What do I do if my nest egg gets fried?

John W. Schoen Senior producer • Profile • E-mail

The gyrations in the stock and credit markets are especially harrowing for retirees who are living off the proceeds of their investments. All the turmoil is  prompting some to make choices they may not have thought about when financial markets were calmer.

I’m already retired; my money is with a financial planner. Like everyone else, (I am) taking large hits. I’m thinking about returning to work. Where should I move my money?
— James T., Little Egg Harbor, N.J.

We don’t make specific recommendation about which stock or bonds to buy: There are plenty of people out there who are happy to do so. And it turns out that the question of managing retirement finances — with all the uncertainty in the financial markets — involves taking a broader look at questions that don’t come up much during the period in your life when you’re accumulating your retirement savings.

People who spend their time thinking about these things have begun calling this the “decumulation” process — the opposite of all those years of when you were accumulating of your nest egg. That accumulation process involved more than just how much to save and where to put it. Decisions about where to live, how to educate your kids, what kind of car to  drive, where to vacation all had a big impact on how much you could save toward retirement.

Now that the time has arrived, there is another set of choices, some similar but some very different than the accumulation phase.

You’ve started with one of the biggest: Do you plan to keep working? For many near-retired or newly retired, the decision to keep working is about more than income. A lot of people just aren’t cut out for playing golf or gardening all day long. With other sources of income, you now have a chance to try a lower-paying job doing work you were unable to consider when you had to pay the bills for a growing family.

There are other choices about retirement finances that can have a huge impact.

For starters, should you start drawing Social Security at 62 — at a reduced rate — or wait until you’re the “normal” retirement age and collect a little more? Or should you hold off until you’re 70 and collect the maximum payment?

If you’ve got enough saved up, or an old-fashioned defined-benefit pension, you may be better off waiting. On the other hand, about one-third of retirees have little other income to fall back on, according to the Economic Policy Institute.  (The best way to decide is to run the numbers with a financial planner or a good retirement calculator.)

But there are other choices that can have a big impact on your retirement finances. Do you plan to sell the big house you raised the kids in? For many Americans — even with the recent drop in house prices — that home equity is a big chunk of their accumulated wealth. A smaller house may be easier to manage and cheaper to run and maintain, leaving you more money to invest and spend on other pursuits.

Or maybe you decide to move a part of the country where it’s cheaper to live. If you no longer have to commute to a job in a metro area, you may decide to take advantage of your new freedom to move farther away from the traffic jams and higher costs of living in or near a city.

Health care costs also become an important issue for retirees. How much insurance do you want to buy to fill in for what Medicare doesn’t cover, or to protect your nest egg from the cost of long-term health care?

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