Clifford Kraus, N.Y.Times, 12/11/08
DELRAY BEACH, Fla. — Since the stock market began to fall, friends have been coming to Barbara Goldsmith to talk about their depression, loss of appetite, insomnia and cravings for hot fudge sundaes.
“People are grieving,” said Ms. Goldsmith, a semiretired psychotherapist who counsels fellow residents of the Gleneagles Country Club, a gated community here. “There was a death. Their money died.”
In communities like Gleneagles and in the homes of retirees across the country, these are days of fear and uncertainty. In theory, retired people are not supposed to invest much in the stock market; in reality, many millions of them do. With the economy in free fall and stocks down about 40 percent this year, legions of middle- and upper-middle-class people are suddenly worried about having enough to carry them through.
To be sure, no bread lines are forming at places like Gleneagles. The community remains placid and, on the surface at least, highly prosperous. Retirees play golf, tennis and cards amid peach-colored condominium villas, ornate fountains, and manicured palm trees and violet bougainvillea.
But sustaining that comfortable life for another two or three decades, as many retirees hope to do, requires money. People with investments that were worth $1 million or $2 million a few months ago are suddenly canceling cruises, clipping supermarket coupons, eating at home rather than at restaurants and cutting back on contributions to their grandchildren’s college educations.
Like retired people everywhere, residents here knowingly juggled what they saw as competing risks.
They all heard the standard advice to move their assets out of stocks and into supersafe investments as they neared retirement. But, with interest rates so low, the returns on safe investments like government bonds were meager, and many of them saw a risk in not keeping some money in stocks. To finance a long retirement, they figured they needed the gains characteristic of the stock market.
Keeping money in stocks left them exposed, of course, to the risk of a once-in-a-lifetime market meltdown. Now, that day is at hand.
“Every television monitor in the card room and locker room is on CNBC, so we can get aggravated all day,” said Jerry Rivkin, 75, a retired appliance store owner. “We’re playing for nickels and dimes while we watch ourselves losing tens of thousands.”
To cope, some people are selling their homes up North, so they will have the money to stay here. A handful of condominiums in Gleneagles have gone into foreclosure, something that was almost unheard of until recently. Humor is becoming darker as residents tell jokes about their shrinking “301(k)’s” and the sorry inheritances their children will be surprised to receive.
For years, retirement and financial advisers have said that elderly people should be lightly invested in stocks, putting most of their assets in bonds, certificates of deposit and other conservative investments. But even some of the experts acknowledge that such a strategy does not always work for retired people in good health who can live to be 90 or older, unless they have a lot of money or move to a place with a low cost of living.
“With life expectancies being what they are, and medicine getting better and better every year,” said Joseph La Scala, a senior financial consultant at GunnAllen Financial, “someone who is entering retirement now needs to be a long-term investor, and that means there needs to be more of an allocation to growth investments such as equities.”
According to government statistics, a third of retirees have almost no stock exposure. But those are mostly poor or lower-middle-class people who rely on Social Security for income. Others are shielded by pension benefits, although those have been shrinking in recent years, especially for younger retirees.
Retirement experts say a majority of people in the middle and upper-middle classes have portfolios that are far more weighted with stocks, and therefore are more risky, than is commonly recommended. According to a recent survey by the University of Michigan that was sponsored by the National Institute on Aging, in the wealthiest 40 percent of the population age 75 and older, more than half had at least a third of their accumulated savings in stocks.
“Older middle-class people have made plans based on a set of assumptions of how the world works, and the world has gone crazy,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Those assumptions once included the notions that bank accounts and corporate bonds were secure, and blue-chip stocks were the best long-term investments.
“If you call my mother,” said Jason J. Fichtner, acting deputy commissioner of the Social Security Administration, “her goal was $1 million to retire on in stock equities. She had that for a weekend, and now it’s worth $600,000.”
At Gleneagles, people still play cards, swing 9-irons and take painting classes. But the anxiety in the community is palpable, and rising.
“I feel terrible,” said Harry Pure, 80, retired athletic director at Philadelphia University, who has lost 25 percent of his savings.
While taking a break from a painting class, he said, “It was nice to put your head on the pillow at night and know you felt secure. Now I put my head on the pillow and the brain cells are not going to sleep. All different scenarios are playing in my mind now: What to do? What to do? What to do?”
Even those with relatively large portfolios are feeling the pain.
“This threatens our lifestyle,” said Sid Freedman, a 74-year-old former owner of a textile company who divides his time between Gleneagles and Great Neck, on Long Island. With more than $2 million in assets, he said, he thought he and his wife were set for a long, secure retirement.
But he said his portfolio was down 30 to 40 percent. Without a pension, he said he might have to start contemplating his “safety net” if the market keeps falling: the unpleasant thought of selling his house on Long Island, even though that would mean less time with his children and grandchildren up North.
Uppermost on Mr. Freedman’s mind is his divorced daughter who has two children and a good job, but no support from her former husband, he said. Mr. Freedman had put aside enough money in a fund to pay for a year and a half of college for her oldest son, but that investment was down 20 percent, and he was to start school next year.
“We’re looking at a totally new ballgame,” Mr. Freedman said after playing tennis. “My mother lived to be almost 101 and her mother lived to be 90, so what it means is, if conditions get worse, we could outlive our money.”
Charles Mailman, 77, a retired zipper manufacturer, said he had accumulated a portfolio worth more than $1 million, 70 percent in stocks, and lost $300,000 in September and October. He said the days of yearly cruises for him and his wife were over for now.
“No more decorating, no more vacations, no more heavy-duty spending,” he said with a sigh. “If the market has hit bottom and it’s on the way back, I can live with that; the question is, what happens if it hasn’t?”
As for his broker, Mr. Mailman said, “He still says, ‘Sit tight. You have good stuff.’ They all say the same thing.”
Many people believed in stocks, they said, because the stock market had been good to them for years and represented the best way to keep their portfolios intact or growing.
“We stayed in stocks because they were so wonderful,” Jack Leinwohl, 67, who owns a U.P.S. store here to keep up his income, said. “I sold out everything two weeks ago so I can sleep.” He said he was looking to return to the market, though, because “I could be out of money in 10 years.”
Others say they do not dare to look at their portfolios anymore, or ask their spouses how things are going, for fear of the answer.
“There is no need for George and me to be crazy together,” said Ms. Goldsmith, 71, the psychotherapist, speaking of her husband. “I sleep, but George doesn’t.”
As for her three children, Ms. Goldsmith added, “I am getting them ready. If they are counting on their inheritance, they are in deep trouble.”