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Ratcheting down risk by adding bonds to a portfolio--and saving more--is a great start, says Dean Knepper, a planner at Lifetime Financial Planning in Leesburg, Va. "Taking additional risk in an attempt to catch up," he says, "will not work if the individual becomes uncomfortable when the market is down and sells the investment." Knepper asks his clients to fill out a daily spending log. "They are often shocked at how that morning espresso and evening iced latte add up," he says, advising that if you cut $10 a day from spending, you can accumulate enough each year to make the maximum $3,500 annual contribution to an over-50 IRA.
For those who lost big in the bear market, it's time to rethink everything, says Ginger Applegarth, president of Applegarth Advisory Group in Winchester, Mass. "If you are retired, it might mean you have to sell the vacation home or go back to work or try to start a business." There are lots of services healthy retirees can offer, such as helping those who aren't so healthy by doing chores or working as a handyman or gardener. "Baby-boomer children would be happy to pay someone to shop for their parents or check on them regularly," she notes. Other options are working in day-care centers and substituting in schools. For boomers concerned that Mom and Dad's elder care is a looming time bomb, she says, this is a perfect time to have a heart-to-heart talk with them about their finances. "Just say, 'We've gotten whacked, and we're wondering how you are doing,'" she suggests.
Karen Petersen, a financial planner in Ames, Iowa, for American Express Financial Advisors, is counseling clients to build a portfolio that provides near-certain income through cash and fixed income that will not fluctuate with the stock market for the first three years of retirement. Beyond that, she helps them invest carefully in stocks so they can earn a long-term return that beats inflation. "I want to rebalance people's portfolios, but I don't want them to leave the stock market entirely," she says. The market may not rebound quickly, but it's sure to do well over the long haul. Even for people in their early 70s, today's advances in medicine and longevity mean that the long haul still applies.
--With reporting by Melissa August/Washington, Barbara Burgower-Hordern/Houston, Daren Fonda and Jyoti Thottam/New York, Laura Koss-Feder/Oceanside, Betsy Rubiner/Des Moines, Mary Sutter/Miami and Leslie Whitaker/Chicago