Many individuals who are saving for retirement in their 401K plans have been disappointed by the rate of return they have received. These plans have mostly been self directed by the employee. Other than choosing the plan and funds to be included, most employers do not offer any assistance.
Since 2000 to the end of 2007, the S&P 500 index has returned an annual average of only 2.45%. This does not include the year to date loses investors have experienced in 2008. Inflation during this period has averaged 2.7% per year. (Source: inflationdata.com)
This has left many, especially the baby boomers, scratching their head –wondering if their retirement dreams will not come true.
Investors need to become more educated about the history of the markets. We are currently in a secular bear market. The last one lasted 17 years. With two back to back economic bubbles popping since 2000, this one may last longer.
This will have a major impact on the retirement of the baby boomer generation. Their retirement and financial plans usually use an assumption of an 8% average annual rate of return. They now need to play catch up due to the performance of the market since 2000.
If the stock markets continue to provide a rate of return less than expected. Many baby boomers will have to figure out an alternative means to retirement. Understanding what past bear market cycles have looked like and learning how to investing in those cycles will provide baby boomers a shot at their retirment dream.
John Rothe is President and Chief Investment Officer of the Rothe Financial Group in McLean, VA
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