Dr. Loretta Mueller, 46, a family physician in New Jersey, was so unnerved by the Greek debt crisis and its effect on the stock market that she cashed out some of the funds in her retirement account and bought gold bullion.
Her husband, Dr. Carman Ciervo, also a family physician, didn't agree with her decision at first — nor did her financial adviser, who warned that she would be subject to taxes and an early-withdrawal penalty for tapping her 401(k) funds. But after watching the markets seesaw and contagion fears spread, Dr. Ciervo, 47, soon acceded to his wife's plan.
“I said, "You know what? I don't think anybody has the answer to this problem, so there's nothing wrong with being diversified,'” he remembers.
FEELING OF INSECURITY
Dr. Ciervo and his wife are typical of many middle-age Americans worried about big-picture issues like the economy and ballooning deficits, as well as closer-to-home concerns such as the state of retirement portfolios, college tuition costs and household debt. They feel insecure about the future, especially after the financial crisis, the recession and the grim unemployment picture, and they're spooked by market volatility.
“There used to be times when there would be a trend upward or downward in the market,” Dr. Ciervo said, “but it would be over time. Now there's a change of 300 points in a day. That kind of volatility is not good.”
What's more, wildly fluctuating equity prices are a far cry from what middle-age investors were expecting after 20 or 30 years of investing. Now, just as they're getting serious about retirement planning, some have sustained significant losses, and they worry that their hopes for a comfortable retirement may be dashed.
One adviser specializing in retirement planning said his clients are nervous.
“People have been traumatized,” said R. Griffith McDonald, a managing director at Retirement Income Solutions Inc., which manages $569 million in discretionary assets. “And then, just when they thought they were over it, they get this 1,000-point drop. They're very skittish.”
As a reaction, middle-age in-vestors — especially those above 50 — are becoming more conservative, with many “hoarding” rather than “investing,” said Marc Ruiz, of Oak Partners Inc., which oversees about $120 million.
“They're all in kind of a precarious situation from the losses they took in "08, and they can't afford to lose any more,” he said. The older they get, the more serious the situation, he added. “Someone over 50 who wanted to retire at 60 or 62 really can't afford to lose ground again.”
Mr. Ruiz said most of his middle-age clients have just 15% to 35% in equities now to mitigate risk.
For some clients, the damage extends not just to their finances but to their psyches, said Jeff Gitterman of Gitterman & Associates Wealth Management LLC, which manages $250 million in individual accounts and $700 million in pension accounts for 2,500 clients. Many of his middle-age clients, Mr. Gitterman said, have become “disillusioned with the whole idea of the American Dream.”
“It used to be that people knew that they'd have this pot of gold at the end of the rainbow, this constantly growing nest egg,” Mr. Gitterman said. “After these two years, people are questioning whether the nest egg will even be there when they need it. They've lost faith in the markets.”
Mr. Gitterman, who counts Dr. Ciervo and Dr. Mueller among his clients, has seen other investors insist on moving all their assets into cash. He said he let these clients go because he disapproves of being 100% in cash and didn't want to take the blame later for missing any market upswing.
To help reassure his clients, Mr. Gitterman said he is re-examining risk and moving the riskiest parts of his clients' portfolios (equities, currently at about 30%) into annuities. He's also being more conservative with the other 70% so that the clients “can have more faith and confidence in future cash flow.”
Cash flow is indeed one of the main concerns among middle-age investors, according to research conducted for
InvestmentNews by Phoenix Marketing International. Phoenix surveyed affluent investors between 40 and 60 who earn $150,000 or more annually or have investible assets of at least $100,000. Their mean net worth, excluding their primary residence, is about $967,000.
The data show that improving household cash flow is the “single- most-important goal” for 22% of investors in this age range, compared with 14% for all ages.
DEBT A CONCERN
Those in the 40-to-60 set say their greatest concern is getting household debt under control. Survey respondents in their 40s generally have more debt than others surveyed, but all investors are having a harder time these days, said David Thompson, managing director at Phoenix.
“These investors got hit pretty hard, and they're dealing with the aftereffects,” Mr. Thompson said. Overall, this age group has a debt-to-liquidity ratio (total debt expressed as a percentage of investible assets) of 31%, compared with 19% for the entire survey population, he said.
Middle-age investors also seem more worried than others about the federal deficit and the state of the U.S. economy, the Phoenix data show.
Optimism and pessimism about the future often are functions of how much investors have saved and how far they are from retirement, noted one adviser.
“The 40-year-olds are the lucky ones, because time's on their side,” said Barbara Steinmetz, an adviser whose eponymous financial planning firm manages $28 million. “At 40, you have a lot more time to sock away money.”
OPTIMISTIC AND TRUSTING
Luckily for advisers, too, some clients are optimistic. They're trusting in the recovery now, and in the skill and integrity of their advisers.
Marc Shapiro, 49, a commercial- real-estate lawyer in New York, makes a very good annual salary and has never lived beyond his means, he said. Yet he has considerable expenses, including Manhattan rent and more than $60,000 a year in college costs for his second child. (His firstborn, now 24, has already graduated and is working, he said.)
Mr. Shapiro remembers when Mr. Gitterman, his adviser, called him during one particularly bad day in 2008 to explain that his portfolio had been damaged.
“I told him that I have 12 to 17 years before I retire, and asked whether he would be able to get me where I need to be by that time,” Mr. Shapiro said. “So I told him to fix it and call me when it's fixed. Hopefully, that will be six months from now, but if it's 10 years, so what? It just has to be there when I need it.”
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E-mail Hilary Johnson at -hjohnson@investmentnews.com.
