Don’t Let Your Fears Distract You from Your Best Retirement

Last Thursday is scooted down to Eat Your Heart Out Café for some lunch.  I bumped into a hunting buddy of mine, I’ll call him Sean. Sean has been an avid hunter all of his life and he especially likes deer season, which kicks off at the end of this month. As he talked about his hunting luck (or lack of luck, in some years), he told me a story about a near collision with a deer last season. The story is pretty long, but it included a deer running in front of his truck one night and freezing up – truly, it was a “deer in the headlights” moment for Sean. His truck needed a bit of TLC after that encounter, unfortunately. The deer, meanwhile, was harmed but managed to collect its wits and scamper away.

Sean laughed about it now, but he said he was pretty shaken at the time. He marveled at the deer’s inability to take action to save its own life and how dangerous it is both for the deer and the drivers that encounter the situation. Of course, this is not abnormal behavior for a deer. When a car’s headlight beam falls into their eyes, the deer becomes blinded by the bright light. Until its eyes adjust to that heightened level of brightness, a deer will keep standing there, which makes it look like the deer is rooted to the spot.

But you know, interestingly enough, humans have their own “deer in the headlights” moments in life too. After all, fear can be a powerful emotion. It can cause us to make poor decisions based on emotion instead of facts. For others, it makes us paralyzed, frozen like a deer in the headlights. And as today’s markets fluctuate coupled with all the uncertainty within our governmental systems, Americans seem to be feeling more fearful about the health of their investments.

Now, while we can’t know just what’s going through the minds of people across the country at any given moment, Americans are now facing numerous financial anxieties simultaneously. For example, consider a looming government shutdown, soaring gas prices, uncontrolled governmental spending, hyper-inflation, and ongoing uncertainty about new coronavirus variants. Add in the concerns of an array of massive tax-reform proposals percolating in Washington and we can see the signs of hesitation under the surface.

Get this, according to a recent Ipsos-Forbes Advisor U.S. Consumer Confidence Tracker1₁, 44% of those responding said they felt more comfortable making a major purchase, like a home or car, than they were six months ago—a drop of 4 points from last week. Additionally, 51% reported feeling more comfortable making other household purchases, a decrease of one point from the week prior.

In addition, a nervous mix of concerns about market valuations, tax changes and inflation weighed on clients’ confidence about their retirement situation in September, according to the latest Retirement Advisor Confidence Index₂, Financial Planning’s monthly barometer of business conditions for wealth managers. 

In my own practice, I’m sitting with new clients who are coming in to the office seeking ways to get more control of their risk-budgets. More folks are beginning to question the market and their own systems due to inflation fears and its continued volatility, especially those who are within 5-10 years of retirement. They understand that their time to make up for large losses is limited, so we’re having more conversations about managing their downside risk mitigation systems, often times folks find that they actually do not have one.

So, with all of this economic uncertainty weighing on us, what can we do to keep our retirement plans on track? After all, this volatile environment could be here to stay for some time, and we need strategies to mobilize us into action. So this week with our time together let’s discuss a few tips that may help those who struggle with financial paralysis.

We can start by being better shoppers. For example, by purchasing generic drugs and store brand foods. Looking for used merchandise versus new is another savings tip. During inflationary times you need to become a more intelligent shopper by looking for different ways to save money.

We can also look at ways to take advantage of the low interest rate environment while we still can. While The Fed will likely begin to raise interest rates in 2022, we can lock in low fixed interest rates on debts now. If inflation increases substantially, rates are likely to go higher. Inflation theoretically makes paying fixed-rate debt easier, since you’re paying back the loan with cheaper dollars.

We can also consider utilize asset classes that are inflation hedges. Conventional wisdom is that stocks, real estate, floating rate notes, and US Treasury inflation-protected securities provide hedges against inflation. Despite the concerns people have about riskier asset classes, owning assets like these can be a very good way to combat inflation once you have your downside risk mitigation strategies in place.

Another way to hedge against inflation might be to take a portion of your investment portfolio to purchase an annuity that can cover your essential living expenses. This will allow you to become more aggressive investing the remainder of your portfolio to help offset inflation. By taking care of the essential expenses, you have the freedom to take more investment risk.  

Fear is not uncommon, and in many cases, it can actually be helpful. Rather than freezing up, it can be instead used to motivate us to take action. The trick is to not let fear make decisions for you, rather to use it to make the right decisions that get you to your best retirement!

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance is offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at jeff@cutterfinancialgroup.com

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