Some background: analysis and discovery...
Absence of information, understanding, and control breeds uncertainty and fear. It is challenging to quell fear in an environment where we are subjected to constant and prolonged streams of bad economic news without an understanding of what it really means specifically for us and those close to us.
Understand the difference between what you thought you would have and what you may really have.
For example, many of us at some point during the "Great Recession" have noted 401k or other stock-based investment balances uncomfortably close to ½ of what they had been at their peak in October 2007 – assuming we were/are "appropriately diversified" as the “pros” suggested. We of course all hope and generally believe they will “come back” - and then some - but what does that really mean?
"When?" and "then what...?" are the topics of many a spirited debate. Every year and its earning/appreciation power start to matter more and more as we approach retirement. Illustratively, losing "a lot" (pick your %) of what you have now vs. "a lot" (same %) of what you expected to have at retirement are very different things – two very different gaps as a result of diminished bases upon which gains appreciate and compound prospectively.
During the span of a single decade, we reeled from the dot-com bubble burst, post-9/11 stock declines, and the current real estate and broader financial crises. That is a lot by way of setback – much more significant than the “normal” blips and up/down cycles we had come to expect. Depending upon when and how you invested, you may or may not have fully realized the bubble gains preceding the bubble losses.
All of this has of course impacted retirement plans, assumptions, and even philosophies. It is difficult to imagine it will not have impact for some number of years. Additionally, many a net worth have been even further whacked by plummeting real estate values.
Gone may be the days when we could use a static growth % - whether conservative, balanced, or aggressive – as an assumption in projecting our longer-term financial futures with some degree of comfort. It was not considered all that reckless to assume: “ok, I’m not sure I buy an 8-10% average annual return on my holdings, but perhaps 5-6% isn’t all that unrealistic over the span of my investment horizon.” While the stock market is inherently risky (always has been; always will be), it was gratifying to calculate the nest eggs we figured we would accumulate with some degree of likelihood as long as we didn't do something “crazy wild”.
We may need to reevaluate our threshold for risk. Many of us may struggle with the conventional wisdom of starting to migrate investments into more conservative instruments as we approach retirement as contrasted to our need/desire to remain in the market for as long as possible with hope of catching up to our targets. We all would like to believe we will return to times of prosperity but with some structural and systemic changes which would make recurrence of "Great Recession" market performance (perhaps for better and for worse) less likely. At the same time, we wonder what/when the next bubble, phenomenon, or "event" might be and the magnitude and longevity of its consequences.
If you had/have already done some retirement planning, you might already know what your expectations were and what your needs are/will be. Variables to consider include:
- Retirement goals:
- Years to retirement
- Years in retirement
- Income desired/needed (contemplating inflation)
- Income: current and projected until retirement
- Income: other sources during retirement (e.g. Social Security)
- Investment balances
- Other assets
- Debt
- Tax rate assumptions (pre- and post-retirement)
- Growth/appreciation assumptions (pre- and post-retirement)
Resources you may wish to consider include one of many online retirement calculators (some are better than others), your investment company, a professional personal financial planner, or your own spreadsheets. While "day-trading" a 401k or IRA account does not make sense, adding some increased focus upon and agility to allocation strategies may.
While the focus of that example was upon retirement income, there are of course more imminent dimensions to these crises: people losing their jobs and their homes. Many are worried about losing the things that are important to them now and that ultimately impact retirement assumptions as well.
Model some scenarios – best/expected/worst cases for your particular circumstances
Only by exploring a continuum of best to worst case scenarios can you gain comfort with and realistically calibrate your expected scenario and the magnitude of the risks associated with it.
Your expected scenario does not have to be your ultimate objective – your goal – the composite of your dreams; it is more a realistic planning platform from which to build and grow.
Action plan and move forward
Claim your scenario and rally around it. Channel your energy to the actions required to realize and sustain it with confidence. You'll then be able to channel your incremental energy to your better/best-case scenarios with less distraction and worry.
Realistically, one implication many of us may face is the need to work longer and harder than we may have planned in order to achieve our goals. If you love what you do, that may actually sound like fun! If you do not love what you do, that probably doesn't sound quite so swell. If you question the longevity of your current job and/or skill set, that may also give you cause to re-examine your strategy. It may be time to retool; better to be ahead of versus behind that curve.
Invest in yourself as you can; consider:
- Consulting a professional personal financial planner.
- Identifying, articulating, and developing your IMPACT competencies.
- Preparing yourself and your resume for your next opportunity.
Pay it forward even if you do not feel you have as much of “it” as before – for now
It really is true what they say: sharing your positive energy with others yields big dividends and attracts more of the same. Whether it be one of the many touching acts of kindness we hear about on the news or an extra “how are you?”/”hang in there!” with a polite and caring arm squeeze does something pretty remarkable in times like these.
Share your sense of humor.
Learn voraciously
Educate yourself like never before.
Research, understand, and contrast your options - from insurance to health care to refinancing to banking relationships to warranties to ... We live in an ever increasingly complex and sometimes desperate world - consumers are more vulnerable than ever. We make more complex and high-stakes decisions day-to-day than we did even ten years ago.
Whether you are currently employed or not, nurture your IMPACT competencies and keep them current. Unlike the rest of your portfolio, they belong solely and unconditionally to you – only you can take them away or let them devalue.
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