Pandemic. War in Ukraine. High inflation. Yikes.
The stock market dislikes uncertainty. When Google searches for “COVID” increase, for example, the S&P 500 stock market index tends to lose value.
These days, there’s plenty of uncertainty. It’s understandable if retirement investors are feeling skittish and anxious. But market peaks and dips — and the sugar highs and pit-in-the stomach lows — have happened before, and they’ll happen again.
Instead of letting anxiety steer, arm yourself now with these tried-and-true tips for staying calm and managing risk.
1. Know your comfort level
Pay attention to your stress level as you consider any investing options. Listen to yourself. Choose options that let your money grow while you feel confident and safe without courting more risk than is tolerable or wise.
Money Talks News founder Stacy Johnson, in “7 Ways to Slay Your Fear of the Stock Market,” advises against:
- Investing money you think you’ll need soon
- Investing more than makes you comfortable
- Putting money in speculative stocks — they’re more like gambling than investing
2. Spend less than you earn
If the word “sensible” sounds outdated to you, think again. It embodies solid wisdom for this unsteady time — and for any time.
It’s sensible to spend less than you make, then save or invest the rest. No matter how much you do or do not earn, this is the key to financial security.
Not that it’s always easy or doable. But aim there and, eventually, get there. This way, when problems arise, you’re not on a financial edge, easily tipped into crisis.
3. Use a budget
It’s hard to save money if you don’t know what you’re spending.
A budget helps calm anxiety and gives a much-needed feeling of control. That’s because it helps you anticipate and plan for what’s coming, and it dashes cold water on dangerous magical money thinking.
Money Talks News partner YNAB (You Need A Budget) is an app that offers an easy way to track your spending and build your savings.
4. Approach marriage with eyes open
At its best, marriage can pay big dividends, financially speaking. Couples can pool resources, balance each other’s financial strengths and weaknesses, reduce the cost of overhead, and support each other to advance in the workplace — to name just a few benefits.
Divorce can undo all that and worse. It’s particularly devastating to the finances of people in middle age.
The divorce itself costs on, average, $11,300, a Nolo survey found. But that’s just the start.
“If you get divorced after age 50, expect your wealth to drop by about 50%,” writes Bloomberg, citing an analysis of a survey of 20,000 Americans who were born before 1960. Among that age group, divorce reduces a woman’s standard of living (income adjusted for household size) by 45% and a man’s by 21%, Bloomberg says.
Enter a new union with eyes wide open about a partner’s financial life, especially spending habits, debt and use of credit. Communicating, financial planning and counseling can strengthen your union to avoid financial stress, especially from problems handling money.
If you are thinking of splitting up, here’s how to keep down the cost of divorce.
5. Have a plan and follow it
Your chances of weathering a market downturn successfully will be vastly improved by having or making a plan and sticking with it. Money Talks News founder Stacy Johnson explains how to think ahead so you’ll be ready in “Take These 5 Lessons From the 1987 Stock Market Crash.”
Finding it difficult to create or stick to a plan? Stop by Money Talks News’ Solutions Center and look for the perfect financial adviser.
6. Don’t leave money on the table
Are you lucky enough to have a retirement plan with contributions matched by your employer? If so, invest enough from your paycheck to claim all of the employer’s matching money due to you.
Ignoring this free money is a bonehead mistake made by about 1 in 3 workers. Sometimes it can’t be helped, such as when money is so tight that you simply cannot make your full contribution.
In that case, pare back contributions temporarily — from 3% to 2%, for instance. Or take a brief break. But, get back on track as quickly as possible with at least the minimum investment needed to get all of your free money.
7. Keep a sharp eye on fees
Expense ratios can put a damper on a portfolio’s growth, costing you as much as $400,000 — or even more — over a lifetime.
Check the fees you’re paying by looking at a fund’s disclosure statement, where fees are listed as a percentage. Over time, charged repeatedly, even small percentages add up to real money drained from investments.
“Are You Paying Too Much in Investment Fees? Here’s One Way to Tell” explains what to look for.
However you invest, there often is a lower-cost way to do it. Index funds are a great choice for those seeking low-cost investments.
8. Take advantage of pandemic savings
When you review your budget, look for pandemic savings you may have captured from spending less on going out, eating in restaurants, commuting to work or dressing for work in an office.
And there might be pandemic savings you may have missed. Can you make these cost reductions permanent features of your budget and direct the money to savings?
9. Be vigilant for scams
It’s a sad fact that when times are tough, there are people who want to make it tougher. Take precautions to not be snared by scams, fraud and get-rich-quick “opportunities.”
Scammers often specialize in robbing older people, but these crimes can and do happen to people of all ages — cryptocurrency scams, for instance, usually target younger people. But seniors are a particularly tasty target in part because many of them have a lifetime of savings amassed.
How to inoculate yourself? If you are offered an opportunity that sounds too good to be true, talk it over with trusted family members, friends or financial advisers. Check out the Justice Department’s Financial Fraud Enforcement Task Force resources for ways to report and investigate possible financial fraud.
10. Weigh reverse mortgage pros and cons
If you’re at least age 62, you’re eligible for a reverse mortgage. But that doesn’t mean you should.
Money Talks News founder Stacy Johnson has noted that reverse mortgages are not right for everyone. What exactly is a reverse mortgage? Stacy explains:
“A reverse mortgage is simply a mortgage: You’re borrowing money against your house. What makes a reverse mortgage different is that, instead of paying every month on your mortgage, you’re getting money every month. You could also be taking money out as a lump sum, or using the mortgage to establish a line of credit.
In any case, a reverse mortgage is like any mortgage: You’re borrowing against your house.”
If you are out of money and you’ve eliminated other options, a reverse mortgage can be helpful. But it is an expensive way to borrow money. Your mortgage loan grows bigger, not smaller as a mortgage balance typically does over time. There are other potential fees and interest costs involved, too.
Before signing up for a reverse mortgage, explore the many good alternatives. And understand this product well before you buy. The Consumer Financial Protection Bureau explains the costs of a reverse mortgage in detail.
11. Evaluate when to claim Social Security
If the current financial turmoil and pandemic have affected your livelihood and you are at least 62 years old, you may wonder whether it’s worthwhile to quit work and start collecting Social Security while your investments recover.
You probably already know that there are powerful reasons for waiting. In fact, unless you expect to have a shorter than normal lifespan, there are real benefits to delaying claiming Social Security until age 70. Retirement expert Russell Settle discusses this issue in “Does It Really Matter When I Claim Social Security Benefits?”
But, for some folks, collecting those benefits as soon as possible can be the right answer. The question is: Is it the right move for you?
Here’s how to weigh the decision:
- Collect information: How much money will you need in retirement and where will you get it?
- Understand your current spending in detail — not just monthly costs but also expenses that arise occasionally or annually. This is the basis for knowing how much you’ll need in retirement.
- Figure out your sources of retirement income, including Social Security. You can find tips for doing this in “7 Things You Should Do Before Claiming Social Security.”
- Plan for inflation, which can bite into your purchasing power. Pencil in medical expenses in old age, too.
If your costs will exceed your retirement income, something’s got to give. If you can’t make up the shortfall easily, you may need to wait to take Social Security.
Here’s why: Although the average benefit paid in 2021 was $1,555 per month, waiting to claim after age 66 (full retirement age) grows your benefits by 8% each year, according to the Social Security Administration.
Need help deciding when to claim your benefit? Money Talks News partner Social Security Choices offers a low-cost, personalized analysis of various claiming strategies.
12. Hold off on retiring
If you have a job or can get one, try to hang on at work a bit longer.
If you’re in the labor force after age 65, you won’t be alone. In 2018, Americans told Gallup pollsters that they expected, on average, to retire at 66. That’s six years later than Americans’ pre-retirement expectations were in 1995.
The money you make now not only pays bills, it also helps you leave retirement savings untouched. Postponing retirement gives you some breathing room and flexibility to:
- Decide how you’ll respond to this year’s changing events.
- Gauge how persistent the downturn may be.
- Assess what the damage, if any, has been to your retirement savings.
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