LYNN NEARY, Host:
We turn now from the big economic picture to the personal economic picture. Gail MarksJarvis writes a personal finance and investment blog and column for The Chicago Tribune. She joins us from member station WBEZ in Chicago. Good to have you with us, Gail.
GAIL MARKSJARVIS: Good to be here.
NEARY: Now, understandably, you've been answering a lot of questions on your blog about what to do if you're nearing retirement these days. And to get a little perspective, you went back to the Great Depression. What did you learn?
MARKSJARVIS: Well, I looked at what if someone had put $10,000 into the stock market just before the 1929 crash, what would've happened to that $10,000? And I found that people who were within 10 years of retirement would've been a mess. They would've gone down to about $1,600. And by the time they were about to retire, 10 years later, they would have only $6,000 back. But if they had done what everyone nags everyone to do, you know, have this diversified portfolio with maybe 60 percent invested in stocks and 40 percent bonds, they would've gained back their entire $10,000 and a little more. So they would've had about $10,100.
NEARY: But let me ask you this because is this investment model that you're using to make these calculations even valid anymore? Because, I have to say, at the moment it seems that pretty much everything we've been told about investments - houses, the stock markets, saving for retirement - has turned out to be wrong for those who are nearing retirement - as you just said, very wrong. And it seems to me nobody knows what's going on with the economy. So why should we think that that's what we should be doing?
MARKSJARVIS: You make a wonderful point. And people rely too much on historical averages. It's all going to be different going forward. I think people get sucked in to believing that the historical averages are going to be repeated again. And you can never count on that. What I think you can count on is that the world will go on.
NEARY: All right. But let's face it, for people who are about 10 years out from retirement, it is a bit of a disaster, even according to your own calculations.
NEARY: So what do they do? What do they do?
MARKSJARVIS: If a person is close to retirement, they could've lost maybe 30 percent of the money they saved for retirement. So you have choices now that are not pretty, but they will work. You delay retirement, for one thing. For each year that you delay retirement after age 62, your Social Security goes up about seven or eight percent. If you're worried about the stock market, keep putting as much money as you can into your 401(k) at work, if you can, because you're going to get free matching money from your employer. Take as much as you can get. Also, you get a tax break when you put money into your 401(k).
NEARY: What about college savings accounts? Because a lot of people have been saving for college for their kids for years, and they're going to need that money very soon, some next year.
MARKSJARVIS: There again, a conservative college fund with stocks and bonds in it perhaps is down 30, 40, even 50 percent depending on which one it is. So maybe your child's 16. Remember, you're not going to be paying everything for college the day they start. So maybe you have four, five, six years left for your investments to improve somewhat. If you can try to leave those untouched at first and let them grow, that could be to your advantage. Think about borrowing, having your child take low-interest student loans at six percent. Unfortunately, those loans - what I'm calling federal loans, Stafford loans - they don't cover the full cost of college.
NEARY: I wonder if there's any chance that some of those tuitions are going to come down, because the schools are going to need students who, you know, if their parents can't afford to pay the high tuitions, they won't be applying to some of those higher tuition universities and colleges.
MARKSJARVIS: Well, the truth of the matter is that the colleges are also under pressure now because their investments have been hit hard. So they're not going to be in the cushy position to lower costs or provide additional aid to students.
NEARY: Gail, I'd like to say you reassured me but... Gail MarksJarvis writes a personal finance and investment blog and column for The Chicago Tribune. Good talking with you, Gail.
MARKSJARVIS: Good talking to you.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.