The Financial Crisis and You
Sunday, September 28, 2008
It has been a whirlwind year for the financial world, with some of the nation's most iconic institutions falling from distinction to extinction. What started as a mortgage crisis affecting some people has turned into a global crisis affecting all people, and average Americans are trying to make sense of it all. Many readers submitted questions to The Washington Post seeking guidance during this rough period. Many came from people here in the D.C. area. But they also came from up north, farther south, the Midwest and the West Coast. They came from people just starting their careers, from those ending their careers and from those well into retirement. We decided to call some of them to hear the stories behind their questions. We then asked several financial advisers for answers. Please continue to send your questions to The Post's Web site, http:/
'I'm Afraid to Look'
When Cynthia Shank, 51, looked at her individual retirement account summary last December, she had $448,000. When she looked at it recently, she had $349,000. "I'm afraid to look," she said.
Shank, a Hagerstown resident, is not alone. More and more employers have stopped offering their employees pensions with fixed amounts and have instead moved them into defined-contribution plans that fluctuate with the stock market. Lately, there's been a lot of fluctuating, and Americans are increasingly watching their retirement cushions lose much of their padding.
Shank, who is single, is already stretching to meet her financial obligations. She has a mortgage, $9,000 in credit card debt and a $7,000 home-equity line of credit. Eventually, she will have student loans to pay off, as she is taking classes to get into library science, a career path that seems steadier than the one she is on now.
She is a technical writer working on a $63,000 contract that may or may not be renewed next year. Even the cost of gasoline is taking a toll. She has a 50-mile round-trip commute each workday. "That alone has been a killer," she said.
As of last week, she had negative $25 in her checking account, which makes her wonder: How is she ever going to live comfortably in retirement when she can't even live comfortably with a full-time job? And now, she has even less saved for retirement.
Shank wrote to us seeking advice on rebuilding her retirement savings, or at least stopping it from dwindling away. Right now, she has it all in mutual funds, with about 80 percent in stocks and 20 percent in bonds. "How should I reconfigure it now?" she asked.
Should she move money into certificates of deposit, which tend to be safer? But what is safe these days, she wonders. Money-market funds were considered safe until just a couple of weeks ago, when a major one foundered and the federal government had to promise to insure the rest. As for the money she has lost, "Am I going to recover it?" Shank asked.
Daniel P. Crimmins, founder and president of DPC Wealth Management in Ramsey, N.J., urged her to remain calm. "The timing of the stock market recovery is unknown, but investing in the equity markets requires a long-term perspective," he said. "An asset allocation mix of 80 percent in equities requires this long-term perspective and would be acceptable at her age if this amount is truly for her retirement."
That said, he did advise her to study her portfolio to make sure she has a diverse mix of stocks and bonds. "Unless she had a sizeable amount in her IRA, a loss of $100,000 since December seems to be the result of a less-than-diversified portfolio," he said.
Domenic DiPiero, president of Newport Capital Group in Red Bank, N.J., said she might want to consider keeping 60 percent in stocks and 40 percent in bonds instead.
As for the safety of bank CDs, the Federal Deposit Insurance Corp. will cover $100,000 or less. Money-market funds owned before Sept. 19 of this year are now insured by the federal government for one year.