US Debt Default, End of Social Security: Is It Time to Prepare for the Worst?

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Catastrophes are often referred to as “black swan events”. I hear many people worrying these days about the possibility of jumping off the financial cliff, with the US government defaulting on its debts, the end of Social Security, and AI causing the economy to collapse. Tragic setbacks of this kind are as rare as crow-colored swans.

I’m not too worried about ChatGPT or Bard being the mastermind behind mankind’s overthrow. AI brains can’t even tell you what time it is. (Try it.) But other things are a concern.

throw in possibility of recessiona widespread banking crisis, or a series of concerns over geopolitical risks involving Russia/China and Ukraine, we feel like we’re swimming in a deep black swan pond.

Black Swan Event: Not Worth Worrying

It’s easy to get caught up in anxiety and worry about the latest looming calamity.

Will Social Security lose moneyThis is a problem that needs to be addressed, but in the 1970s, 80s and 90s, the Social Security trust fund was on the brink of depletion. Fundamentally, the long-term projected balance of trust funds has been uncertain ever since.

This is a scenario similar to the looming sovereign debt default. Most recently, the United States was at stake in her 2011, 2013, and her 2021 as well.

That’s not to say these financial disasters won’t happen. By definition, it is impossible to predict black swan events. Instead of worrying about black swans and worrying about things that are out of your control or problems you can’t solve, take some strategies now to strengthen your personal long-term financial situation. Here is:

protect your retirement

According to the 2021 Late Baby Boomer Study by the U.S. Bureau of Labor Statistics, you could have more than a dozen different jobs in your lifetime. But every job change can put your retirement savings in jeopardy.

Our complex retirement savings plan often makes it difficult to transfer your 401(k) and other company-offered plans from your previous employer to your new employer. Perhaps as a result, some people just cash out their old plans.

A study released in November 2022 by the University of British Columbia’s Sodar School of Business found that just over 41% of people withdraw money from their 401(k) when they retire, and nearly 90% of them have exhausted their entire account. increase.

“They withdraw every penny. About two-thirds withdraw all at once, and the rest withdraw multiple times,” UBC Souder associate professor Yanwen Wang said when the study was published. rice field. “But on average they take everything away within eight months.”

Also, studies show that financial hardship due to unexpected unemployment cannot fully explain the withdrawal.

Only 27% of those who withdrew funds were fired or fired. Not all of them needed emergency funding, the study said. Worse, many of these withdrawals may have triggered her IRS penalty of 10% for him receiving the funds before he was 59½.

a Rollover to IRA Or, if possible, joining your new employer’s retirement plan is usually a much better idea.

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No jargon and just plain free money insights from a certified financial planner.

Tax refund also rollover

Here is another chance for a turnaround. Any refund you receive from the IRS is your money. It’s not a gift or “found money”. You may have paid too much tax through excessive withholdings or estimates of quarterly deposits that were higher than required. In any case, it has been held indifferently by the government.

Think of it as rollover instead of using all. You are making money work for you. Of course, you can reward yourself with some of it if you want, but most of the tax refund is “stuffed with cash“Long-term goals.

Don’t try to get lucky with serious money

How was the March Madness Bracket result? Or the Final Four? Those locks kind of blew up your parlay, didn’t they? I’m glad I didn’t bet a lot of money. (It didn’t, right?)

Even when investing, it’s easy to get sucked into the mindset of gambling. Maybe you’re trying to gain an edge, beat the market, and catch up on savings from a slow start. That’s when the temptation is to have a big stake in a single investment, perhaps the stock of the company you work for, or the latest “never failing” startup or crypto derivative.

But losing a long-term investment account hurts a lot more than blowing beer money. You are investing in what your life could be: what you want.

But there are ways to try to “sweeten” the return on your investment. And that brings us…

Consider core and satellite strategies

the basics of asset allocation We recommend a wide variety of low-cost investments that span essentially all markets. The “core and satellite” strategy adds a tactical element to your portfolio.

An unmanaged index investment achieves the following goals: extensive diversification at minimal cost. It represents your core strategy.

A “satellite” investment could be an actively managed fund, a sector-specific individual stock, or perhaps alternative investment Or two. Cryptocurrency could be a satellite investment.

These small purchases offer an opportunity for focused exposure outside the broader market. For example, core investments (allocated to stocks, bonds, and cash) may make up 90% of the portfolio, with any number of satellite holdings making up the remaining 10%.

To make such an investment plan, Fiduciary Financial Advisor For investment recommendations and allocations suitable for your situation.

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