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This chapter is from the book

Improve Your Retirementology IQ

A century and a half ago, Charles Dickens wrote Great Expectations, about a young man named Pip who took the occasion of sudden wealth to eschew his working class roots and move up in London society. Like the mysterious benefactor who eventually bestowed riches upon Pip, many people expect to have their own retirement dreams fulfilled by other mysterious benefactors in the form of pension checks, lottery tickets, and rich uncles—great expectations of travel, leisure, devoting time and money to a charitable cause, winter homes and summer homes, time with friends and family, and possibly leaving a noble amount of money behind for those who are most important. In fact, when asked what is the most practical manner to accumulate $500,000 for retirement, 27% of respondents said winning the lottery or sweepstakes.18 Could it be that the survey was taken among characters in Dickens' novel?

A meltdown has a way of changing expectations—even for a generation high on promise and light on planning.

Take a moment to evaluate what you're thinking in this post-meltdown era. How well did you deal with your fears? Did you lose sleep? Did you develop a nervous tick? Did you watch the markets every day? Did you make any financial moves out of panic? It's likely that a lot of the things you did do in response to the economic downturn you did because you didn't know what else to do. Modifying your expectations doesn't have to mean abandoning your retirement dreams—just rethinking them. Here are two takeaways to consider to get started on rethinking expectations.

Conduct a Personal Retirement Assessment

What do you want? What do you need? What are you willing to do, to sacrifice, to achieve these material things? You have to be willing to think about opportunity costs, like if you'll be happy driving a less flashy car today to drive a golf cart every day in retirement. Or if you're okay raising your family in your present house so that you might have a winter house in retirement. Some people simply can't get past immediate gratification, whereas others look at all the issues and realize that they can put some things off now for the possibility of a secure retirement. Remember, even small decisions can make a big difference in your retirement planning, and retirement is ultimately affected by many monetary decisions throughout your life, like starting to plan ahead as early as possible.

Reevaluate Retirement Expectations

What's your retirement dream? Would you like to retire to a big house overlooking a lake and the mountains where the view is always beautiful and you can decide whether you want to golf, ski, or go sailing every morning when you wake up? Everyone's dream is unique, but reality can get in the way of a dream, even for the wealthiest retiree. What do you really want? And what will it take to get there? If it's a winter house in Arizona or Florida, you have to know approximately how much it will cost. If it's a boat so that you can travel the world, you need to have an idea of how much you'll need. Be realistic. Be honest with yourself. Be as objective as you can be, and leave nothing out when you make your checklist...right down to how many golf balls you'll need because you always hook your driver into the water. Improving your Retirementology IQ often begins by examining your options and feelings before the unthinkable happens. You may feel like the unthinkable has already happened. Keep in mind that, historically, the economy and markets have been cyclical. Learn from today, but don't lose your long-term retirement perspective.

"This time it's different"—perhaps four of the most dangerous words in investing. No matter what the political or economic climate may be like, investing always involves risks. Consider the growth of the S&P 500 Index since 1926 (see Figure 1.1). Like many investments, stocks have experienced some severe declines, as well as dramatic growth—despite wars and meltdowns. What will the next headline be?

Figure 1.1 Is it really different this time?

It really isn't different.

A quick history of events that shaped the political and economic climate in the United States shows us that turmoil is nothing new to the financial markets.


Korean "police" action begins


Excess Profits Tax


Government takes over steel mills


Russia explodes H-bomb


President Eisenhower suffers heart attack


Crisis in Suez




Cuba falls to Castro


Russia downs U-2 plane


Berlin Wall erected


Cuban Missile Crisis


JFK assassinated


Civil rights issue explodes


Vietnam War escalates


Inner city riots


Martin Luther King, Robert Kennedy assassinations


Money tightens —markets fall


Cambodia invaded, Vietnam War spreads


Wage and price freezes


Largest U.S. trade deficit ever


Oil prices skyrocket, energy crisis


Watergate forces Nixon resignation


Clouded economic prospects


Economic recovery stalls


Market slumps


Turmoil in Iran


Oil prices skyrocket


Iranian hostage crisis, inflation


Record-high interest rates


Worst recession in 40 years


Record federal deficits


Money tightens—markets fall


Dow nears 2000


Bull market crashes on October 19th


Persian Gulf crisis


Soviet Union collapses


President Bush signs NAFTA


1st Democrat in White House in 12 years


One of the worst years on record for bonds


Dow breaks 5000


1st Democrat re-elected to White House since FDR


Markets on roller coaster ride


"Y2K" concerns


"Dot.com" uncertainties


September 11 terrorist attacks


Corporate accounting scandals


U.S. invasion of Iraq


Tsunami in Indonesia


Hurricanes Katrina, Rita, and Wilma


Democrats control Congress for first time in 12 years


U.S. enters into a recession


Credit crisis hits Wall Street

(Source: History.com, "History timelines...The History Beat," 2009.)

Mark Twain said, "Climate is what we expect, weather is what we get." When it comes to expectations, the best thing you can do is check them at the door and plan for all kinds of weather in retirement.


Widely regarded as one of the best single gauges of the U.S. equities market, the S&P 500 Index is a market capitalization-weighted index of 500 stocks that are selected by Standard & Poor's to represent a broad array of large companies in leading industries. This chart represents the growth of a hypothetical $1 invested in the S&P 500 from 1926–2008, during which time the Index experienced an average annual return of 9.62%. The S&P 500 is an unmanaged, broad-based index and is not available for direct investment. Past performance is no guarantee of future results.

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