The Market Makes You Nervous? – How to Get a Grip on Retirement Planning

Who doesn’t get nervous about what the markets are doing?

The reality is this: There is so much anxiety about market fluctuations that mental health experts have actually created a new niche practice.  It’s called “financial therapy.” And it already has its own little trade group: Financial Therapy Association. Member therapists help clients realize how emotion might influence their financial decisions.  And vice versa, how financial decisions influence emotions.

No, you won’t need a financial therapist

Well, the good news for you is that, since you know you’re nervous about the markets, you don’t need to pay a therapist to tell you that. You need a coach that has the experience to guide you through the most emotionally charged phase of investing. That is how you are planning to fund your retirement years. You could live 30 more years after stopping working. So, yes, the stakes are high. Consequently, emotion can lead you to become risk-averse to ensure the principal isn’t touched. Or, on the other hand, you could become a reckless risk-taker because you have decided you need to retire earlier than planned.

Here are examples:

Risk-averse in retirement planning

  • Keeping too much money in cash. Yes, if it’s in a money market fund paying compound interest you’re making money. But the earnings from savings would likely lag the rate of inflation, at best.
  • Not diversifying. A handful of mutual funds is probably not enough diversification. Most company retirement plans have fewer and fewer options each year.
  • Not questioning conventional wisdom. One rule of thumb used to be that you lessen the percentage of company stock as you age. That might have gotten your grandfather through his average 10-year-span of retirement. This is the strategy used by so called Target Date funds. There are other options that might suit you better because of your unique circumstances.
  • Ignoring interest rate risk.
  • Trying to pay off your home by accelerating the principal reduction on the mortgage instead of putting money aside for retirement. This strategy can carry huge risk. It is usually your emotions at work.

Reckless risk-taking in retirement planning

  • Selling a reliable dividend fund because it had a disappointing quarter. It’s the long term results you have to focus on. It’s the nature of the market to fluctuate.
  • Relying on trading profits (buy low, sell high strategy) to fund retirement.
  • Chasing performance. Picking your company retirement plan investments by simply finding the mutual fund that has done the best the last 2 or 3 years.
  • Taking advice from amateurs or, even worse, from anyone on television or online who pontificates about investing.
  • Withdrawing funds prematurely. That impose taxes and, in most situations, a penalty. There are usually other less extreme solutions for the financial curve balls you have encountered.
  • Investing in asset classes that are not appropriate.
  • Over concentrating in certain sectors or asset classes.
  • Ignoring illiquidity risk.

Emotional triggers when planning retirement

When it comes to retirement planning there are very specific kinds of emotional triggers. And those often generate impaired decision-making.  Here are the most common:

I am so scared! I never look at the statements. I just throw them away and worry. With proper understanding of your statement and a real plan you should find comfort in the statement, a financial advisor can teach you to read the statements and avoid emotional reactions.

I have no idea what I am doing. I just watch the company retirement plan go up and down and wonder why I keep putting money in it. A financial advisor tutors you on how to transform the gyrations of the market into what might be a secure financial future for yourself.

I can’t stand this job one more year. That’s exactly when it’s smart to explore with a financial advisor the financial facts associated with early retirement. Sticking with that position a couple more years might make the difference between a comfortable lifestyle and having to nickel and dime it for the rest of your life.  

I’m too old to even bother starting a retirement fund. A financial advisor can demonstrate how wealth might be created and grown, no matter what your age. There are hybrid solutions. They may consist of some or all of the following:

  • Working longer at the career position. In a growing number of organizations there is no mandatory retirement age. Head of Fox, Rupert Murdoch, is 84 years old and still working full time.
  • Starting a side business while working at the career position. Entrepreneurs have their own kinds of retirement plans.
  • Launching an encore career after retiring from the long-term career position.
  • Maximizing contributions to the company retirement plan.

I will never retire. Therefore, the assumption is that there will always be earned income. Yet, that good job could be eliminated in a reorganization or the organization can go bankrupt. Your health could fail. You might be underestimating how your energy level could decline. A financial advisor can help you create a financial safety net in case you do have to retire.

My spouse spends so much money that I can’t afford to participate in the company retirement plan.  

Retirement is a family affair, that is, if there are others in the loop. They may be a spouse, minor or disabled children and/or parents who require care-taking. A financial advisor can help you calculate both the financial and the emotional math. The more people depend on you, the more accountable you have to be about funding retirement.

Gift of comfort

The greatest gift you can give yourself with retirement planning is comfort. According to Statistic Brain, 77% of people report physical symptoms of stress and 73% psychological symptoms. The #2 cause of that stress is money concerns. And among those concerns is the reduction of income that goes with retiring from the workforce. Risk lives everywhere – at both ends of the investment spectrum. A good advisor will identify these risks for you and offer a much wider array of solutions than you have been exposed to as a do it yourself investor.

Find an independent advisor who wants to know more about you than your mother (at least financially). A good advisor digs to find out exactly what makes you tick financially. Once that information is collected, then the advisor will present to you your options and provide education that will allow you to remove emotion from the equation. The more you understand your specific risks, the better off you are.

Help is available here

Whether you have a dollar or a million dollars in your retirement account, you’ll be able to explore the value of a real advisor. Simply visit the Self Directed Brokerage Account advisor contact site. From this site you can begin to take advantage of the features of your company retirement plan. If you wish, you can also download a fact finder sheet that is used to create your own personal retirement plan (you can also upload it from the website when complete.)

Watch here for our next post on picking your 401(k) options.

To learn more about Rick Willoughby, view his Paladin Registry research report.

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