Financial Security Index
Financial Security Index
smart spending
Economic woes cause spending cutbacks

According to the Financial Security Index, 40 percent of retired survey respondents say they have cut back on spending, matching the proportion of the general population.

"Within reason, cutting back is a wise strategy for retirees. This is a good time to look at your asset allocation strategy and the cash generated by your portfolio to determine if your needs and your portfolio are aligned," says Mackey McNeill, CPA, CEO and president of Mackey Advisors in Covington, Ky.

"We advise retirees to keep three to five years of spending requirements in cash, CDs, money markets or short-term bond funds. This way, short-term equity market volatility need not concern them," McNeill says.

By keeping plenty of cash available for spending in the near future, retirees can avoid drastic spending cutbacks as a result of market volatility in the present.

Fear fighters

By following good financial practices such as budgeting, saving for emergencies and paying down debt, consumers of all ages can cushion themselves against financial shock.

"You need to be more focused on your own fiscal health and making sure you are creating an environment you cannot just survive in, but dominate in, regardless of a poor economic environment," says Evan Shorten, CFP and president of Paragon Financial Partners in Los Angeles.

In addition to establishing good basic financial habits, investing for the long term can help consumers meet their savings goals over their lifetime. To invest successfully, use instruments that are in line with your risk tolerance and time frame to help you get through nerve-wracking periods of instability.

It sounds counterintuitive, but planning for the market to go down will also add to peace of mind.

"People should have portfolios constructed with alternative investment strategies in addition to traditional asset classes such as stocks and bonds. They should make every attempt to diversify not only across asset classes but with varying correlations as well," says Bernard Wolfe, CFP and founder of Bernard R. Wolfe and Associates in Chevy Chase, Md.

"You don't want all the pieces of your portfolio to move in the same direction, whether up or down. True diversification means always having a couple of investments that underperform. Assuming you are properly allocated, people should stick to their strategy and not let the daily headlines affect that long-term game plan," he says.

Like the proverbial ant in Aesop's fable of the ant and the grasshopper, consumers who plan for the worst can relax in hard times rather than react. Knowing you've done everything possible within your realm of influence will make it easier to live with events that are far beyond your control.

« Back to the Financial Security Index poll.

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