Retirement Rescue - How long to get back what you lost (Motley Fool)

Get back what you just lost
BY Chuck Saletta,
The Motley Fool
© 1995-2009 The Motley Fool. All rights reserved.
The Motley Fool — 05/27/09

Nothing about the 2008 financial meltdown was enjoyable. But perhaps the worst part isn't the investment principal we've all lost, but rather the time those investments represent. If you've been diligently scrimping and saving your whole career to amass your retirement nest egg, the market meltdown may have set you back quite a few years.

Just how far back you've been set depends on how much your portfolio has fallen -- and how you plan to invest to salvage what you can from what's left. The table shows how many years it will take for your portfolio to recover to pre-crash levels, based on how far it has fallen and what investing returns you might expect in the future:

Loss
6% Returns 7% Returns 8% Returns 9% Returns 10% Returns
25% 4.9 4.3 3.7 3.3 3.0
30% 6.1 5.3 4.6 4.1 3.7
35% 7.4 6.4 5.6 5.0 4.5
40% 8.8 7.6 6.6 5.9 5.4
45% 10.3 8.8 7.8 6.9 6.3
50% 11.9 10.2 9.0 8.0 7.3
55% 13.7 11.8 10.4 9.3 8.4
60% 15.7 13.5 11.9 10.6 9.6

As bleak as some of those numbers might seem, all hope is not lost. There are still several things you can do right now to help make up for that lost time.

Save more
If you can invest a little bit extra to help make up for those spectacular losses, you could potentially knock years off that recovery time. For instance, if you can add 5% of the dollars you lost to the amount you're currently saving for your retirement each year, the time to recover what you've lost now looks like this:


Loss 6% Returns 7% Returns 8% Returns 9% Returns 10% Returns
25% 4.0 3.5 3.2 2.9 2.6
30% 4.7 4.2 3.8 3.4 3.2
35% 5.4 4.9 4.4 4.0 3.7
40% 6.1 5.5 5.0 4.6 4.3
45% 6.8 6.2 5.6 5.2 4.8
50% 7.5 6.8 6.2 5.8 5.4
55% 8.1 7.4 6.8 6.3 5.9
60% 8.8 8.1 7.4 6.9 6.5


In other words, if your formerly $150,000 portfolio is now a $100,000 portfolio, you've lost $50,000. If you can save an additional $2,500 (5% of that lost $50,000) each year, you can earn back your cracked nest egg in far less time.

Try for larger returns
Regardless of whether or not you plan to sock away a bit more each month, one thing is constant across both those tables. The higher the returns you can earn on your money, the faster you'll get back your lost nest egg. That more likely than not means you'll need to stay invested in stocks. And yes, even in spite of the 2008 meltdown, there's good reason to believe that you can still grow your money over the long term by investing it in the stocks of quality companies.
In fact, financial and economic crises are nothing new. Looking back over the past 25 years, we've had quite some spectacular meltdowns. They've included:

The S&L crisis
Black Monday
The bursting dot.com bubble
The aftermath of the September 11 attacks
The bursting real estate and debt bubbles
Even including all those significant crises, check out how well investments in these companies have turned out over the past quarter-century:


Company $1,000 Turned Into Annualized Returns
Lockheed Martin (LMT) $12,020.90 10.5%
General Electric (GE) $12,629.03 10.7%
Mattel (MAT) $17,285.71 12.1%
PPG Industries (PPG) $18,230.05 12.3%
Disney (DIS) $24,397.73 13.6%
McDonald's (MCD) $31,612.57 14.8%
Cola-Cola (KO) $33,141.79 15.0%
Data from Yahoo! Finance as of Dec. 29, 2008. Includes splits and dividends.


While past performance is still no guarantee of future results, it has to be comforting to know that you could have invested through all that mess and still wound up doing just fine.

Work longer
Additionally, if you're physically able and enjoy working, why not stick around another year or two? As my colleague Selena Maranjian points out, there are many ways in which spending more time punching the clock can help you achieve that retirement of your dreams.

On top of her sage advice, remember that even if you do need to work a few more years to retire comfortably, you don't have to work at your current job. If there's a less well-paying but far more personally fulfilling role you'd rather have, why not spend those extra work years doing that instead? You just might find that those years become a pleasure rather than a burden.

Lower your projected costs
There's also the very real possibility that you might have been setting your sights a bit higher than you needed to. Life changes around retirement age, in ways that can dramatically affect your cost of living, often for the better.

Will your children be on their own by the time you're ready to retire? Will your mortgage be paid off, or will you be willing to downsize your home to save on living expenses? How much are you paying on work-related expenses that you won't need to pay once you've retired? Plus, Social Security and Medicare taxes stop once you stop drawing a salary, and at some point, you might even be eligible to draw benefits from those programs.

Each one of those life changes can significantly affect the amount of money you need to shell out just to cover the basic costs of living. If you've been investing for your retirement based on the assumption that those expenses would be permanent, you might have been saving far more than you needed. If you can scale back your expenses without significantly damaging the lifestyle you expect from your retirement, you might not even need to earn all of that lost money back.

All of the above?
In reality, the best solution for you to salvage your own retirement might be some combination of all four of those strategies. The more strong tools you properly put to use, the better your chances of making up for the time you lost in the 2008 market crash. When all is said and done, what matters most is getting yourself to and through a happy, healthy, and fulfilling retirement.


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