Scared Silly

Credit: Nuttapong

What scares you? I mean what really makes all the hair on the back of your neck stand up, leaves you unable to utter a sound, and frightens you into a panicked hysteria?

I’m not a superhero or a he-man by any stretch, but not that much really frightens me. Sure, I’m like most people and don’t like thinking a lot about death, but it’s not like I have coulrophobia or something. Let’s see, I’m a little cowardly towards scorpions, I’m not a fan of snakes, I don’t like walking down spiral staircases that I can see through, and drowning has always been an utmost concern of mine, but all in all, I’m usually pretty level and calm. That’s why an article I read in the August edition of InvestmentNews surprised me.

The article focused on a recent study conducted by Nationwide Financial that sought to determine what investors fear. The study concluded that 83% of the people feared another financial crisis, 68% feared that their savings would not be enough to get them through retirement, and 64% were afraid of not being able to maintain their current lifestyle. These statistics didn’t make me happy, but they did not overly surprise me. However, the fact that only 58% of the people surveyed said they feared death did come as a bit of a shock to me. Am I really that weird? (Hey, don’t answer that!) Are people really more afraid of financial ups and downs than they are of the Grim Reaper? The only non-financial fear that scored anywhere near the financial fears was skydiving, with 81% of the people saying they were afraid of that extreme activity. You can call it my purpose, my goal, or my motivation, but I don’t want any members of my family, my friends, or the clients I serve to fear market volatility, retirement feasibility, or financial sustainability more than death or skydiving!

The financial crisis of the late 2000s was certainly terrible, but so were the Dotcom Bubble, Black Monday, the Great Inflation of the 1970s, and the Great Depression. I’m sorry to say it, but one day, there will be another financial crisis. And guess what? If your investments are prudently diversified, you have an adequate rainy day fund, and you can cut back on a little of your discretionary spending, you’ll probably be able to hang on until the recovery begins.

Not knowing when you can retire or not knowing what kind of lifestyle you can afford to live in retirement is a frightening proposition, and it should be, but that’s part of the reason why my profession exists. Outside of relying on blind luck, a technical analysis you’ve prepared yourself, or the work of a financial planner, how do you know when you can make it through retirement with the lifestyle you desire or at least one you can accept? Well, are you going to receive a pension? What did your last Social Security annual statement say, or what does your Social Security Benefit Calculator spit out? Add these together with any other "permanent" sources of income you may have, and that’s probably close to your “retirement paycheck.” Then, take a look at all of your investment assets (brokerage accounts, 401(k)s, IRAs, etc.) and think about how much you could probably afford to withdraw every year between now and when you kick the bucket, considering the expected returns of your investment strategy. This should give you some idea of your probable retirement lifestyle. What you come up with may still sound pretty vague to you, but it makes me wonder if the people surveyed were really afraid of being able to navigate through retirement, or if they were just afraid of not being able to spend as much in retirement as they had dreamed about. Don’t get me wrong, retirement planning and ensuring your financial independence require careful monitoring and frequent updating to make sure all systems are go, but it doesn’t have to be Freddy Krueger.   

Finally, if people are afraid of not being able to maintain their current lifestyle, I’ve found that probably means they have an inadequate emergency fund, unsustainable spending habits, or they foresee a life-altering event like having another mouth to feed, losing a job, or facing the financial consequences of the death of a spouse. You can’t always control life-altering events, but having a little extra saved up and almost always spending less than you are making will go a long way towards calming this fear.

I know financial crises can be dicey, retirement planning can be daunting, and lifestyle sustaining can be critical, but a predatory arthropod of the order Scorpiones in the class Arachnida with snapping claws and a poised stinger still scares me more!

-Tom