5 ways to stop panicking about your retirement savings and feel confident you'll have enough cash
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- When they first retired, my parents lived a simple life and tried to conserve their money because they were afraid they would outlive their savings.
- In reality, my parents were in good financial shape. They just didn't know it.
- I don't want to follow in their footsteps, so I spoke to Michele Cagan, CPA, about how to retire without panicking about money.
- Use Blooom to analyze your 401(k) today and see how you can grow your retirement savings »
About eight years ago, my parents had a crisis. They weren't able to get out to the grocery store in the winter, so they ate canned food or just didn't eat. Finally, they called my sister and she drove seven hours to stock their house with food.
I later found out that the owners of the health food store in their small town would have gladly delivered groceries to my parents. They refused because prices were cheaper at the Wegmans half an hour away. They were so worried about money that they went hungry rather than spend a few extra dollars on groceries.
My parents aren't alone — many seniors worry about running out of money. I spoke about this fear with Michele Cagan, a CPA and author. Her most recent book is "Retirement 101: From 401(k) Plans and Social Security Benefits to Asset Management and Medical Insurance, Your Complete Guide to Preparing for the Future You Want." Cagan shared her insights about how we retire now and how to avoid panicking about your retirement savings.
5 tips to keep you from panicking about your retirement savings
Nothing I do can calm my father's fears about money — not even showing him his bank balance. I don't want to suffer the same angst when I'm his age, so I asked Cagan how to avoid retirement anxiety.
Check in on your finances and investments regularly
"Paying attention to your finances helps you catch problems before they occur," Cagan said. "A lot of people get intimidated or stressed out by their finances so they ignore them."
She said that being proactive is much better than being reactive. If you haven't checked on your accounts in a while, do it now. It could relieve your anxiety.
Don't get hung up on a retirement savings number — you might not need that much
"Don't buy into the numbers you read in the headlines," Cagan said. Not everyone needs to save up $1 million or $2 million before they can retire. "I think that's a big misconception," she said.
For starters, Cagan said, "You don't have to save up $1 million all at once." Your money will grow over time, so even putting away small amounts can add up by the time you retire. Even $5 will grow.
In addition, not everyone needs the same amount of money in retirement. Factors like whether you own your house outright and the cost of living in your area will impact how much money you need to save. Make a retirement plan that takes your circumstances into account.
Diversify your income streams
"There are other things you can invest in besides the standard stocks and bonds that can add differentiation," Cagan said. She suggested real estate investment through an REIT as one option.
Investments go up and down over time. If you happen to retire when the market is down, that can affect your retirement income. However, with a diversified portfolio, you run less risk that all your investments will be worth less at the same time.
Look for sources of passive income
"People aren't actually retiring," Cagan said. "People work full-time well into their 70s." If that doesn't appeal to you but you worry about your retirement income, she suggests looking for a passive income stream. That could be anything from buying a rental property to writing a book to becoming an investor in an established business.
Of course, passive income isn't passive at the beginning. "It takes a ton of action to make passive income," Cagan said.
Learn how to manage 'scarcity mindset'
"The scarcity mindset can actually keep people from opportunities that can bring them out of scarcity," Cagan said. "The fear of losing money can keep them from taking advantage of opportunities that can move them to a place of financial security."
"A scarcity mindset also makes people afraid of locking up their money, which, with retirement accounts, you often have to," she added.
If that sounds like you, Cagan suggests a Roth IRA because you can access the principal before retirement without penalty. If even that is too much for you, you can save money in a regular investment account or money market account. It will still be there for your retirement.
"You'll never have more time on your side than you do now," Cagan said. "Save what you can when you can. Try to automate it so you don't have to think about it. Any money you save now will be that much less you have to worry about later."
How to help older relatives relax about money
Cagan said that many seniors who grew up during the Great Depression, like my parents, may have lingering trauma around money and security. "Whether their parents lost money or not, there was a pervasive fear," she said. "That early imprinting can definitely make a difference in emotions around money."
She added that anyone who grew up in what she called a "scarcity environment" can experience fear around money. Anxiety about retirement isn't confined just to older seniors.
If you're dealing with parents or other older relatives who have anxiety around money, she suggests you start by listening to their fears.
"They may not be aware of what they are afraid of," Cagan said. "It's that scarcity mindset. It can get catastrophic." She also said that getting help from a financial professional may ease this anxiety. Even a one-time consultation may help relieve their fears.
She has concrete suggestions, too, starting with buying long-term care insurance, even though the premiums can be high if you buy it when you're older. "It's expensive, but it's a lot less expensive than paying for long-term care," she said.
She also suggests keeping two-to-five years of expenses in very safe investments and putting the rest into instruments with higher yields for use in later retirement. If someone is very anxious about investing, they could up that number to 10 years.
My parents aren't going to go broke
It turned out that my parents didn't need to panic about their finances. When my sister and I stepped in to help them, we discovered that they had saved up a lot of money. It was scattered among accounts and CDs at different institutions. They didn't know how much they had.
We moved them to a great retirement community near my sister. We also contracted with an elder care law firm to help draft estate planning documents and get services for them while we prepared for the move.
The retirement community wasn't cheap. The cost to move in alone was almost $100,000 and the monthly rent for their independent living unit was almost 10 times the rent on the apartment where they had lived for 45 years.
But my parents were able to afford it. In addition to their savings, they have an annuity pension that will give them monthly income for life, plus Social Security. What seemed insanely expensive to them was actually well within their means.
My parents are in their mid-90s and going strong, thanks to the wonderful care they both get at their retirement home. My mother got COVID-19 this spring. She survived and bounced back to health. They may live for many more years. And that's just fine because they have enough resources to support them in their retirement.
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