What’s Really Scaring Us This Halloween

What are you afraid of this Halloween? Forget ghosts and goblins. According to a report released last year by Bank of America’s Merrill Edge, there’s a 55% chance you fear not having enough money in retirement (versus 37% for losing your job and 25% for gaining weight).

Our own recently released retirement research report confirms that this is a legitimate fear as only 19% of employees who took a financial wellness assessment last year reported being on track for retirement. The unprepared fall into three categories: the unknowns, the underfunded, and the under-confident. Let’s take a look at each of their fears and what they can do about them:

The Unknowns

The Unknowns are those who don’t know whether they’re on track to have enough money in retirement or not. They’re the largest segment of the workforce. Their biggest problem may either be being too afraid to have their worst fears about retirement confirmed or being too complacent and not being afraid enough.

If you’re in this category, the most important step to take is to run a retirement calculation. Just be sure to be on the safe side with some of your numbers. Unless you’re getting close to collecting Social Security, consider reducing your projected Social Security benefits by about 25% to account for the projected funding shortfall. You might also want to assume a life expectancy of at least 90 and investment returns of about 5% if you’re conservative (about 40% in stocks), 6% if you’re moderate (about 60% in stocks), and 7% if you’re aggressive (about 80% in stocks).

After running the numbers, you may be pleasantly surprised to find that you actually are on track for retirement. In that case, keep doing what you’re doing and re-run the calculator at least once a year to make sure you’re still on track. Otherwise, you’ll fall into the next group…

The Underfunded

This is the roughly 20% of the workforce that knows they’re not on track for retirement. If this is you, you may need to make some changes to get on track. The sooner you start, the easier it will be.

72% of those under 30 are in this group. If you have a long time until retirement, you may be surprised to see how saving just a small amount more can make a significant difference in your retirement projections. If you can’t afford to save much more now, try slowly increasing your contributions over time as you probably won’t even notice the increase in your paycheck but pretty soon, you’ll be saving more than you ever thought you could. Your employer’s retirement plan might even offer an auto-escalation feature to have this done for you automatically.

About half of those age 55 or older fall into this category as well. If you have a shorter time until retirement, you  may not be able to save enough to close the gap. Consider additional options like delaying retirement, working part-time in retirement, purchasing an immediate income annuity, moving to a lower cost area, and/or looking for other ways to reduce expenses.

The Under-confident

This is the smallest group. They’re on track for retirement but are not confident about their investments and about 70% have some financial stress. 45% cite the US economy and the stock market as the main causes of that stress.

If you’re in this group, consider taking a risk tolerance questionnaire and make sure your investments are properly diversified according to your comfort with risk. Then no matter what is happening in the news or on your statement, don’t panic! The stock market has seen worse and will likely get through whatever life throws at it. (If not, guns and food may be your own hope.)

Once you’ve gotten your portfolio in line, don’t try to predict the market. Simply re-balance your portfolio at least once a year so that you can take gains and invest in those investments that are lagging behind. After all, the markets move in cycles so today’s winners are often tomorrow’s losers and vice versa. Your employer’s plan may even have an automatic re-balancing feature that does this for you ever quarter.

Whatever you do, don’t let fear paralyze you into inaction or cause you to bail out of stocks during the next market downturn. Instead, let it motivate you to take the actions needed so you won’t have reasons to be afraid. Then relax and enjoy your Halloween!

 

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