Advice for Seniors: Managing the Financial Market Turmoil & Economic Crisis

I have recently been reminded of the wisdom that only comes with time. My senior clients have once again shown incredible resiliency in handling the severe crash of the financial markets as well as the significant recession now on our doorstep. Their years of experience bring invaluable perception that helps them face losses of gains and their fears of dealing with an uncertain future. It always amazes me when I get calls from clients who say, “I merely want to know how you are doing” and “do we buy?” They remind me of the past markets and economic downturns, the impact it had on them, including what happened in the long-term, and the benefits of the different strategies and choices we implemented. It reminds me that we have grown, changed, and now share the wisdom we gained from our past experiences.

This financial storm also reminds me of why I decided in 1999 to work exclusively with older adults (read my epiphany here), although I have discovered many other rewarding reasons since then. My senior clients, with their realism and need for greater security, generally match my own decision-making tendencies, developed as a result of many years in the investment arena as a guidance counselor advising clients on financial management decisions. I, too, have become more cautious, cost-conscious and what I call “valuably cynical” with time. By that I mean I take less risk and a more careful approach to investing. I have learned many lessons over my 30-year career. Hopefully, this wisdom has improved my judgment, although I still don’t have a crystal ball.

Understanding the Risks

Life is filled with many financial uncertainties that we merely attempt to hedge (e.g., with insurance) or assume, in order to try to meet our personal objectives. Most older adults can appreciate the concept that there are risks that can come with additional potential financial rewards; what it comes down to is a matter of knowing and understanding what those risks are. Although a conservative strategic balance approach can minimize a potentially disruptive impact of financial market upheavals, it does not necessarily mean that meeting objectives comes without some bumps in the road. Guarantees also come at a price, as the net returns come only after all costs, time, taxes and inflation (which impacts the purchasing power). In addition, they may require relinquishing future ownership interest in the assets for present mental security. Practically every decision, whether it’s in life or in finances, has some associated risk! It’s essential to weigh those risks to the individual’s present and future needs, accounting for that person’s tolerance to possible fluctuations and alterations.

When Diversifying Isn’t Enough

Diversification is supposed to reduce overall portfolio risks. Now, unfortunately, for people in many parts of the country, the financial turmoil is being felt everywhere (e.g., real estate, stocks, international markets, bonds, money markets and bank deposits); it feels like the sky is falling. Think about it: getting through the financial crisis is similar to adjusting to other major life losses—such as fire, health, accidents, natural disaster and even death—as we are forced to make new choices, alterations and modifications to our desires and expectations in order to move on.

The people who are affected the most by the financial crisis are those just about to make a major life transition or change. This includes new retirees as well as those who are moving and downsizing from a current home, and those moving into a more expensive living situation that requires the sale of assets that may be down in value now. Unfortunately, this may require either a delay, reduction of expectation or a different choice altogether. At times like these, individuals with little financial cushion are negatively impacted the most, and they may require assistance paying for costs they haven’t calculated for. It’s how you meet the challenges presented in life as well as your perspective and the choices you make that will determine the true impact.

Shell-shocked Over the Financial Crisis?

You’re not alone. Many people have been caught unprepared for this economic downturn. The next step is to face the losses and continue to focus on your long-term financial objectives. Consider the six points presented below in making possible adjustments to your financial plan.

1. Just as every person’s life is unique, so is their financial situation. We are all different as to the impact and our perception of it. Evaluate your present financial situation and future. Ask yourself: what are your long-term objectives? When will you need the money? What are the potential consequences and their significance?

2. If the pain and stress is too overwhelming, some adjustment may be required. Radical actions or decisions borne out of fear often result in exacerbating the existing problem and further reducing the probability of meeting your objectives. Try making small changes at first, ones that are just enough to reduce your anxiety and help you feel better by taking proactive action.

3. Ask for help from someone who understands the financial markets. Consider consulting a knowledgeable, experienced financial professional who has no personal financial interest in making a recommendation for change. It could cost you more to do nothing. Don’t be blinded by fear.

4. Use these losses as a learning opportunity to help avoid mistakes in the future. Look beyond the moment at history; consider the significant down markets of 2000–02, 1987–91, 1981, 1973–74 and the 1930s. There will always be doomsayers, but if you listen only to them, you’ll miss a lot of opportunity along the way. Look clearly at the reasons why you and others made the choices and recommendations you did, and look clearly at the actual results. Believe me, this is a lesson I have learned many times over—and yes, a client did remind me of this!

5. Look at your net worth to determine what might need to be shifted. This includes all of your assets. Lower prices can mean an opportune time to sell, especially if the funds will be needed within a couple of years, because the capital gains are less—and the ordinary income taxes owed are reduced if you convert some of a regular IRA to a Roth IRA. Although it’s easy to say, “I have lost nothing because I have not sold anything,” the truth is you have. You might want to reconsider where those investments will do the best in the future. The economic landscape has changed; perhaps you should also consider reevaluating your strategies, expectations and get a tune-up financial review. Let me be clear: leaving things alone is also an option to be considered—but it should be a strategic choice, not a default.

6. Take advantage of opportunities to benefit from your losses. This global financial crisis is in every way an unprecedented, historical calamity, but the governments of the world are taking drastic actions to minimize the impact. The truth is that even though a possibly severe recession is impending, the financial stimulation from the government will eventually have a positive future impact that results in an economic and market rebound. As retirees know, many assets become very, very cheap during economic and market downturns, which, over the long haul, may be a rare opportunity for financial benefits. Those with available cash or available liquidity—individuals, companies and countries—will come out big winners, if they are smart, at the back end of such a crisis.

I know it is very difficult to watch financial security and hopes disappear. This is usually accompanied with a lot of “what ifs.” But you can’t go back and change decisions you’ve already made. Hindsight may be 20/20, but what you really need now is foresight. The intertwining of money, our lives, and our own self-worth is so entrenched in this society. If you are overwhelmed with anxiety about your financial losses, the turmoil and the impact it may have on your future, I recommend you take another look, a new perspective, or talk to someone who you think could help you make adaptations and adjustments to your financial plan. Think forward and consider getting a professional financial review.

Posted in Advanced Planning, Financial Planning for Retirement, Handling the Economic Crisis, Senior Homeowners & The Economy