It’s easy to assume that financial confidence increases over time. You make more money as you get older after all.
However, the opposite appears to be true. Recent research suggests that financial stress — not confidence — increases as we age, peaks in mid life and then gets better through our 60s. This financial stress may be the root of the mid life crisis.
The U Curve of Financial Confidence and Happiness
If you were to illustrate financial confidence across generations, you would see that the results are in the form of a U-curve. Confidence and happiness are highest at the earliest and latest stages of life and lowest in the middle. In fact, financial confidence bottoms out in your 40s and 50s.
Feeling bad in your 40s and 50s does not immediately make a lot of sense. Most people have families, are making money, own a home, etc… However, it may be those very obligations that cause stress.
A study from LearnVest finds that confidence in your own financial situation is linked directly to the number of obligations have have at a certain points in life. The maximum number of stresses occur in mid life. Your financial obligations tend to pick up after your 30s and continue through your 50s, according to LearnVest. This is the period where things like home loans, weddings, children, education and healthcare begin to take priority over saving for retirement.
Taking those expenses into consideration, it’s no wonder why workers ages 45-54 feel stretched and are among the least confident about their retirement finances. The LearnVest survey discovered that only 29% of 45-54 year olds feel confident about retirement.
This financial stress could easily contribute to a mid life crisis as described in an article in The Atlantic, “The Real Roots of Midlife Crisis.”
So, the mid life crisis is real. However, there are things you can do to overcome those feelings of financial stress.
# 1. Create a Plan
Researchers in a 2012 study for the Certified Financial Planner Board of Standards, Inc. and the Consumer Federation of America found that people who plan financially—across age and income levels:
- Feel more confident about their financial decision-making
- Save more money
- Ultimately feel better about their progress in saving for financial goals
What it all boils down to is this: the heart of being prepared for retirement is having a plan.
And that advice goes double for older adults, especially those who are nearing retirement and haven’t saved enough.
“When you have anxiety about your finances, you have to actually face your financial situation, look at it and have a plan,” he says. “There’s a temptation of kicking the can down the road, but there are things you can do to make material improvement in your end game,” says John Shearman, a financial advisor with Sausalito, California-based IV Lions, LLC, a firm that mainly serves clients in the San Francisco Bay area.
The NewRetirement retirement planner makes it easy to get started. Enter some basic information, see where you stand and then add details and try different scenarios. The system tells you exactly what happens to your immediate and long term finances with every change you make.
The NewRetirement retirement planner is a unique tool that lets you assess where you are now and then adjust and maintain your information over time. This tool was named a best retirement calculator by the American Association of Individual Investor’s (AAII) and Forbes Magazine calls it a “new approach to retirement planning.”
#2. Work with a Financial Advisor
Sure, you can start prioritizing, saving and planning for retirement on your own, but have you? Do you have a plan you really feel great about? Are you in the right investment vehicles for long term growth and security?
If the answer is no, then you might want to set up a meeting with a financial advisor.
- Working with a financial advisor can really force you to prioritize creating a plan and actually saving. Sometimes it is not the actual advice that will make the difference for you, but rather the outside pressure to actually do something.
- An advisor has the expertise to make sure you are invested in the right way.
- Recent research suggests that working with a financial advisor boosts your confidence and financial preparedness for retirement.
In response to your questions and interests, we are introducing a NewRetirement advisory service. This is full service financial advice from a certified financial advisor (CFP) who will use the NewRetirement planner to make it easier to communicate with you and for you to understand your plan. Meet with your advisor by phone or online conference call. A completely personalized and reliable retirement plan starts at $500.
#3. Prioritize Retirement Over Other Obligations
Yes, if you are in your 40s or 50s then you are likely being pulled in a million different directions and there are a multitude of demands on your income — college, weddings, mortgages, etc…
To avoid stress, you need to prioritize and make decisions about how you are spending your money. You are not going to get rid of the stress by just worrying.
And most financial planners suggest that you choose retirement savings as your priority.
- Retirement may be more important than college since there are no loans for retirement, though loans are available to fund college.
- Retirement is probably more important than funding weddings or vacations which last only a day or a few weeks. Retirement is often 30 YEARS or more…
- Paying down debt is important. But so is accumulating retirement assets.
“You’re on a race to the finish line to retirement,” Shearman says. “You need to be flat out saving as much as you possibly can by the time you hit age 50.”
#4. Make Friends with Your Future Self
Research suggests that our brains naturally process our future selves as strangers. And, let’s face it – you are unlikely to save for the retirement expenses or care for the body of a stranger. It turns out that by visualizing yourself in the future and “getting to know” that person, you are more likely to take steps now to take care of this future version of yourself.
Whether you are 40 and hoping to retire in 30 years or if you are 67 and hoping you have enough resources to fund the rest of your life, here are 7 ways to visualize your future so that you can create and achieve a really effective plan:
#5. Save More Now — Better Late than Never
If you are in your 40s, 50s or even 60s, retirement is near. You are probably feeling anxious about whether or not the amount you’ve saved is adequate. Do you have enough to live comfortably through retirement?
That’s perfectly normal, but there are ways to quash those anxieties and help put one’s mind at ease. Save! Save Now! Save as much as you can!
You are smart and mature and an adult. You have solved problems before. Now is the time to solve the retirement problem and start saving.
“Just do something—it makes a huge difference,” Shearman says. “The earlier you start, the better off you are, even if it’s only 5% of your annual wage.”
Create a written retirement plan right now and immediately try a scenario to see the impact of saving a little more.
View Original Post