In a financial crisis, the typical advice from experts is to stay the course, keeping investments in place for the long term and waiting out the downturn.
But people close to retirement may not have that luxury. Although the stock market rebounded sharply last week after plunging earlier in the week, share prices remain well below their levels at the start of the year. With all the recent volatility, here are some tips for a contingency plan.
"Anyone who was thinking about retiring soon has got to be thinking about what their options are," said Judith Martindale, a San Luis Obispo financial planner. "The portfolio that seemed to be perfectly adequate a few months ago may not look as solid today."
People who have already retired may be forced to go back to work or live on considerably less income until the market evens out. But for those still in the workforce, putting together a decent contingency plan is not as hard as it may appear, said Zvi Bodie, a finance professor at Boston University and author of a bestselling textbook called "Investments."
The options -- work longer, save more, spend less -- seem common-sensical. But you can add years to your retirement income by implementing relatively painless changes to your plans, Bodie said.
By far, the most powerful option is to delay retirement -- or at least full retirement -- for a year or two. Even a short delay can have a dramatic effect.
How dramatic? That depends on the length of the delay, whether you continue to save while working and whether you earn a decent return on your savings.
A simple back-of-the-envelope calculation says each additional year of work secures about three years of retirement, Martindale said.
The math works like this: The first additional year of retirement secured is the one that you worked through. In other words, if you live until age 87 and you retire at age 66 instead of 65, you dropped the number of years you need to finance from 22 to 21.
The following year is financed with the money you didn't withdraw in that extra year of work. Year 3 is financed with the amount you saved in that extra year of work, plus the additional amount that you'll get from Social Security for the retirement delay, plus the investment returns you earned on your money.
"It's very powerful," Martindale said.
Despite recent shake-ups in many industries, the job market going forward may well favor older workers, so if you are healthy enough to work, it might not be that difficult to remain employed, even at 65.
