Let’s face it. A bunch of us are just trying to keep our heads above water in this economy. Savings and retirement planning aren’t exactly the top news stories right now.
So where does that leave you when your bank fails or your safe money market fund “breaks the buck”?
Scared. Very, very scared.
It is one thing when your current job seems shaky and you are worried about the economy and the future is uncertain. But, it is a nightmare to think of your hard-earned, rainy-day savings not being there when you need it…like if your shaky job does go away all of a sudden. Or, your retirement nest-egg disappears overnight.
These are important things, and each one could easily have pages written about them. But, I hope that in my goal to summarize them, you’ll take the time to read and think about them. If you want more detail, let me know and I’ll send you a ton of info.
What if my bank fails and I lose all my money?
This is a very real concern right now, and for good reason with the meltdown in the banking/credit world. The good news is that almost every savings, checking, and money market account held at a bank is insured by the FDIC to $250,000 (although this reverts back down to $100,000 on January 1st, 2010).
Most of the time, accounts at credit unions are insured to the same amounts through a similar insurance fund, but I would check yours out today to be sure. Finally, keep copies of all of your paperwork on these accounts – if something does happen, you want to get every last penny that is coming to you.
Where should I put my money now?
Under your mattress. Actually, I’m only half joking, as I really feel like doing just that with all of the turmoil these days. Stocks have always performed well over the long haul, and there are probably some big bargains out there right now…but it is still just a little too crazy for me right now. I don’t think I’m smart enough to perfectly time the markets, and I don’t want to miss the next bull market trying to pick the very bottom, but I don’t think we are anywhere near that yet.
We think you should just go for a single right now instead of a home run. I’m aggressive in terms of investing, so it pains me a little to say it, but I don’t think an ultra-secure CD from one of the big banks like Capital One or ING or HSBC is a bad option right now at the 3-3.5% they are paying. Look around, but don’t search out the very highest interest rate, since that might be at a riskier bank.
You probably already figured this, but per the first item above…make sure it is an insured account.
My 401(k) has dropped like a rock – what do I do now?
If you’ve got at least 5-6 years until you retire…
Most likely your investments will come back. Due to stiff penalties, don’t yank money out of your 401(k), and don’t stop contributing. Consistent, regular contributions will actually buy you more shares of stock when things are down (for more on this, search for “dollar-cost averaging”).
Make sure that the balance of investments in your account is still optimal after all of the market ups and downs. (This is a fairly complex subject, but with all of the market turmoil and craziness, it is possible that your investment allocations have gotten skewed either too aggressively or too conservatively. Probably best to check the website or call a live person where your funds are for more help on this). Finally, ensure that your money is invested in the lowest-cost plan options possible – usually index funds are best.
If you are hoping to retire within 5 years…
I’m going to tell you something I hope you’ll respect me for. I don’t know. I mean, there are many options and textbook thoughts and ideas, but there isn’t a one-size-fits-all answer for you, and I think it would be criminal for me to act like there is with something so critically important.
So, here is the extent of my advice on this one, which I hope you’ll follow.
Get in touch with your financial advisor immediately. I’m amazed by how many people we talk to haven’t done this, for one of a few different reasons. Call today, and if you don’t get very detailed advice that you can immediately take action on, find somebody else. Right away. (But also keep in mind that if they can back up their reasons, the right decision for you might really be to wait it out and not do anything).
I was just getting ready to retire – should I still do it?
This is obviously another complex topic, and I can’t give a perfect answer that will fit every situation. What I can do is bring up a few things that people don’t seem as familiar with to add to your list of options:
- Confirm that your retirement benefits are what you are expecting. Some benefits (especially health-related) have been changing the last few years…to say nothing of what could happen based on our current economy. This is a huge concern in our opinion, so check it ASAP.
- Check with your employer to see if they have a “stepped” or “phased” retirement. Sometimes you can work 2 or 3 days a week and make it a win for you and your employer.
- We’re surprised that some people don’t realize that Social Security benefits will go up if you start taking them as late as you possibly can (currently at age 70). If you are close, and this could work for you, we think it is a good option to consider.
Social Security Scares Me
If you are pretty close to retiring, you are probably going to get exactly what you are expecting. But, if you’ve still got 5+ years…you really need to ask yourself some hard questions. While things will probably be fine for a decade or two like most experts predict, what if the whole system is worse than expected?
I’d run a few different scenarios, showing your social security income at 90%, 75%, and 50% of your currently-expected benefits. I don’t want to be too pessimistic, but you’ll be much better off if you think about it now rather than later.
I’ve got a traditional pension, should I be worried?
Yes and no. The government guarantees your payouts (up to a certain percentage cap or $51,750 a year for 2008) if your company’s plan is covered – and most are. But, pension plan assets have been on a rollercoaster with the rest of us. Your company might have to make changes to keep up with federal regulations, and that could directly impact you, especially if you are close to retirement. A good website with information on easily checking the funding of your pension plan is www.pensionrights.org
Although your pension plan obviously isn’t under your control, what you can control is how well you are prepared for surprises like this. As with the item above, I’d run a few different scenarios with different levels of pension payouts – today. You might decide to make some changes now just to be prepared for the “what if” factor.
Your Money: Series Wrap-up
You’ve finally reached the end of this series!
Most people have found the information and level of detail helpful, although some people wanted me to condense it substantially. We live and breathe this stuff, so we want to get information out there as much as possible. But yes, sometimes that makes it a little rambly. All in all, I hope it was worth your time.
Comments – as always – are welcomed. I’ll probably do another series early next year, and want to make it as valuable as possible.
Oh, and let me know if would you like a downloadable PDF file containing the whole series. I’m planning on doing it, but want to see if there is any interest first.
Thanks for reading, and I’ll be back shortly after the Christmas holiday.
Happy Holidays!
Scott
