Jean Setzfand
Director Of Financial Security
AARP

Jean C. Setzfand leads the AARP's educational and outreach efforts aimed at "financial peace of mind" in retirement. She joined AARP in 2002, after working as a strategic management consultant for financial services organizations. Setzfand recently spoke to Judith Schoolman.

Q: Given the current market conditions, what should retirees be doing to maximize their savings?
A: People need to think where they are in terms of their retirement to form a long-term plan. If you're deep in retirement, you should have already pulled money out [of riskier investments] and put it in capital-preservation instruments. But if there's been a big hit, you may have to produce income from some other place. Income could come from a fixed annuity. Another instrument that is getting a lot of press, but should only be used as a last resort, is the reverse mortgage. They're very expensive and home equity isn't the greatest in this market.

Q:What about these millions of baby boomers who will retire in the next decade? What can they do?
A: The boomers whose retirement is still five years off have the biggest decisions to make. Based on the market's impact on their nest eggs, they have to decide the timing of when to begin retirement. And, what would retirement look like? Would you work part time or have other money-making opportunities? Regarding Social Security, if we see a continued downturn in investment value, you can delay when you start taking Social Security to boost income. But since most retirement benefits are moving away from pensions to 401(k)s and the like, there are fewer and fewer lifetime streams of income. Social Security is one of the only [lifetime streams] and the longer you wait, maybe the better off you can be.

Q: What about investing your 401(k)?
A: It's a great opportunity to buy low and sell high, but emotionally, it hurts to enter the market now. The markets do eventually recover, but that's sometimes hard to see. We have to remember that retirement isn't the end game. Women, if they're alive at 65, are likely to live another 20 years. Maybe there's less tolerance for market fluctuation at that age, but you can't think of it as a five-year commitment. You have to think longer.

Q: You've said that the current crop of baby boomer retirees is the first group to fund retirement from a finite pool, like savings, instead of a guaranteed-for-life pool like pensions. What should retirees and advisors do?
A: The problem for the near-retiree is that he hasn't fully wrapped himself around the problem. There are a lot of hard decisions that have to occur and a lot of products available that will address retirees' needs for steady streams of income for retirement. The problem is, retirees just don't have enough money in 401(k)s or other savings. For example, given a 4% drawdown rate—which is the rule of thumb—you can take out of your nest egg and never erode principal. But 4% of $10,000 is very different from 4% of $100,000. There just isn't enough common know-how to produce income from a 401(k).

Q: What should near and current retirees be aware of going forward?
A: There's a lot of talk about replacement rates. You need to replace 70% to 80% of your income (at retirement) to maintain your same standard of living. So at age 60, a retiree might need about $225,000 on top of Social Security. But the average amount saved is $40,000 of investable assets. So, we're looking at problems of health security and financial security. For a boomer, the best advice is simple. They need to ask: 'How can I achieve my goal?' And they need to have a plan laid out. If someone guarantees a rate of return, 20% say, be skeptical. Some financial seminars, pitched sales, are aimed at boomers and retirees and can be very tempting and deceiving. A word of caution, check out a product to see if it's registered with the SEC and check out the salesperson with FINRA. In all, I don't think we've hit the worst of times. These (current) retirees still have pensions. But future retirees will depend on 401(k)s and Social Security, and that will be when we'll see if the system is working or not.