirement, and, for some, a change in plans.

"We've got a lot of older investors who have way too much money in stocks," says Scott Lummer, a retirement adviser for mPower.com. "The reason is that people are driving looking in the rearview mirror."

Americans' increasing reliance on stocks is well documented. In the early 1950s, 8 percent of Americans had investments in the stock market. According to a 1999 Gallup poll, that number has now risen to 60 percent. A Federal Reserve study completed a year earlier shows that 58 percent of people aged 55 to 64 have retirement accounts. A further 15 percent hold mutual funds.

For the better part of the 1990s, these stock holdings were a source of enormous wealth for those nearing and entering retirement. But the past year has been difficult, even for those for whom watching the market is more entertaining than, say, "Shakespeare in Love."

$50,000 - gone in a day

"It hurts when you drop $50,000 in a day," says John Sullivan, who works in insurance for GE Capital in Kansas City, Mo. But Mr. Sullivan remains confident: "It won't change things; it might just delay things."

"Things" are Sullivan's retirement dreams. He wants to find a job that takes a little less time and devote more of his energy to two of his loves: investing and kayaking. "If money's not an issue, I'd just go from one adventure to another," he says.

With 95 percent of his assets in stocks, those plans are riding on the market. And as with baby boomers nationwide, the drop has caused tremors.

Sullivan's investing goal is to double his holdings every five years. If he can achieve that feat once more, he'll sell out. "It's not looking too good," he quips.

In some ways, Sullivan is an extreme case. Traditionally, as most people approach retirement, they set aside 30 to 40 percent of their money in securities that aren't affected by stock-market volatility.

Many analysts say anyone who has invested prudently for retirement over the past 20 to 30 years will weather this economic tempest just fine.

"There seems to be more panic among younger writers than older investors," says Horace Dietz, a representative for the AARP in Washington.

Still, in recent years, a growing minority have been taking greater risks with their portfolios. And even those who have invested more cautiously have been burned.

Retired government worker Paul Ferraro of Alexandria, Va., has always played it safe.

"I'm not a gambler," he says. "I've never ever played a card game or even lost 10 bucks on a football pool."

Last November, he cashed in his tech stocks. He had what he needed, and a part-time job gave the opera fanatic a little "candy money" to buy stereo equipment and CDs.

Three months later, his broker told him it was time to get back in. He was wrong. "That's probably $11,000 or $12,000 bucks I'm now kissing good-bye," says Mr. Ferraro.

Like most others, he'll get by. But the margins are thinner. And for some who had become accustomed to seeing their IRAs and 401(k)s grow each year, the options are to work longer or make do with less.

Back to work

"I've certainly heard from people who have said they'll have to come out of retirement," says Mr. Lummer. "I can't picture anything more traumatic than thinking you were done with working and then having to go to work again."

In the end, though, experts say the psychological impact of the market selloffs could leave a bigger mark on the American consciousness than the actual tales of want and woe.

"For most people, so much of this is psychological," says Amy Noel a Boulder, Colo.-based planner for the Financial Planning Association. "It's going to be difficult, because when you look at that [earnings] statement, it's really going to be ugly."

(c) Copyright 2001. The Christian Science Monitor