When he stopped working in 2005, Sun City Center retiree Dan Tackitt thought his expectations for his retirement investments were perfectly reasonable.
"I said, 'If stocks can continue to do 7 percent, I'll be okay,' " he said. After all, as a former stockbroker, he knows stocks have returned an average of 11 percent a year for the past 50 years.
But averages don't offer much comfort when you're watching the balance drop in your account. "If it declines for another six months, I'm going to cut back dramatically," said Tackitt, who is 63.
Investors are feeling the pain of the current bear market rather acutely, with stocks off 19 percent from their October highs. But the problem is bigger than one bad year.
The 2000s are shaping up as the worst decade for stocks since the Great Depression. We may remember it as another lost decade.
Stocks have zigged and zagged and now are back where they started, weighed down by skyrocketing oil prices and mortgage market mayhem. If they don't recover by decade's end, they'll have an unusual 10-year loss.
If you look at every 10-year stretch in the past 80 years (researchers refer to these as rolling 10-year periods), stocks lost ground only about 3 percent of the time, according to Vanguard research.
If you're still in the mode of saving for retirement, the decade probably has felt worse than it's actually been for your portfolio's future. Because you're buying shares at lower prices, you're likely to come out ahead once stocks recover, assuming they do.
"I look at this for most investors as a decade of opportunity," said Bob Doyle, who heads Doyle Wealth Management in St. Petersburg. "This is a good time to start picking up those stocks that are on sale."
Of course, buying more stocks is about the last thing most investors want to do in a market like this one.
"When your losses start getting into tens of thousands, it's a wake-up call," said Largo CPA Scott Lamer, 43. While he's still adding to the stock funds in his retirement plan, he sold stocks in his taxable account and used the money to pay off his mortgage.
"You sneeze and the market goes down," he said. "But what do you put it in to make more money? If you start moving everything into nonrisk things, you don't make any money."
Extended periods of subpar returns are particularly damaging to investors in the early years of retirement. They have to sell more shares to produce the same retirement income. If they don't adjust withdrawals, they could run out of money.
"Whoever said your expenses are less when you retire was wrong," said Kenneth Kastor, 72, of Seminole, who retired last year as a appliance repairman. He said he won't give up on stocks entirely, but he is thinking about moving to 50 percent cash.
"I want to stop as much bleeding as I can," he said. "Do I have enough time to wait five, six, seven, eight years and let it work itself back up again?"
T. Rowe Price ran computer models to see what would have happened to someone who retired Jan. 1, 2001, with a portfolio 55 percent in stocks and 45 percent in bonds, and who planned to follow a typical withdrawal strategy — withdrawing 4 percent the first year of retirement and increasing the dollar amount each year by the rate of inflation. At a bear market bottom in 2002, the plan's odds of success would have dropped dramatically. But simply stopping the annual inflation adjustment for a year or two would have restored a high probability of success. The worst possible scenario: switching to 100 percent bonds at the bear market bottom.
"Your first instinct is to protect whatever you've got left, so you sell out of your stocks and stock funds when they're low," said Christine Fahlund, senior financial planner with T. Rowe Price. "But to have a 4 percent withdrawal rate, you've got to have some exposure to the equity market. That's the only way you're going to grow the portfolio."
Clearwater financial planner Ray Ferrara, president of ProVise Management Group, said very few people actually run out of money; they change their lifestyle instead. They cut back on vacations, eating out and visiting the grandchildren.
"Running out of money is often more about perception than about reality," he said. Ferrara says it's important to understand the risks involved in stocks and then to take the least amount of risk needed to support the lifestyle you want.
Working a few additional years also can make a dramatic difference in the viability of your retirement plan. For those still working, Ferrara says, "the three magic words are 'save, save, save.' "
Helen Huntley can be reached at firstname.lastname@example.org or (727) 893-8230.