Three Ways to Overcome Your Retirement Doubts


By Dan Caplinger,The Motley Fool

During the depths of the market meltdown, millions of people feared that they would lose everything that they had worked so hard to save. Yet more than two years later, after a huge stock market rebound and a supposed economic recovery, most workers still aren't very confident that they'll be able to retire comfortably in their old age.

Pessimism Running Rampant
A recent Gallup poll asked working Americans whether they believed they would have enough money to live comfortably in retirement. A majority of those surveyed, 53%, said that they don't think they'll have enough to retire. Surprisingly, that figure is even worse than it was during the worst of the financial crisis in 2009.

The poll has a number of other interesting conclusions:

  • Workers 30 to 49 were most pessimistic about their retirement prospects, while younger workers were most optimistic despite also having the least confidence in having Social Security as a source of retirement income.

  • Over the 16-year history of the survey, the percentage of those expecting to retire after age 65 has more than tripled, from 12% in 1995 to 37% today.

  • Six in 10 workers believe that they aren't likely to get any Social Security benefits.

It's easy to understand why workers are pessimistic about their retirement prospects. Despite the rebound, current conditions are tough not just for the economy overall but for investors in particular. Those who aren't familiar with long-term investing trends probably have misconceptions about whether some challenges they face right now are permanent. Let's go through three of them.

1. Stocks will never go anywhere.
Pointing to the Lost Decade, new investors have no reason to be confident that stocks go up over the long run. While more experienced investors who lived through the bull market from 1982 to 1999 know just how powerful stock returns can be, those who've relied on vanilla S&P 500 index funds haven't gotten much bang for their investment bucks since the beginning of the millennium.

But the mistake that many investors make is to look only at the most popular market measures, such as the S&P 500 or the Dow. Consider these alternatives:

  • The iShares Russell 2000 ETF (IWM), which tracks small-cap stocks, has risen an average of 7% annually over the past decade.

  • The mutual fund that gave rise to the Vanguard MSCI Emerging Markets ETF (VWO) has had even stronger returns, jumping 16% per year since 2001.

  • The fund precursor to the Vanguard REIT Index (VNQ) is up 11.4% annually.

A diversified portfolio wouldn't just have had large-cap U.S. stocks. With the right combination of investments including the funds listed above as well as a large-cap-holding fund such as Vanguard Total Stock Market (VTI), you wouldn't even have had a lost decade -- and you wouldn't expect one now either.

2. I can't get any income.
Whether you trust banks or bonds, it's hard to find safe income these days. With interest rates at extremely low levels, banks are stingy about paying customers to park their money.

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But where income has become more prevalent is in dividend-paying stocks. In the Dow alone, three stocks -- AT&T (T), Verizon (VZ), and Merck (MRK) -- pay more than 4% annually in dividends, and seven more have yields of more than 3%.

True, owning dividend stocks involves more risk than a bank CD. But it also gives you greater potential for growth -- the growth that many wannabe-retirees absolutely need to stretch their nest eggs as far as they can go.

3. I'm doomed without a pension.
Most workers today don't have the protection of a pension that their parents and grandparents may have had. As a result, many workers throw their hands up and figure they have no chance to navigate the complicated world of investing successfully.

But investing doesn't have to be difficult. With many companies supplementing worker contributions to 401(k) plans with profit sharing or employer matching, it often pays to make even small additions to your retirement plan at work. And discount brokers have made it easy to manage the rest of your money, whether it be in IRAs or through regular accounts.

Don't Give Up
It's not always easy, but no matter how dire you may think your financial situation is, others have faced similar challenges and gotten through them. As long as you stay confident that you can get the knowledge you need to face your own particular retirement roadblocks, you'll eventually get through them.

Fool contributor Dan Caplinger has his doubts about many things, but not about retirement. He owns shares of iShares Russell 2000 ETF and Vanguard Emerging Markets and REIT Index ETFs. AT&T is a Motley Fool Inside Value selection. The Fool has created a ratio put spread position on iShares Russell 2000 Index. Alpha Newsletter Account, LLC has opened a short position on iShares Russell 2000 Index. The Fool owns shares of Vanguard MSCI Emerging Markets ETF. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. About the Fool's disclosure policy you need have no doubt whatsoever.

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