Allan S: “I am a university professor, 62 next June, making $52,000 a year, planning to retire at 65 (certainly not later than 67) with currently $78,000 in TIAA and $542,000 in Vanguard Index funds. I have three years to try to get my retirement fund to around $750,00 and do not have ten years to recoup a major fall in my assets. I see NASDAQ going into a classic bubble, the S&P heavily weighted with tech stocks, and all the ingredients for a major downturn that may spread worldwide through the stock markets. To get stocks back to reasonable valuations, I think that we may see 5% rates of returns for the next decade, even if the US economy grows at 3.5% and the CPI at 2.5% over that period. I am VERY nervous! I feel like bailing out of the market until next June to see what happens from the sidelines, but I did that once before and probably lost $80,000 and 5% of $750,00 isn’t going to maintain my current standard of living. It is this very short time horizon in what looks to me to be a very unstable situation that makes the usual advice — it will all work out in the long run — difficult to follow. Any advice for the many of us who are near retirement and don’t want to have to stay working into their seventies if we get caught by a Stock Market Tsunami? ”
I think you are right to be cautious, and, given your circumstances, would consider putting a chunk of the money in something a lot safer. Then again, you’re going to be around for another 30 years, at least, so . . .
- Plan to work longer, even if in a different capacity (part-time consulting? textbook-authoring?).
- Don’t exit equities altogether. But for money that’s not taxable, consider switching into things like a basket of relatively high-yielding REITs and utilities (if you have the temperament to study a bit and choose them sensibly) and less-puffed-up indexes than the S&P.
- Save as much as you can these next three-to-five years, for two reasons. First, to build your assets. But also so that, as a consequence, you may discover ingenious and relatively painless ways to reduce your cost of living — not because you have to (which is a drag) but because you want to (which is a challenge).
Tomorrow: Important Things to Know
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It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics, because discrimination, poverty and ignorance restrict growth, while investments in education, infrastructure and scientific and technological research increase it, creating more good jobs and new wealth for all of us.~Bill Clinton
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