May 22, 2022

Financial Security in an Insecure World

Financial Security


Over the last few months, the stock market has proven yet again it is no place for sissies. Huge drops in the Dow Jones average one day (over 1,100 points in a single session last week!), followed by encouraging partial recovery, only to be dashed by another fear-induced sell-off, makes for an emotional roller coaster. What will the Fed do about interest rates? What happens to the price of oil? Who can do something about inflation? Will the supply chain problem ever be corrected?

The war in Ukraine drags on, with millions of its citizens displaced and thousands killed. Putin doesn't know how to quit without putting control of his country in serious jeopardy. The underdog lives to fight another day, but the outcome is pure speculation. The world economy is in a tizzy, and Europe trying to make do without Russian oil, gas, and wheat. NATO might gain new members, but only if Turkey allows it. 

China has become the financial equivalent of jello: a seemingly solid mass that quivers and shakes with each new move by its government to hold things together. Covid is back, resulting in millions back into lockdown.

The bottom line is financial headaches, real or imagined, for nearly all of us. Even if you don't have much skin in what happens on Wall Street, we are all affected by what happens worldwide. It is absolutely true that if one developed country sneezes, we all worry about catching a cold. 

So, what does all this mean for the concept of planning for retirement financial security? If you are retired, close to leaving the workforce, or even just thinking about the time when you will be freer to live your dreams, what are you supposed to do when the Dow drops 1,000, you can't afford your dream home, or China, the world's second-largest economy, starts to slow down? 

Do you rejoice when gas prices drop or realize that it is likely a temporary blip Prices around $5 a gallon may be the new norm for quite a while. ? What about the West's will that affect food prices and life for the 40 million people who depend on the Colorado River to keep flowing?? Lake Mead and Lake Powell are draining faster than a toddler's bathtub.

As regular readers know, I am a non-financial blogger. I still managed to retire at 52 by following a simple rule: spend less than I made. I have had a few financial advisers over the years. Generally speaking, they have been positives for me.

Yes, some of their recommendations were poor (think Greek banks in 2012), and I lost money. Since the financial markets are not logical and are subject to seemingly counterintuitive moves, I  know losing is part of the process. As long as the growth exceeds the decline by a decent percentage, I am happy. 

So, what is financial security, and how do you achieve it? I suggest there are three parts to the answer:

1. Knowledge. I don't mean understanding derivatives, swaps, or other esoteric financial tactics that helped launch the 2008 meltdown. Obviously, many professionals didn't understand what they were buying either. I mean knowledge about your goals, the actual state of your financial health, and the amount of risk and uncertainty you are willing to tolerate. Self-knowledge is key. Without it, your future is at the mercy of others.

2. Patience. This is a tough one in a culture that literally screams at us, "buy now and buy often." Saving for something and delayed gratification is not part of our collective mindset. An article in the paper last weekend recounted the trend of those under 35 giving up on saving for retirement. After two years of Covid, these folks have decided that planning for an unknown future is silly. Enjoy life while you can before another ...whatever...knocks us on our rears again.

Even if we have little or nothing invested in stocks, when the market falls, we react in precisely the wrong way by allowing panic or fear to dictate how we manage our financial assets. When housing prices begin to skyrocket like they have been for the last few years, we decide to sell our homes so we don't miss out on the rising tide - completely forgetting that the house we are moving to is also hugely more expensive. 

Patience is a winning strategy in much of life, particularly in financial matters. The hare lives up to 10 years. The tortoise is closer to 150 years. There is a reason he eventually wins the race. 

3. Attitude.  This is the belief that you have successfully prepared for your retirement. Life may make that difficult, but without an attitude that the problems can be overcome or worked to your advantage, severe damage will have been done to your long-term success. This isn't just positive thinking. Instead, the proper attitude allows you to make appropriate decisions, execute your plan, and adjust your goals. I know that the losses my investment account is showing are only real if I liquidate now. My attitude is they are paper losses, I will not deviate from my plan.

Financial security does require some money. It does require being smart with your investments. It does require a certain level of resources, though that level is different for each of us. That is the reality. 

But, I contend that the mental part of the equation is as important. With self-knowledge, patience, and the right attitude, your financial security is not just what is in the bank or the broker's, but what is in your mind. 

And, unlike a stock market that runs more on emotion than logic, I find it quite comforting that the mental part of financial security is 100% under my control.

 I find that quite satisfying.


  1. I think most of us, after you are retired for a while, usually realize those 3 points you highlight are the important ones when it comes to retirement finances. I think the 2008 meltdown was an important lesson for me. At that point I was in my mid-50s looking forward to retirement (6 years later as it turned out) when the value of my retirement savings were cut in half. I figured the comfortable retirement I had dreamed of was gone for good but I stayed the course and carried on investing as they say you should do in a bad market. We all know "buy low sell high" but don't let anyone tell you this is easy when the market is falling big time. It is REALLY difficult to put thousands of new money into the market and have less at the end of the year than you started with. I was beginning to question my sanity but it did turn around and it was the right thing to do after all. These days a 10% or 20% drop seems like small potatoes by comparison. That 2008 experience gave me the knowledge, patience, and attitude that this too shall pass.

    These days I keep 2-3 of living expenses in cash or near cash investments so I don't have to sell into a bad market to pay the bills. I have also deferred taking my social security pensions to age 70 (18 months to go!) for the maximum, inflation indexed, guaranteed for life, monthly cashflow that no matter what happens will be enough to see me through my very old age should I make it that far. I'll only know in hindsight if that was the way to get the most money out of the government but the security of knowing it will be there for me gives me peace of mind. I would guess that in retirement few of us want to be sweating every twitch in the market.

    1. That last paragraph should say "2-3 years of living expenses"

    2. Originally I had planned on waiting to 70 1/2 for Social Security payments. But, I saw the money on the table and jumped at 64. Still in recovery from the 2008 disaster is what prompted me to pull the plug.

      Like you my emergency fund has several years worth of available cash if needed.

  2. Well heck, I lost 70% in the 90s d/t a crappy unauthorized decision by the 403b company to go all out high-risk on my investments. Yup, keep on investing with dollar-cost-averaging. I did a much better job from 2001-2017 in my 401k with that job change! 2008 took a bite but hey, I kept on investing. When I retired, I hired a professional and he turned ALL of my rollovers by nearly 90% by fall 2021. Am I concerned about the current market? Yes. Am I worried, No. Even though I am retired and no longer investing new money, I'll be fine. Besides, worrying changes nothing except the strain on my mind/body. I'll keep growing food 5m a year, enjoying library books and traveling-even if adjustments are required for economic reasons.

    Happy Sunday everyone :-)

    1. The paper losses in our investment account are disturbing, but prompt no change in approach. The economic world is one of constant up and down cycles. With the last few years being on a steady up path, a major correction is due.

      Even with things on the economic front sour right now, we have bought a new car and committed to some vacations. Life goes on and is growing short for some of us. To simply hunker down is shortchanging us of new experiences.

  3. You and Mr. Davidson have summed it all up very well. As for me, I just follow two guidelines which I think you endorse: keep plenty of cash, and keep it simple stupid.

  4. I needed this, right now! Thanks...

  5. We have been retired for 7 years. I am not very worried about the next couple of years.
    Several years before retirement my financial planner consolidated my 401k and my other savings into a single plan and moved into the "3 bucket" strategy. By having a long-term bucket and medium- and short-term buckets I can plan my spending by keeping my 3-year short term needs including emergency funds in separate investment accounts. This allows me to keep my long-term money in a long-term bucket and ride out the ups and downs of the market much better as I do not have to touch the long-term investment while the market is down. The short-term investments are in much more stable investments and have not suffered from the downturn as much as the overall market. As the short-term money is discretionary planned spending, I can then decide to reduce spending from the short-term buckets needed to extend the life of the short-term accounts if the market does not recover as quickly as anticipated.
    My planner has been well worth the small fee I pay for his services. One key to this has been for us to keep our day-to-day expenses within our SS and [small] pension incomes.

    1. Without the bucket name, that has been our approach, too. Our spending really depends on the state of what is available without selling anything. Between the RMD that I must take every year, and SS payments our usual yearly expenses are covered. ,We only tap the short term investment accounts for out-of-the-ordinary needs.

  6. Yes, it's hard to watch the markets go haywire. But, as you said, they were really ready for some kind of correction. The amount they rose in the recent past was wonderful (and mildly unrealistic?), but over time we've learned not to panic when they go down. By watching our budget, we can use SS and DH's RMD (I"m not there yet...) and let the rest percolate for a while. Patience is key in the long game.

    1. I look at what the market is doing more as entertainment than as information that will change my approach. My financial handler makes adjustments as needed in various places; I trust her to do what is best for me. So, I just remind myself it is all paper losses or gains since I haven't touched much of it since SS started and then RMDs became a requirement.

  7. I should probably be more embarrassed by this, but I never look at the stock market returns anymore.
    I panicked in 2001 when the market kept falling, and sold a lot, then started buying again when the prices were higher. Brilliant, huh? I learned from that and just invested regularly until I stopped around husband's retirement time.

    We have no guarantee that we're right, but we feel we are in fine shape, not because we have a million in stocks and bonds, we certainly don't, but because we could easily live on just our social security if we had to. House and cars were paid for in cash. Some people like to torture themselves that social security isn't safe, but we don't believe that. Before social security is allowed to fail the whole government would have to go down.

    As far as medical is concerned, we have a Medicare Advantage plan. It works fantastic for us. Husband has had two knees replaced, shoulder rebuilt, wrist surgery and everything has been covered beautifully. Our maintenance meds are covered 100%. But even if they weren't, we are quite lucky in not having to take anything truly expensive.

    We are in our 70s, husband will be 80 this year, and our cash reserve is still building, we honestly are having difficulty spending it. We are trying to think of what purchases will make us happy. We are going to Hawaii in July and taking our 22 year old grandson. That will give us great joy. But for various reasons, the big, lenghthy expensive trips may be off the schedule, pet problems, as I previously mentioned.

    We are throwing a bit of money at some enjoyable home improvements this year.

    We can't think of anything else to do for financial security. If you see any glaring holes in our plans, Bob, feel free to mention them.

    1. Glaring holes? No...I'll ask your grandson what he thinks of your planning!

      In most years our total investments grow faster than we can spend them. Like you, we are content with our lifestyle, have more than enough to live very comfortably, and don't worry about things we cannot control. Minor home fixups and occasional vacations keep us quite happy and satisfied.

      You and hubby are going great!

  8. Spend less that you make. Wow. And you say you are not a financial blogger. That is the smartest financial advice anyone could ever give!

    I have a wonderful financial advisor. I meet with him a couple of times a year to go over things. I don't try to understand everything -- that is what he is for -- but we have conversations about values and priorities and plans that will impact my finances.

    I don't watch the market closely -- again that is what he's for -- and I know that I'm playing a long game (shorter the older I get) so patience, as you said, is key. And trust, or attitude, as you said.

    1. That is Captain Obvious advice: "spend less than you make." I know it isn't fashionable and is not good for the economy, but our job is to not be a burden on anyone in our elderly years. Being wise about spending now is the safest way for that to be accomplished.

      Yes, our long game is becoming more like half a marathon, but the same approach continues to work!

  9. Excellent post, Bob! I believe you're spot on regarding knowledge, patience and attitude. I find the thought of a trend among people of any age giving up on saving for retirement frightening. Whether the driving force behind that is related to instant gratification, a poor understanding of personal finance or anything else, it sounds to me like people may be just sticking their heads in the sand and hoping everything turns out okay in the end. With rising prices everywhere and very few pensions in sight, that appears to be a dangerous road to follow.

    Coincidently, yesterday's post on the Squared Away Blog in your blog roll was entitled, "Americans Say They Need a Finance Class". The post goes on to say that more than 80% of adults believe that a personal finance class should be required in high school. I've been saying that for years. Knowledge is power, and the sooner we provide our kids with a foundation in personal finance, the better able they'll be to successfully manage the financial aspect of their lives with confidence.

  10. Interestingly, a new board member of our library Friends organization has financial literacy among the young as her primary focus. She sees people graduating from high school with almost no knowlege of credit, budgeting, saving, or investing for the future, and is very afraid for them.

    Our schools, and parents, have an obligation to not send our newest citizens into the world unaware of the financial truths that will determine a large part of their success and happiness.

  11. When I worked with younger people they thought nothing of spending $ 800.00 for a pair of sneakers. They made fun of me for wearing my $ 50.00 sneakers. I told them I took that other $ 750.00 and invested it. Young people now days want to look rich rather than be rich. I'm not sure a finance class in High School would actually help the students unless they have jobs and know how long they have to work to pay for something they want to buy. Kids who have a job in High School are more successful than kids who don't have jobs. We are staying the course on our investments we don't need to sell anything in order to pay our expenses so we can wait for the market to sort itself out. I watched as the dot com bust devastated our 401k, 9/11 crashed the funds, 2008 housing bubble crashed the market, 2014 & 2020 also caused havoc after every crash the market recovered.

    1. I would guess you are correct that until someone has a job and is responsible for at least part of their own expenses, lessons learned don't become real. As a youngster my parents gave me an allowance but part of it was spent on any hobbies or interests I had. I learned to budget at an early age so i could afford whatever attracted my eye at that time without asking mom or dad for money.

      I am watching the current financial upheaval with detachment. The only part that I can't escape is the inflation for food and gas prices. I understand why they are happening and would blame Russia if it did any good. Otherwise, I grin and bear it, and thank my lucky stars that I bought a plug-in hybrid car a few months ago.