It stresses you out the most (and what you should do about it)
A study conducted by the American Psychological Association in 2021 shows 61% of Americans cite “money” as a “very/fairly important” cause of stress. It was the main cause of stress (unless you had a job, in which case “work” was the main source of stress).
You can’t blame Covid alone for this. A report on anxiety and stress produced by FINRA last year concluded “even before the pandemic, a significant portion of households were anxious and stressed about their personal finances and could not cope with a medium-sized shock”.
“It was an area of emerging growth even before the Covid pandemic hit,” says Joe Buhrmann, senior financial planning consultant at eMoney Advisor in Bloomington, Illinois. “The ongoing physical and emotional stress associated with financial stress can create a toxic brew for many households. Recent studies shared that two-thirds of adults said money was a major source of stress in their lives, and the main cause was a lack of basic financial literacy.
So you can understand if retirement savers feel the same anxiety.
This year has seen the rise of two specific factors that will only torment you more. Whether you have short term or long term investments, there is a devil lurking around looking to scare you away.
The first is inflation. You’ve read all about it by now. If this worries you, you are not alone.
“Those sitting in a money market will lose money this year relative to inflation,” said Trent D. Bryson, CEO of Bryson Wealth Management in Long Beach, Calif. “Unfortunately, it’s usually the less sophisticated investor who most needs the money that works for them who will be harmed.”
This does not mean that those with more knowledge are safe, and not only with their investments. If left unchecked, inflation will also impact retirement planning in the years to come.
“Inflation rates will significantly affect retirement funds,” says Michael Jeffcoat, founder and attorney of The Jeffcoat Firm in Columbia, South Carolina. “With the assumed provisional 6% inflation rate made permanent, retirement savers will have to explore riskier investment vehicles that offer better returns. Remember: inflation rates before the pandemic were slightly less than 2% An inflation rate of 6% indicates that the average cost of living could probably double over the next 8 to 10 years.
Of course, the long-term side has its own problems. You already see them if you pay attention. However, many retirement savers are not. The good news of recent years may have led them to complacency. They might not be prepared for what may happen next.
“The biggest problem facing retirement savers in 2022 is recency bias,” says Clayton Wood, managing partner at CB Wood Financial LLC in Charlotte, North Carolina. “If you include dividend reinvestment, the S&P 500 has seen 8 double-digit increases over the past 10 years. For investors just entering the workforce, it’s a huge disappointment to see a return less than 10%.Savers should understand that investing is a long-term strategy.There will be ups and downs in the market, but on average, over the long term, your retirement savings will grow.
You can’t just sit back and let the world happen to you. It’s the ultimate stress surrender. Better to adopt the philosophy so often employed by Captain James T. Kirk: “The best defense is a good offense. Act before the action takes you.
If you’re worried about inflation, “look at your holdings,” says Bryson. “Call your 401(k) advisor and learn about other ways to invest conservatively that allow you to stay in your comfort zone while beating inflation and starting to feel more comfortable with risk/ reward.”
Remember that inflation means different things to different people. Stocks are often a historically reliable hedge against long-term inflation. But not everyone is able to survive in the long term.
“Retirement savers should explore investments that generate higher returns,” says Jeffcoat. “Millennials in their 30s and 40s can switch to equity funds because they generate a conservative APR of 10% to 12% per year, which doubles the current rate of inflation. Meanwhile, seniors nearing retirement could consider less risky options. Look for investment vehicles that outperform current inflation without too much volatility in the market. Assume a more conservative risk tolerance. Otherwise, you risk incurring losses every time you make a withdrawal.
The risk of overvalued markets needs to be handled in a different way. As mentioned, double-digit increases make investors think this is the norm. Investing in index and growth stocks has been very popular (and successful), but the pendulum is swinging both ways. As they say, past performance never guarantees future results.
“Retirement savers need to diversify their investments,” says Wood. “Many investors have allocated their retirement savings to a few concentrations trying to chase investment returns. This works when the market is bullish, but it will dramatize your portfolio’s decline in bearish markets. »
Beyond investments, money stress usually comes down to what you don’t know. Buhrmann says “you should take two critical steps” to address this issue.
“First, he says, recognize where you have weaknesses in your financial literacy and take steps to improve that gap. Look for trusted sources such as financial publications, websites, podcasts, plan sponsors, or a financial advisor. You can also seek resources from the US Treasury here.”
“Then,” continues Buhrmann, “Control what you can. There can be a lot of noise from all sources, be it market volatility, inflation, legislative changes, etc. For many of these elements, we have very little control. However, you can control how much you save and how much you spend. And the first depends a lot on the second. Focus on controlling what you can and “eliminate the noise”.
Don’t let your stress feed on itself. Protect your pensions. Now is the time to kiss a Carpe Diem philosophy at full speed.