They did everything right in planning for retirement, because they wanted to enjoy the same lifestyle that they enjoyed in their working years.
Then things fell apart. Whether it was a scam, bad investments, catastrophic illness or a downturn in the stock market, some people have been forced to temper their retirement expectations and lifestyles — big time.
That can be especially difficult for those already retired. Many times, they don't have a way to make up lost income and assets.
The first thing you need to do is some serious planning, says David Schneider, founder of Schneider Wealth Strategies in New York City. Start by looking at your expenses, so you can figure out what the change means, he says.
"Is it a big event that necessities a radical change in strategy, or is it something that a small change in strategy might take care of?"
RETIREMENT: Planning for your future
Next is to check options for income. "In the situations where they can continue to work, that's going to help them with cash flow," says Scott Dougan, principal of Global Plains Advisory Group in Prairie Village, Kan. "And it's going to make the money that they do have left last that much longer."
Schneider reserves his most radical solution for those who have literally lost everything.
"When someone loses all their money, they have to consider even leaving the country and going where the cost of living is much lower. It may not be for some people. It is a radical solution. A less radical is solution is to move to a lower-cost part of the country."
It was a big change for Kurt Sipolski, 67, of Palm Desert, Calif. Sipolski, who has polio, thought he was set for retirement.
"I had a simple life," he says. "I was living on about $2,100 a month or so. Polio kids are raised different from other kids. You know life is hard. You have to look out for yourself."
But even that simple life has disappeared. He says he invested $150,000 in a real estate development deal. After several years of receiving income that he was depending on for his retirement, the project went belly up. He and hundreds of others had invested with developer Dan Harkey and the Point Center project in Orange County. They lost millions.
Investors, saying they had been victims of a Ponzi scheme, charged elder abuse, breach of fiduciary obligations, fraud and unfair business practices.
Sipolski says with no savings, he had to cash in his pension at Qantas Airlines and his bank CDs. He still has his home, but he now lives on $654 a month in Social Security.
"You cut out all the luxuries like dinners out and plays you might have gone to, and travel," he says. "Basically, you are home bound. My car is an 11-year-old Saturn. You can't upgrade anything. Chores I would have hired people to do, like gardening, I have to do myself. The swimming pool I need for exercise. Taking care of the pool is on my back. Most of the time, I have to use a cane or crutches."
Raymond Bille and his wife invested $500,000 in the same project. He says the losses forced them to sell their $1 million home for "substantially less" than it was worth. They were also plaintiffs in the civil suit against Harkey.
Both Bille and his wife have pensions and they also have Social Security, so are not as bad off as Sipolski. Still, "We're certainly not in good shape after losing $500,000," he says. "We can live, but live meagerly."
Investors won a judgment of $12 million. Attorney David Grant of the firm Grant, Genovese & Baratta in Irvine, Calif, says collection attempts are ongoing, and though no criminal charges were ever filed, government investigations continue.
"We have a group of collection attorneys working on that," Grant says. "It was a significant award, and it was one really long trial."
Still, it's been years for Sipolski and Bille, and they're still unsure when (or if) they'll collect. "It takes years, and it's very expensive," Sipolski says.
Then there were the thousands who had invested with Bernard Madoff. Court-appointed trustees estimate that investors lost $18 billion.
New York attorney Helen Davis Chaitman, 72, has represented Madoff victims, but she was also a victim herself. While she won't say how much she lost, she says it was "a substantial loss."
"Before the loss, I was planning to retire," she says. "I don't think I'm ever going to be able to retire."
She says some of her clients were hurt much more.
"I'm still working," she says. "A lot of my clients were in their 80s and 90s. They had no means of going back to work. I have clients who had a business through three generations, and that business was sold and invested in Madoff. These were people who had very privileged lifestyles — domestic help, more than one home, more than one car, country club memberships.
"Once they lost the money, all that stopped. They had to get rid of houses. Because of the economy, they couldn't get a better mortgage. They can't afford country clubs. Many moved in with their children. They had to pull back to a lifestyle that in many cases they had never known."
Sipolski says his next step is to begin selling assets. "I have nice things that I acquired from overseas travel," he says. "That's all for sale."
Financial planners say they have seen all kinds of cases. Some were able to recover, some weren't.
• Joe Heider, regional managing principal for Rehmann Financial in Westlake, Ohio, says he once warned a retired client that he was assuming too much risk, being 100% invested in stocks and IPOs. He didn't listen.
"He fired us and went to another adviser, and within 18 months, his portfolio had fallen 60%. He had to sell his home. He had to collapse trusts he had set up for his grandchildren. It was a disaster. It was unfortunate. He didn't recover. He had to drastically change his lifestyle."
• Dan Cuprill, president of Matson & Cuprill in Cincinnati, saw some clients wiped out when the tech bubble burst in the late 1990s. One client was down 40% when he came in.
"I told him if you invest prudently from this point on, here's income you're likely to get," Cuprill says. "It pushed back his retirement, but it was salvageable. His portfolio is today worth more. It was done in a steady, more consistent manner."
• Schneider has a client who was the major breadwinner and was planning to work well into his 60s, but was laid off at 58. The couple had assets — the New York City condo they live in and a vacation home were both mortgage free — but had nowhere near what they needed in retirement accounts. In addition, they still had a child in high school.
His advice: "Realistically, given the fact that you are retiring way younger than you expected, consider moving to another city. They are open to that."
His long-term plan for the couple: Stay in the New York condo until their child graduates high school in a year, then sell the condo and live in the vacation home for two years. Then sell that and move to a less costly city.
• Dougan had a client who had been told he and his wife needed $1.2 million to retire. A career employee at Sears, he invested his entire 401(k) (and his wife's) in Sears stock. The stock took off, and they were near their goal when the market crashed in 2008, and they lost $500,000. They stuck with it and continued to bet everything on Sears stock, and they recovered nearly everything they lost. But when Sears stock dropped drastically again in 2012, they lost $600,000.
But the story had a happy ending. Turns out, that original retirement estimate was greatly exaggerated.
"They came to me, and we found out after we did a budget and took inventory, that even though they lost $600,000, they have enough money today to retire," he says. "They are both retiring in September of this year."