Protect Your Confidence

For this Retirement Coach Strategy of the Week, I have two very important stories I’d like to share with you.

I strongly recommend that you settle in for a few minutes to read them because I think this Strategy is as important as any I’ve shared with you this year.

The first is an Associated Press story that was recently released:

BOOMER BUST—Poll: Anxiety About Retirement Grows

By Jennifer Kerr—Associated Press

Wednesday, Nov. 9, 2011— So much for kicking back at the lake house, long afternoons of golf or pretty much anything baby boomers had dreamed about in retirement. For many, the plan now calls for logging more hours at the office and renewed worries about money, according to a new poll.

The AP-LifeGoesStrong.com poll found a baby boom generation planning to work into retirement years — with 73 percent planning to work past retirement, up from 67 percent this spring.

A majority of boomers also are shaky about their nest eggs. In all, 53 percent of boomers polled said they do not feel confident they’ll be able to afford a comfortable retirement. That’s up from 44 percent who were concerned about retirement finances in March.

“I’m not confident at all,” says 63-year-old Susan Webb of West Liberty, Iowa.

Webb — one of the 77 million boomers born between 1946 and 1964 — had long hoped to retire at 65 from her job as a real estate broker. Not anymore, not since the economic downturn that led to depressed housing prices, wild stock market swings and an unemployment rate hovering at or above 9 percent for all but two months since May 2009.

Webb and her husband, who’s 67, are both still working full time. They hope to ratchet back to part time at some point, but plans for a scenic lake house where they can go fishing and spend time with their two grandchildren will likely mean selling their current home — not part of the original plan.

At 50, Cheri Hubbs of Norfolk, Va., is on the younger side of the boomer spectrum. Even so, she knows she’ll work in retirement.

“I just feel like I’m going to work until the day I die,” says Hubbs, an administrative assistant.

Hubbs had little saved for retirement when she went to see a financial planner a few years ago. Now, she and her husband are socking away as much money as they can. She’s also cut back drastically on her little luxuries — trips to the nail salon and Starbucks.

In the poll, 41 percent of boomers said they are expecting to have to scale back their lifestyle in some way in retirement and 31 percent believe they will struggle financially.

Retirement expert Olivia Mitchell says working longer and cutting back are two practical ways for boomers to save more.

“It’s a kind of downscaled consumer society that I see in the next five years at least,” said Mitchell, a professor at the University of Pennsylvania’s Wharton School and executive director of the Pension Research Council. “Consume less and tighten the belt.”

Downsizing is part of the plan for software designer Greg Schmidt of Carlisle, Mass.

Schmidt, 53, says there’s no doubt he’ll be working longer, likely into his 70s. With a daughter in high school and twin 12-year-old boys, he’s got college tuitions to worry about as well as an aging father and father-in-law.

He plans one day to move to a smaller home, maybe in the mountains of Vermont. Almost one-quarter of boomers in the poll — 23 percent — said retirement will mean they’ll have to move.

For Schmidt, the stock market is another source of anxiety. “I am most concerned that we’re going to be entering a different time and equities aren’t quite as valued,” he said. “I am afraid I’m a little heavy into equities.”

The span between the two AP-LifeGoesStrong.com polls coincided with a 10 percent drop in the Dow Jones industrial average, which recovered most of those losses by climbing this week to above 12,000 before plunging again Wednesday amid concerns about Europe’s debt crisis.

In all, 62 percent of the boomers polled lost money on at least one of four core parts of retirement savings:

—A workplace retirement savings plan, 42 percent.

—Personal investments outside of an IRA/workplace savings, 41 percent.

—An IRA, 32 percent.

—Real estate, 29 percent.

The AP-LifeGoesStrong.com poll was conducted Oct. 5-12 by Knowledge Networks of Palo Alto, Calif. It involved online interviews with 1,095 baby boomers, as well as companion interviews with an additional 315 adults of other age groups.

Story #2

If you haven’t been tempted to jump off a tall building yet after reading that, let’s compare and contrast the next piece of news. And, this is an expanded answer to the November Relaxing Retirement Quiz:

Quiz Question: What is the average “intra year” percentage decline in the stock market? (i.e. over the course of any given year, what is the average peak to trough drop that occurs during the year?)

Answer: 14%

A great example of this was last year in 2010: the S&P 500 Index began the year at 1,115. It roared to 1,217 by April 23rd. It then dropped to 1,022 on July 2nd (a 16% decline), only to then rise up again to finish the year at 1,258.

Had you taken a nap in your hammock all year long, you would have witnessed a price increase of the S&P 500 Index of 12.8%.

However, had you been living through it on a day to day basis, you would have also experienced a 16% peak to trough drop in the middle of it in order to realize and benefit from that 12.8% rise!

I chose to use this quiz question this month because it’s an incredible statistic to embed into your subconscious. Always remember that it’s never what happens in the market that matters.

What matters is your response to it. Most Americans continue to be shocked and surprised by what the market is doing because they’re intellectually and emotionally unprepared for it.

So, knowing this piece of information, there are two responses when confronted with a 14% drop in market prices like you recently witnessed from April thru September of this year:

Strategy A: “I’ve lost 14% of my money, there’s no end in sight, and I’ll never get it back!”

vs.

Strategy B: “I’m experiencing a perfectly ordinary, unsurprising, and above all temporary correction that represents the average intra-year correction in markets, and it will have no lasting effect on my long term returns.”

I know this is a rather simplistic set of choices. However, I think there’s a lesson in there for all of us.

And, that is the history of volatility. The more we know about it, i.e. it’s frequency and depth, but also its long term harmlessness, the less likely we are to be surprised by it.

The less likely we are to get panicked by it, and the less likely we are to react in ways that we intuitively know are not the right thing to do if we’re thinking rationally.

A Little Contrast

Before we contrast these two “stories”, I’d like to share with you the lens through which I view information like this. It all stems from the book Psychocybernetics, by Dr. Maxwell Maltz, which I read for the first time over twenty years ago and strongly, strongly recommend to you and your family.

Since then, I’ve tried to let it be the governing thought process of everything I do and everything I share with you in our program.

When asked by a reporter to clarify the essence of his research and teaching (since the title is somewhat intimidating and unclear), here was Dr. Maltz’s answer:

The essence is the accurate, calm, and ultimately automatic separation of fact from fiction, fact from opinion, actual circumstance from magnified obstacle, so that our actions and reactions are solidly based on truth, not on our own or others’ opinions.

Before reading on, I recommend reading that a few more times and giving it significant thought. (I’ve had this posted next to my desk for years as a constant reminder).

I’m sharing this with you because you’re at a critical and precarious juncture in your life right now.

Critical because after relying on the income from work to support you for the majority of your life, you’re now relying on what you’ve saved along the way to support you for the remainder of your life. A tall task by anyone’s standard of measurement.

And, precarious because there are virtually no guarantees anymore.

So, developing and maintaining your financial confidence on a daily basis is not something that we can just give lip service to anymore. It’s of paramount importance if you want to live the remainder of your life the way you deserve to live, and without the constant fear of running out of money.

Associated Press Story

With the constant development and maintenance of your financial confidence as a primary lifelong goal, and Dr. Maltz’s recommended strategy as a means to get there, let’s now go back and take a closer look at the AP story (from page one) which appeared in hundreds of major newspapers across the country. While there is so much that we could talk about, let’s focus on just a few quotes from the story that I’d like you to re-examine:

“So much for kicking back at the lake house, long afternoons of golf or pretty much anything baby boomers had dreamed about in retirement. For many, the plan now calls for logging more hours at the office and renewed worries about money….”

Is this a fact or opinion? Is it fact or magnified obstacle?

“I’m not confident at all,” says 63-year-old Susan Webb of West Liberty, Iowa. She had long hoped to retire at 65 from her job as a real estate broker. Not anymore, not since the economic downturn that led to depressed housing prices, wild stock market swings and an unemployment rate hovering at or above 9 percent for all but two months since May 2009.”

I feel for Mrs. Webb, but I wonder how much planning she and her husband have done up until now. I run the risk of coming across as cold hearted here, but “depressed” housing prices, wild stock market swings, or high unemployment should have little or no impact on her prospects for retirement if she’s planned properly up until now. This is a classic example of the media’s desire to tug at your heartstrings in an effort to create a “story”.

“It’s a kind of downscaled consumer society that I see in the next five years at least,” said Mitchell, a professor at the University of Pennsylvania’s Wharton School and executive director of the Pension Research Council. “Consume less and tighten the belt.”

Is this fact or opinion? Clearly an opinion, yet a statement that will resonate with the majority of Americans who unconsciously derive their confidence (or lack thereof) from so-called “expert’s” opinions instead of facts.

Schmidt, 53, says there’s no doubt he’ll be working longer, likely into his 70s. With a daughter in high school and twin 12-year-old boys, he’s got college tuitions to worry about as well as an aging father and father-in-law.”

Now, Mr. Schmidt’s situation (kids’ tuitions and aging parents) is a fact. But, it’s not a new phenomenon or historical tragedy that has suddenly been dropped into his lap that should now derail all of his carefully laid out plans up until now.

Without putting this story through a filter like Dr. Maltz’s, after reading it, you’re likely to come away with the feeling that your life is completely out of your control.

The world’s “horrible set of circumstances” have you under lock and key, and there’s no hope whatsoever for a better future. Life will only be more and more difficult, and your means of survival are for you to “consume less and tighten the belt.”

Relaxing Retirement Quiz

If you’ve survived all of that pain and misery, let’s move on to story #2 which is simply an answer to a question: What is the average “intra year” percentage decline in the stock market? (i.e. over the course of any given year, what is the average peak to trough drop that occurs during the year?) Answer: 14%

Now, that’s a quantifiable fact that your actions and reactions can be solidly based on.

And, given this fact, your choice of reactions when market prices again drop 14% in any given year can be:

I’ve lost 14% of my money, there’s no end in sight, and I’ll never get it back!”

or

“I’m experiencing a perfectly ordinary, unsurprising, and above all temporary correction that represents the average intra-year correction in markets, and it will have no lasting effect on my long term returns.”

Do you see the difference? And, can you see how critically important it is for you to use Dr. Maltz’s litmus test in order to protect your financial confidence in today’s world?

I can’t stress enough how important this is. It’s the reason why I decided to devote this entire newsletter to it after first reading that AP story.

I know what you’re up against, and it’s not easy. In today’s second by second, sensationalistic news (and opinion) reporting in all forms of media (television, radio, newspapers, magazines, on-line, etc.), it’s extremely difficult to determine what’s fact vs. opinion or magnified obstacle, sort it all out, put it in perspective, and remain confident.

Yet, at the same time, I also know how critically important your financial confidence is. In many respects, next to your physical health, the quality of your life can be measured in direct proportion to it.

That’s why I continue to make it the focal point of The Relaxing Retirement Coaching Program™, and why I will continue to point out and crystallize these important distinctions.

Keep your antennae up! Protect your financial confidence, and ultimately the quality of your life.

Committed To Your Relaxing Retirement,

Jack Phelps

The Retirement Coach

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