Popup costume shops, jack-o’-lanterns, pumpkin-flavored foods and candy displays remind us that Halloween season is officially here. Can you feel the spookiness in the air?
Just as you may have nightmares after visiting one of Peoria’s many terrifying haunted houses, financial fears can keep people up at night as well. In fact, a recent study shows that money was one the most significant stressors for Americans in 2016.
As a financial advisor, I’ve seen firsthand the difficulty many people have in facing their financial fears. However, with a proactive approach, it is possible to conquer these fears and put a solid financial foundation and plan in place.
Fear 1: Going broke in retirement. Running out of money in retirement is a common financial fear. This was not always as great of a concern, but with longer life expectancies, retirement accounts must now have the ability to span decades. Retirees often worry that they will wake up one day and not have the means to continue living in their home or leave an inheritance to their families, let alone enough money to pay off bills.
To combat this fear, begin saving for retirement as early as possible. Regardless of how much spending money you sacrifice now, money in a 401K (especially if your employer matches) or IRA can grow over time.
Additionally, retirees should not overlook the importance of sticking to a spending plan, even throughout their “golden years.” Retirement does not mean you can spend freely. When living without a regular salary and on a fixed income, taking a measured and meticulous approach to spending helps prevent draining your savings prematurely.
Fear 2: Affording education. Many people struggle not only with the rising cost of education, but with the quandary of pulling from other important areas of a portfolio to fund a child’s education. This is a difficult fear to overcome because one of the most common ways to soften the burden of education costs is through loans, which generally end up costing more in the long-term.
As with retirement accounts, I recommend beginning to save for your child’s education early in life. You can even start before they are born. Consider opening a 529 plan, where money can grow tax-free as long as contributions are used for qualified educational expenses. Once that account is open and you begin allocating funds, growing and protecting that money over the years is key.
Fear 3: Losing money in the stock market. Investors are constantly worried about how day-to-day market swings might impact their portfolios. With a 24/7 news cycle and instant access to information about all market drivers, it can be difficult to tune out the noise. More often than not, conjecture and speculation – as opposed to substantive data and economic indicators – are the root cause of much of that concern.
Those with money in the market should first and foremost remember that investing is a long-term process. Acting impulsively and moving money in and out of the market based on every market swing is generally not conducive to growth over a longer time horizon. Remember that what works well for one person might not necessarily work well for the next. Everyone has different objectives, risk tolerance and benchmarks for success.
This Halloween, save your fear for the scary costumes or haunted house. Financial fear is common and can certainly be overwhelming, but is possible to navigate with a thorough plan and positive attitude. iBi
Patricia Cutilletta is an Executive Director and Financial Advisor with the Wealth Management Division of Morgan Stanley in Chicago.