Financial matters: Don’t let your emotions get the best of your retirement savings
September 13, 2013
Retirement is one of the most emotional and stressful life changes a person can face. The events that may come with retirement — selling your home and re-locating, managing health issues and living on a fixed income — can produce behaviors that defy logic. But as you near retirement, making a snap decision is the last thing you want to do. Here are a few strategies to help you prepare for retirement in the midst of a fluctuating economy:
Think long-term about your retirement. It’s hard to resist being influenced by economic news and events, but the key is to let rational thinking rule your decision making when it comes to money. For example, if you experience a bad day at the office and you’re eligible to retire, you may decide to retire early. But taking a deep breath or sleeping on it will help you better think about the big picture and usually leads to a better solution. Thinking through each financial decision carefully, and getting objective advice from someone you trust, will empower you to make the best decision for your future.
Don’t become engrossed in day-to-day market activity. Markets rise and markets fall. If you are planning to retire, or are in retirement, now is not the time to try and beat the market at its own game. To minimize the impact financial swings might have on your retirement, determine your appropriate risk tolerance and stick to it. You can always readjust your portfolio, but try not to react in a panic at the sight of a market downturn.
Consider contingency plans. It may be counter-intuitive to think about the negative what-if scenarios, but examining a possible future without your spouse or thinking about how you would manage a life-threatening health issue is especially important as you enter retirement. Along with these scenarios, consider how a major economic event like a recession or high inflation may impact your retirement savings. Then create a plan to protect your financial security as much as possible in these circumstances.
Anticipate what retirement looks like for you. Write down your thoughts about what will happen during an average week in your life as a retiree. Having a solid idea of what you picture your retirement to be like can lead you to maintain a calm mindset when you’re worried about your short-term finances. Working toward a few specific retirement lifestyle goals may help you stay focused on the long-term and avoid making emotional decisions with your money.
Don’t let your emotions push logic aside when planning and saving for retirement. Minimize highly emotional decisions by communicating frequently with your spouse or other trusted confidante and consider working with a financial professional who can help you maintain a long-term vision of your current financial situation and goals for the future.
— Richard Gross is a financial adviser with Ameriprise Financial Service, Inc. in South Lake Tahoe. He specializes in fee-based financial planning and asset management strategies and has been in practice for 18 years. Contact him at firstname.lastname@example.org.