How to prevent fear, uncertainty and doubt from derailing your retirement plan

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Falling stocks, soaring inflation and rising interest rates to combat high prices are fueling the “FUD” monster – fear, uncertainty and doubt. The media eat it up and spit it out for your digestion.

But if you habitually consume the constant stream of negative economic news and buy into it, you may start making hasty financial decisions based on FUD that later might give you indigestion.

Do not play in the FUD. Stop following the media’s financial narrative and create your own financial narrative so you can make better decisions about your money.

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First of all, the fear is unfounded. Yes, inflation is bad, but we’ve had inflation before. Volatility – it’s always there. The movement of interest rates – we’ve been there before. These things are nothing new, but when the fear-filled headlines are inserted into the narrative, it becomes dangerous.

The mainstream media tries to glue people to fear, uncertainty and doubt. Those nearing retirement or already retired are particularly vulnerable. FUD can cause them to make knee-jerk reactions and recklessly change things in their financial plan. These answers run counter to the idea that helped them build their wealth – accumulating compound interest. Many tend to panic sell when an asset is down and cash out at the worst possible time. Instead of compound interest being their friend, they now have compound dangers piling up.

By not planning for FUD moments, they go from wealth creation to wealth destruction.

For whom, when and how much?

How do you isolate yourself from the media-fueled FUD and create your own financial narrative? It boils down to three questions to ask yourself: 1) Whose money is it? 2) When is it necessary? ; 3) How much is needed?

If someone has $1 million, for example, regardless of age, they will not spend all of that amount this year or next year or in the next three years. They should focus on when they will need certain amounts and the different ways to receive the money, one of the reasons being their tax liability. Tax diversification is important. Building a bucket of tax-free retirement income is worth considering. If you’re over 50 and can benefit from a Roth 401(k), Roth 403(b), or Roth TSP, consider making catch-up contributions to the account. For 2022, this represents a maximum of $6,500. You pay tax on contributions, so you don’t have to pay when you withdraw the money.

People are more vulnerable to market shocks in the early years of retirement due to sequence of returns risk. Someone who withdraws money early in retirement from a declining portfolio is more likely to exhaust their nest egg too soon, compared to a retiree who experiences a market downturn years later.

Reducing the demands on your investment portfolio is one of the most important things you can do. Retirees can restructure the source of their withdrawals. For example, to avoid taking money out of stocks or bonds — both of which are down sharply this year — they can take out cash instead. Drawing from a bucket of cash while waiting for other assets to recover avoids the risk of a sequence of returns that exists when taking money out of assets that are falling in value. Another way to ease the burden on your investment portfolio is through Social Security. Beneficiaries receive an 8% annual increase in benefits each year they delay claiming full retirement age; the boost stops after 70 years.

Your portfolio should be a mix of different assets, such as stocks as well as bond and CD-type instruments, and the allocation should be determined by your risk tolerance, time horizon, cash flow needs and taxes. It should also include both growth and value stocks or exchange-traded funds for smaller accounts. Additionally, you can consider companies that regularly pay dividends, which can help deal with volatility. Then there are the assets that are traditionally seen as inflation hedges, like gold and other commodities, as well as real estate, although they haven’t helped stave off inflation. so far this time. Again, it depends on your time horizon and what you need to invest in to remain a confident investor.

Ultimately, while the media will tell you there are many things to worry about about the economy, there are other ways to create your own financial narrative.

Article by Barry H. Spencer


About Barry H. Spencer

Barry H Spencer is the author of The secret to wealth without regrets and a contributor to three other books. He is a financial educator, industry thought leader, and specialist in philanthropy and retirement income planning. Spencer has appeared in publications such as Forbes, Kiplinger and Worth, and television affiliates from ABC, CBS and NBC. He was interviewed by an original “shark,” Kevin Harrington, on Emmy-winning Shark Tank, and by James Malinchak, who was featured on ABC-TV’s hit show Secret Millionaire.

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