Retirement Anxiety: Causes and the Nobel Prize Solution

Retirement anxiety is at an all-time high, and for good reason. Recent surveys suggest millions of Americans have given up on retirement altogether. Today we discuss how to reduce anxiety by taking control, making a plan and reducing risks…

Retirement Anxiety: Causes and the Nobel Prize Solution
Photo by Cottonbro

One thing is certain, we sure are living in strange times. For retirement savers, that can also mean levels of anxiety that rise a lot faster than IRA balances.

From mistakes anyone can make that could derail their retirement, to ongoing economic volatility that the media claims is a “good thing,” there are already plenty of challenges to a comfortable retirement.

Today, on the heels of the pandemic and the economic ripple effects that are still emanating from it, Forbes pointed out the biggest fears Americans have right now:

A recent study on the biggest risks to retirement security looked at the top concerns among investors who plan to retire in the next ten years. More than half (56%) of those surveyed say they are concerned about spending too much and running out of money in retirement, with 53% concerned about losing money in their retirement accounts, due to a severe drop in the stock market. [emphasis added]

If you were to “spend too much” and run out of money during retirement, that might be a stressful situation. Taken from the study by Allianz Life, we can see the overlapping worries shared by savers of all ages:

Americans 10+ years from retirement:

  • 57%: Outliving their money
  • 56%: Spending too much and running out of money in retirement
  • 43%: How much they will have to spend on healthcare in retirement

Americans in retirement or within 10 years of retirement:

  • 56%: Spending too much and running out of money in retirement
  • 54%: Outliving their money
  • 53%: The stock market dropping and losing a lot of money in their retirement accounts

Any one of these concerns could certainly cause some sleepless nights, especially post-pandemic.

All of them taken together? That could turn those sleepless nights into nightmares.

Welcome to the modern era of saving for retirement…

Survey: 52% of Boomers fear retirement is a “pipe dream”

According to one survey conducted on behalf of CNO Financial Group’s Center for a Secure Retirement:

Pre-pandemic, 56% of all boomers said their top non-negotiable for retirement was maintaining their financial stability and independence. This has now dropped to just 35%.

The same survey reports 75% of respondents took a hit to their retirement savings while trying to support their family during the COVID-19 pandemic.

Things have gotten so bad that some Boomers are losing hope. A majority, 52%, "fear they will not be able to retire because of the impact of the pandemic.”

Yes, things have been rough since the Great Recession. No doubt many people are discouraged. But the idea that a majority of Boomers, the children of the Greatest Generation, have given up all hope of ever retiring?

Those fears may be justified -- especially when we consider how the Federal Reserve has robbed Americans who aren't already rich. Doug Casey summed up this dour view of America's economic affairs since 2007:

The trillions of currency units created since 2007, combined with artificially suppressed interest rates, have papered over the situation. But only temporarily. When the economy goes into the trailing edge of the hurricane, the storm will be much different, much worse, and much longer lasting than what we experienced in 2008 and 2009. [emphasis added]

A lot of the anxieties and fears we hear about every day center on Casey's "storm." Retirement accounts already pummeled by the Great Recession and the Covid crash, already gutted by inflation might not be ready to survive that storm.

Now might be the time to consider taking risk off the table, booking any returns gathered from the recent volatility making a new storm-proof plan.

Finding the balance between risk and return

Back to the Allianz study, which highlighted one important insight:

88% of financial advisors report it is more important to effectively manage risk in client portfolios than generate the highest gains.

"Effectively manage risk" in this case means minimizing volatility. Moderating those big swings up and down. So how do we do that?

Forbes columnist Ron Carson has a perspective that makes sense especially during an extremely volatile economy, like the one we’re experiencing now:

This is why adhering to a disciplined investment process is so important. A consistent and repeatable process provides an orderly way to create and maintain a portfolio aligned with your specific goals and objectives while seeking to manage investment risk.

Let's break that down:

  1. A consistent and repeatable process
  2. Investments aligned with your specific goals and objectives
  3. Managing investment risk

Managing risk again! What does that mean to an individual? How does a saver, at any age, manage investment risk?

The Securities and Exchange Commission (SEC) has some astute advice:

The Magic of Diversification. The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.

Diversification is one major way to "limit your losses and reduce the fluctuations of investment returns."

How important is diversification? According to the SEC:

Some financial experts believe that determining your asset allocation is the most important decision that you'll make with respect to your investments - that it's even more important than the individual investments you buy.

Nobel Prize-winning economist Harry Markowitz agrees:

"Diversification is the only free lunch in investing."

Diversifying your retirement savings has benefits regardless of market conditions. However, if you share Casey's concern about the coming storm, diversifying into stable, safe-haven assets will likely relieve some of your anxiety.

Bring an umbrella anyway

When I was growing up, my grandmother always insisted on bringing her umbrella anytime she went outside. Even in the middle of a drought. When I asked her why, she told me, "Because I'm not the weather man. I never know when it might rain."

When it comes to our savings, we don't need to be the "weather man." We don't need to look at the forecast every day. We can just bring an umbrella anyway.

Though there are a lot of ominous forecasts…

Should we bring an umbrella?

Take Carson's advice and get a game plan. Operating without a game plan can put you on the fast track to losing everything. Planning, diversifying, and maintaining control of your retirement can help to ensure you stay on the right track. When diversifying, consider physical precious metals like gold and silver. Their proven track record (and especially gold's performance over the long run) fits well with a “lower anxiety” plan. Gold may be the umbrella that shelters your savings from the storm.

Regardless of everything else in this article, please study the benefits of diversification. And consider your risk tolerance. High anxiety might be a warning that you're taking on more risk than you're comfortable with.

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