Tuesday, January 21, 2014

How to cope with economic anxiety

With the holidays behind us, and the unseasonably cold weather taking a break, most households are back into their routines. But, as we all know, in today’s world, there is nothing routine about our economy.

From an investor’s perspective, there have been two years in a row with excellent returns. 2013, for example, saw the DJIA post its largest ever annual point gain, a whopping 1,072 points. It was also the largest yearly percentage gain since 1995.

Yet, despite the strong investment returns so many enjoyed, it appears to me that investor anxiety remains high. Although the year is still young, I have already had several clients in my office echoing that very concern. They just seem to have a lack of confidence in this economy and are uncertain as to how it will impact them.

I certainly understand why such lack of confidence in the economy persists, but as a financial advisor I think there are steps you can add to your planning process that will help minimize some of the anxiety.

I believe the distrust of the economy and the anxiety is justified. With such issues as the debt ceiling debate, much uncertainty still lies ahead. The easy solution in the planning process could simply be to save as much as you can because you are very likely going to have to spend more in retirement than you ever imagined.

And while saving and investing more may be an admirable goal, it doesn’t necessarily mitigate any of the anxiety that may lie ahead. My suggestion for minimizing the anxiety of the unknown and lack of confidence in the economy is simply to improve what you can control and not worry about what you can’t. Let me provide some examples.

An often-repeated mantra is the lack of confidence in Social Security. Will it be there when you reach retirement age? Maybe. Maybe not. Because mathematically, there’s no way it can continue on its current path. Just take a look at your most recent Social Security report. It states in black and white, that at its current level, there will only be enough funds to pay 74 percent of the projection listed on your statement.

Rather than worry about it, plan for it by lowering your expectations. In other words, as you crunch the numbers in preparation for your retirement, simply anticipate less from the Social Security bucket.

Another worry is the cost of health care. Without being political, I believe the new health care law has increased anxiety, not reduced it. There are steps to take to help minimize anxiety. For example, if you work, and you have a high deductible health care plan, see if you’re eligible for a Health Savings Account. If so, contribute to it. You might also consider a long-term care policy or a life insurance policy with a living benefit.

If the future causes you anxiety, focus on what disturbs you the most and then determine your course of action.

Nobody has a crystal ball and families are beginning to realize that Uncle Sam isn’t going to pay for everything. With proper planning, you can take steps to help reduce economic anxiety. It’s a new year and I encourage all my readers to discuss your concerns with their advisors.

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