Investing for (or in) retirement gets harder

The newspapers are full of stories about how baby boomers who have squirreled money away are rethinking their investment approach, evidence coming from last year's net outflows from stock funds and the fascination that many retail investors now have with bonds.

With the combination of an increasingly "risk averse" baby boomer crowd that is rapidly approaching what they once thought was retirement age and after multiple collapsing asset bubbles seen over the past decade, you'd have to think that investing for retirement is now undergoing some fundamental changes - and these aren't the kind of changes that the folks on Wall Street will probably like.

A number of stories over the last few days have helped to make this point, starting with a USA Today report in which the lead interview subject makes it quite clear that he's had enough.

Near the stock market low last spring, with his losses nearing $200,000, Martin Blank, 67, a Florida retiree with four decades of investing experience, sold most of his stocks.

He liquidated 75% of his stock funds. He hasn't put that cash back in the market. And doesn't plan to.

That emotion-driven decision, made with his wife, Linda, nixed any chance of profiting from the 63% rally that began shortly after selling out in a state of anxiety.

But Blank has no regrets: "I have no desire to attempt to make back what I lost."

Forty years of investing and that's it - it's hard to blame Martin for his decision, but it's equally hard to understand how investing as we've come to know it since the mid-1980s can continue.

Recall that it was back in 1984 that 401ks were first introduced in the U.S. and ordinary folks were first given a modest amount of control over how their retirement money was invested. That morphed into near complete control years later and this all worked quite well up until the bull market in stocks ended in 2000.

The Christian Science Monitor looked at how prepared the baby boomer crowd is for retirement in this story and came away unconvinced that the "golden years" will be very pleasant for many.

The leading edge of the baby boomers – the postwar generation that led the way on everything from war protests to yuppiedom and two-income families – is about to experience another first: postcrash retirement.

With the first wave of boomers turning 64 this year, they have little time to make up their losses from the recent debacle of stocks and housing. Not since the late 1930s have workers on the cusp of retirement faced such a big one-two punch.

So how are they handling it? Not well. It's almost become a cliché to say most boomers haven't saved enough for retirement. Nearly a quarter of those who turn 50 this year say they haven't even started saving, according to a poll in January. Here's the surprising part: According to some experts, even those who have managed to stash away some savings must be careful not to invest the money too cautiously.

With life spans increasing – and many boomers dreaming of active retirements, among other factors – some advisers suggest that near-retirees keep a sizable holding in stocks. The old adage – subtracting one's age from 100 to get the proper stock allocation – just doesn't apply anymore, this camp believes.

I don't know about you, but this whole "double-down" thinking by investment advisors seems fraught with risk. Sure, doubling down last spring would have been a great idea, but there are probably a lot more investors like Martin Blank in that first story above than there are those who have the stomach to "buy when there's blood in the streets".

Even Jason Zweig in this piece from the weekend issue of the Wall Street Journal seems a little down on the whole idea of people navigating the years ahead using what has passed for conventional wisdom when it comes to investing.

For many investors, the market's turbulence hasn't just destroyed wealth. It has shattered their faith in the financial system itself.

Consider Philip Eberlin, 56 years old, who runs a woodwork-restoration business in Chicago Heights, Ill. Trading hot stocks a decade ago, Mr. Eberlin got burned on picks like Krispy Kreme and Tyco. In 2007 he got back into stocks, only to take another hit.

"Having been burned twice in 10 years," says Mr. Eberlin, he now has about 80% of his family's assets "protected from the market" in certificates of deposit and fixed annuities. "I don't have trust in Wall Street to help the small investor in any way, shape or form."

Mr. Eberlin isn't alone. Late last year, Decision Research of Eugene, Ore., asked Americans how much they trusted bankers and other Wall Street leaders "to reduce the risk of the financial challenges the country is facing now." On a scale of 1 to 5, with 1 meaning no trust at all, the rating averaged a paltry 1.7.

Where do you go from here?

On the one hand, it's great that people have the amount of control that they have over their own retirement planning but, on the other hand, retirement dreams are now fading fast for millions of Americans and we've probably got at least a few more years before this secular bull market in stocks is over.

If only more people had sold their stocks ten years ago and bought gold, there would be far more happy retirement stories today.