The Ostrich Generation

The Wall Street Journal recently published a terrific article that I thought I should pass along to you in case you missed it: “Don’t Join the Ostrich Generation“. It highlights some disturbing financial trends, and then discusses ways for you to protect yourself.

First, some troubling facts:

1. Many Americans are avoiding planning for the future. They’re “responding to the market and economic malaise by putting their heads in the proverbial sand.” Half of all workers 45 and older have no idea how much money they’ll need in later years. (The odds are they aren’t saving enough even though current market conditions suggest they’ll need more money than they once might have thought.)
2. “Affluent investors,” those with at least $250,000 in investable assets, are more concerned about the future than they used to be. Two-thirds worry that their retirement stash won’t last as long as they will. The number was 57 percent only this past December.
3. People with money to invest are avoiding risk-any risk. They’re fleeing to cash and staying there. They’re afraid of anything that carries any downside at all.

The article doesn’t just ring an alarm bell; it offers suggestions. These two recommendations are especially relevant in the current climate.

1. If you’re married, talk honestly with your spouse about when you’ll retire and where you’ll live. These are important questions whether you’re married or not. If you know where you’ll live when you retire and how much it’s likely to cost, you can figure out how long you’ll need to work to put aside enough money.
2. Don’t be afraid of risk that is appropriate to your situation. This is key. A significant portion of your retirement assets should be earning something for you over time. Keeping even a sizable portfolio in cash may create more risk over time due to the wealth-eroding effects of inflation.