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How will credit downgrade affect retirements?

Arthur Stein, a certified financial planner with SPC Financial, joined the Federal Drive to discuss how the recent downgrade of the government\'s credit rating ...

Federal News Network Staff

August 12, 2011 9:54 am

2 min read

wfedstaff | June 4, 2015 9:52 am

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By Jack Moore
Federal News Radio

In the past six months, the federal government has narrowly dodged a government shutdown, barely missed a default deadline and is currently went through a credit rating downgrade.

Many federal workers believe it’s no longer a question of if — but when — the ‘other shoe’ will to drop.

Arthur Stein, a certified financial planner with SPC Financial in Rockville, Md., joined the Federal Drive to discuss how the recent downgrade to the government’s credit rating by agency Standard and Poor’s could affect retirement accounts.

“I think the current fall in the stock markets is not just a result of the downgrade of U.S. debt,” Stein said. “It’s probably even more a reaction to weakness in the U.S. economy and the European economy … and the failure of political institutions to solve problems.”

The wildly uneven recent stock trading affects federal workers with investments in the market, but Stein said because there are both short- and longterm effects, it impacts feds differently, based on where they are in their career.

“We get very different feelings if we look short term or long term,” he said. Clearly, for people who are younger, have a lot of years until retirement, or a lot of years until they would need money from their investment accounts, you know the fall in the stock market might be seen as an opportunity to buy stocks when they’re cheap and hold them longterm.”

Still, even those federal employees nearing the end of their careers, or those already retired have a “huge advantage” over other workers because of their pension — an annuity that allows for cost-of-living adjustments..

With stocks plummeting one day and rocketing back up the next, Stein suggested now may be the time to hold and keep for a while.”

“People have to decide what their asset allocation is going to be,” Stein said, using the term for describing how much employees invest in each of the various stock funds. Beyond that, his advice is simpler still: “Don’t panic.”

“I don’t think that what has recently happened is automatically a reason to change the allocation that you have or the investments that you have,” he added.

He said some federal employees — particularly younger feds — left the stock market during the last long downturn — but then never returned when the market began to make gains again.

For example, from April 2009 through July 2011 the S&P 500 gained about 70 percent. “What I find is that people who pull their money out of stocks when the market does bad, don’t go back in. And then the market bottoms and goes back up, historically, and they don’t end up participating in the gains. They participate in the loss and not the gain.”