Dump Pessimism from Your Portfolio

Clint Eastwood once said: "I don't believe in pessimism. If something doesn't come up the way you want, forge ahead. If you think it's going to rain, it will."

But when it comes to retirement finances, many of us do believe in pessimism, taking what my "Friends Talk Money" podcast co-host Pam Krueger calls, "a glass half-empty approach."

In a recent Bankrate online survey of 2,527 American workers, 56% of them said they think they are behind where they should be with their retirement savings. Gen Xers (age 43 to 58) and boomers (59 to 77) were even gloomier: 69% of Xers and 60% of boomers said they're behind in saving for retirement.

This kind of anxiety is understandable given the past few years: inflation and interest rate spikes, flat wages, a lousy stock market in 2022, frozen pensions and frequent recession fears.

Plus: many Americans haven't saved tons for retirement. Vanguard's How America Saves report says the average 401(k) balance in 2021 for people 55 to 64 was $256,244. Many financial advisers recommend saving $1 million for retirement.

If you're in the glass-half-empty crowd, there are four ways you can change your thinking — as well as your finances.

1. Face your fears and then unwind them. You may be overly worried, for example, that the stock market will go down and reduce the size of the investment portfolio you've amassed for retirement.

Marc Lieberman, founder and portfolio manager of Shorepine Wealth Management in Tiberon, Calif., likes to remind his clients that "the stock market takes the escalator up and takes the elevator down."

That's why down markets often feel so much worse than the amount that up markets make us feel better, he told Krueger for our recent "Friends Talk Money" episode on the glass-half view of saving for retirement.

But historically, the stock market has been consistently strong over the long-term. My other podcast co-host, Terry Savage, often reminds people of this statistic: There has never been a 20-year period when people lost money in a diversified portfolio of large-company stocks with dividends reinvested, going back to 1926, even adjusted for inflation.

"That's the argument for being invested in a diversified way in the stock market," she says.

If you're worried about huge health costs in retirement or long-term care costs, take action to help allay those fears.

That could mean funding a tax-sheltered Health Savings Account, which is like an IRA for health expenses. Or it could mean buying long-term care insurance, since Medicare generally doesn't cover long-term care costs.

It could also mean taking a fresh look at your other insurance policies — car insurance, homeowner's or renter's and disability insurance — to ensure that a nasty surprise won't turn into a financial catastrophe.

Essentially, you're creating a Plan B.

2. Take a hyper-personalized financial planning approach. Everyone's financial situation is different, so don't compare your retirement savings and prospects with anyone else's.

A financial advisor specializing in retirement income planning can help you do this.

To find one, look for a Certified Financial Planner (CFP) who is a fiduciary — a pro who will put your interests first, ahead of their own. The CFP Board's Let's Make a Plan site has a directory that lets you find CFPs with expertise in retirement income management.

Be honest with the advisor about what's worrying you about money. The more you open up, the more you can get assistance to reduce those concerns.

3. Consider every worst-case scenario that's in your mind making you feel discouraged. Krueger calls this "cash-flow stress testing." You'll want to estimate how well your financial plans and goals would hold up under different stock-market performances.

If you have a financial advisor, Krueger suggests saying: "Show me how I will never go to zero [in the size of my investment portfolio] during my lifetime."

If you learn that there is a possibility you might run out of money, this stress-testing may lead you to decide that you — or you and your partner, if you have one — will need to work longer than expected or put more into a 401(k) or an IRA than planned.

In 2023, you're allowed to invest up to $30,000 in a 401(k) if you're over 50. Next year, the ceiling will be $30,500.

You might also want to redirect some of your retirement savings into what Savage calls "chicken money."

She's talking about safe, short-term parking places like money-market accounts, money-market funds and Treasury bills where you won't lose money.

Some banks are paying as much as 4% on money-market accounts; 3-month Treasuries now yield 5.3%. (Savage's site has a handy guide explaining how to buy T-bills with a minimum of $100.)

As Mark Twain reportedly said: "I am more concerned with the return of my money than the return on my money."

4. Avoid making unnecessary short-term mistakes with your finances. That's especially important as you near retirement and have less time left to correct errors than if you made them in your 30s or 40s.

So, don't get addicted to watching CNBC and then buying or selling stocks based on what happened on a particular day.

Instead, take a long-term approach and continue investing in stocks and bonds during retirement to help avoid outliving your money.

By taking a longer-term approach to your money with a solid financial plan, experts say, you'll build up confidence. You might even start looking at the glass as half-full.

Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More