Ron Melancon lost his job a year ago in February, dipped into his 401(k) savings plan to pay his bills -- and put saving for retirement on hold.
The Henrico County resident is 44, married with two children -- and at that stage in life where he needs to get serious about retirement. Yet, he can't even think about it.
"I'm focusing on paying bills," said Melancon, who worked for 14 years at Hecht's, then Macy's at Regency Square Mall in Henrico County.
Melancon, who was out of work for six months, paid income taxes and a penalty for early withdrawal on his 401(k) money.
He begrudges the penalty, claiming he is not relying on government assistance. "I'm trying to be financially responsible," he said.
Melancon isn't alone in pushing back retirement plans.
More people are rethinking retirement, as the stock market struggles, pensions disappear and the future of Social Security remains questionable.
"These are troubling times," said Matt Thornhill, founder and president of The Boomer Project, a mar keting and research company in Richmond.
The volatile stock market may be a wake-up call to baby boomers, people born between 1946 and 1964, who have been good at spending but not saving, Thornhill said.
They can't rely on their deferred retirement plans to bail them out any time soon, he said.
"The stock market hits a record high 100 percent of the time, but it may take five, seven or 10 years before we get it back to where it was two years ago."
In 10 years, if the market does take that long to recover, the oldest boomers will be 72, well past the traditional retirement age of 65.
Besides savings and investments, the other major elements of retirement funds are pensions and Social Security.
What's a person to do who expected to retire in five or 10 years?
We asked Thornhill and local financial planning experts.
Flight to safety
One of the safest investments is an annuity, which guarantees income for the rest of one's life, Thornhill said. Annuities are contracts sold by life insurance companies for fixed or variable payments at retirement. All proceeds remain in the annuity and accumulate tax deferred.
The investments were unpopular during the booming stock market, because they didn't offer the opportunity for much growth. Plus, they can be expensive, since they come with fees and commissions.
"They may not pay the highest interest, but safety comes with a price," Thornhill said.
Consider, for example, if you put $100,000 into a mutual fund a year ago, most likely it would be worth $50,000 today. That same $100,000 in an annuity would still be $100,000.
Annuities are on their way back, said Michelle Oliver, president of The Oliver Financial Group in Henrico County. "They are becoming popular."
Investment tip: If you want $25,000 a year in lifetime income payments, you need to invest $325,000 in an annuity -- or 13 times the annual income, according to Bill Losey, author and financial planning expert on CNBC's "On the Money."
Paying off the house
The No. 1 issue in retirement is cash flow, said James Cox, managing partner at Harris Financial Group in Colonial Heights.
"I have yet to find a retiree who has regretted having no mortgage," he said.
"The principle reason why you don't have a mortgage is peace of mind," Cox said. "The point of retirement is not to have to work."
One basic rule of retirement is that people need to live on 70 to 80 percent of their pre-retirement income. But if the mortgage is removed from the equation, the need for income is less and cash flow is cleaner, Cox said.
In general, people should plan to pay off their mortgage loans when they're in their 50s, he said.
Some financial planners have argued that equity in a house is a dead asset, so it made more sense to take the money out of the house and invest it.
"Ask that same question today," Cox said. "If all your money was invested, you may not lose just your investments but your house too."
While some people keep their mortgages to write off the interest on their income taxes, taxpayers with older loans only get a marginal benefit, Cox said.
The further along borrowers are in paying off their mortgages, the less interest they pay and the more likely they are to take the standard deduction.
Some financial planners tout reverse mortgages, which are government-backed loans, as a way to pump up monthly income for people with equity in their homes but little income.
"It's a life raft for seniors," said Robert Shahda, Richmond branch manager of Seniors First, reverse mortgage specialists.
A reverse mortgage is a line of credit against the equity in one's house. It can be paid in a lump sum or in monthly amounts. If more is owed than the house is worth when the borrower dies, insurance covers the difference.
"They are government-insured, there is no risk of foreclosure, no income requirements and no credit requirements," Shahda said.
To be eligible, people must be 62 or older and they need at least 50 percent equity in their home. The older the homeowners, the more money they can borrow.
A reverse mortgage may be a solution for people who run out of money, Cox said. But borrowers should be careful, he said.
"I get queasy when someone mentions a reverse mortgage," Cox said.
Another solution may be to sell the big family house, buy a small house and use the money from the sale as income, he said.
Investment tip: Pay off the house, put the extra money toward retirement savings.
Pensions
Company-paid pension plans have become rarer over the past two decades, replaced with deferred compensation plans as the main source for retirement funds.
Deferred plans, such as 401(k)s, shift responsibility from the company to the individual.
But the Richmond area is still rich with pensions through state employment and companies such as Verizon, Dominion Resources, Honeywell and Altria. All still offer pensions to their employees.
The Pension Benefit Guarantee Corp., a federal corporation, protects the pensions of nearly 44 million American workers and retirees in more than 29,000 employer-benefit pension plans.
"To the extent the PBGC is solvent, the person has a backstop," Cox said.
But it could be just that, a backstop and not the assurance that a company may have provided.
A classic example is Bethlehem Steel Corp., which filed for bankruptcy protection in 2001. PBGC in 2002 took over the plan, which was underfunded by billions of dollars, and assumed responsibility for paying pension benefits to 95,000 workers and retirees.
PBGC changed the terms of the deal, leaving some employees without the promised pension and all without health-care coverage. It also cut benefits.
"Every participant should review the summary plan descriptions of their plans," Cox said. "It will tell you precisely what portion of your benefits is guaranteed."
Some pension plans allow a cash payment equal to the value of a monthly annuity or a lump sum distribution.
"I would rather have my money invested in a fixed annuity or at several banks," Cox said. The Federal Deposit Insurance Corp. insures deposits up to $250,000 for a single account owner.
Investment tip: Consider a lump sum payment if you are concerned about the long-term viability of the pension plan.
Investments
Your 401(k) plan is in the tank. Whose isn't?
Still, you can protect yourself from unnecessary risk, investment advisers say.
The most common mistake people make is to concentrate their assets in their employers' stock, Cox said.
Most plans allow contributors to diversify their investments. Reduce risk by using the investment options offered in the plans, he said. Again, don't concentrate in one asset class.
Invest in value and growth companies, small to large companies, and domestic and international companies. Growth stocks have the potential to increase earnings at a faster than average rate. Value stocks are priced low relative to earnings potential or assets.
Continue to contribute, Cox said. "People who stop and start miss all the benefit when the market goes up. Keep contributing the maximum amount."
It's a good time to buy cheap and be in a position to benefit when the stock market recovers.
"Investors stand to make a lot of money over the next three to five years," said J. Saunders "Sandy" Wiggins, principal at The Actuarial Consulting Group, a retirement and investment consulting firm in Midlothian.
It's important to have an investment plan and stick with it, even during these volatile times, Wiggins said.
The closer a person is to retirement, the more conservative they should be, although even that approach hasn't worked in this market.
People who couldn't stomach the market and took their money out a few months ago will miss the rebound, he said.
"If emotions are involved, people will be inclined to sell when they should be buying," Wiggins said.
"The most important thing people can do is to be very careful about how they let their emotions influence their investment decisions. A wrong decision can cost thousands of dollars 10 years down the road."
Those who sold out might want to get back in, Wiggins said. "When the stock market moves, it usually moves big."
Oliver said everyone's risk tolerance is different. "Some clients are still putting money into mutual funds, because they know it's a great time to purchase."
But many older clients have moved out of the market and into bonds, money market accounts and more cash positions, she said.
"The last thing you want to do is put a client into something they can not tolerate," she said. "That would make for an angry client."
Investment tip: Subtract your current age from 110. If you are 65, allocate 45 percent of your portfolio to equity investments and 55 percent to fixed-income investments. More conservative investors might want to subtract their age from 100.
Social Security
The typical Social Security payment equals about one-third of income needs for most retirees.
The good news is Virginia does not tax the benefit.
But how much longer they will be around is anyone's guess.
"I can't speak to the solvency of the benefit," Cox said. "Who knows how the laws will be changed?"
What is probable is Social Security taxes paid by current workers will rise and benefits will fall.
"Baby boomers probably will not endure the pain of lower benefits," he said.
Consider, for example, that 60 percent of boomers have individual retirement accounts. When the oldest boomers turn 70½ in 2016, they will start to take money out of their IRAs and that money will be taxed.
"The tax revenues from future required distributions are pretty impressive," Cox said. The money could help fund Social Security and keep it solvent.
"Baby boomer funds represent the biggest potential tax revenues the world has seen. All that money in IRAs and 401(k) plans has to start pouring out."
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