Retirement Confidence is Growing: Practical Strategies for Peace of Mind
BPT — There are a lot of cautionary tales in the news these days about how unprepared people are for retirement, painting a rather bleak picture of widespread financial insecurity. But the reality is quite different.
We recently surveyed more than 1,000 Americans and found they actually feel pretty optimistic about their retirement plans. Six in 10 people say they are not concerned about having enough money to live off in retirement, and most also feel financially prepared. The numbers are even better for people who are already retired or semi-retired. Over 90% say they’ve saved enough to live comfortably and are confident about their overall financial situation.
None of this means people aren’t worried at all. What we found is that most retirement anxiety centers around things beyond people’s control, like inflation, market fluctuations, rising health care costs, and potential changes in government policy. If you fall into that category, here are five practical strategies to help ease those concerns and provide greater peace of mind.
1. Make Sure Your Portfolio Reflects Your Current Risk Capacity
While “risk tolerance” refers to the amount of market volatility you can stomach, “risk capacity” is about determining how much money you’ll definitely need over the next one to four years. Think of it as the financial buffer required to cover your short-term expenses without being affected by market and economic swings.
Cash Cushion Suggestions:
- Next Year’s Money: High-yield checking or savings accounts, money market funds, or CDs with maturities under 12 months.
- Two-to-Four-Year Needs: High-quality short-term bonds, bond funds, or CDs with maturities between two to four years.
2. Stay Invested and Diversified
A diversified portfolio could potentially help navigate the ups and downs of the economy. Spreading your investments across various asset classes—like stocks, bonds, and real estate—may create a cushion against market volatility. Stocks, in particular, have historically outpaced inflation over the long term, helping to preserve your purchasing power.
Staying invested through market cycles, rather than reacting to short-term fluctuations, can be one of the best strategies for maintaining your wealth in retirement.
3. Revisit Your Emergency Fund
An emergency fund is crucial at any stage of life but becomes especially vital in retirement when income is often more fixed.
Goal: Cover one year’s worth of expenses (minus guaranteed income like Social Security or pensions).
Where to Keep It: High-yield checking or money market accounts for easy access without penalties or delays.
4. Plan for Long-Term Care Costs
Health care, especially long-term care, is a top concern for retirees. Addressing these concerns early can reduce stress later.
Key Questions:
- Who will provide care if needed?
- Where do you want care to be provided?
- How will you pay for it?
Consider consulting with a financial planner to explore options like long-term care insurance or other strategies to protect your assets.
5. Keep Perspective on Changes in Washington
Political shifts can cause anxiety about taxes, Medicare, Social Security, and the markets. However, remember:
- Markets are often driven by corporate earnings, economic data, and central bank policies, not political changes.
- Legislative processes are slow, and policy changes are often diluted versions of initial proposals.
Stick to your long-term investing plan and avoid emotional decisions based on headlines.
Take Steps to Regain Control
Retirement is a major life change, and even if you’re confident about your savings, it’s normal to feel anxious about factors outside your control. While you can’t control inflation, markets, health care costs, or the economy, practical strategies like these can help provide peace of mind and a sense of control.
Disclosures:
The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary, consult with a qualified tax advisor, CPA, financial planner, or investment manager.
Investing involves risk, including loss of principal. Diversification strategies do not ensure a profit and do not protect against losses in declining markets.
— Rob Williams
(Managing Director, Retirement Income and Wealth Management, Swab Center for Financial Research)
