The Federal Reserve conducts stress test on some of the biggest financial institutions every year to assess their financial health and find out whether they have adequate capital to defy a significant downturn in the economy.
Recently, the Federal Reserve revealed their results from their stress tests of 2015 which eventually highlighted the worries of retirement.
Do you know exactly whether your financial plan will be able to withstand the massive financial stressors of retirement?
Are you able to maintain your standard of living following a layoff, a huge medical bill, or an investment which turns out to be a loss? Does the burden of financial stress keep you up all through the night?
Surely, you can get small personal loans online with a low-interest rate, but isn’t it better to have some money ready for such occasions?
Here are some questions you need to ask yourself in order to conduct your own stress test on your present financial plan.
Consider: Should you consolidate debt to reduce financial stress?
Do you have enough savings to withstand all emergencies?
Irrespective of the amount of time and effort you put in planning, or how strong-jawed your planning is, all it requires is an unanticipated event to imperil your carefully crafted out plan. Unexpected events in life can be of many types each of these test a unique aspect of your financial positioning. A sudden car repair bill may require you to have sufficient liquid assets to survive in a period of financial crunch.
The destruction from a startling market correction can be minimized if you have a diversified portfolio. A sudden lengthy retirement indicates creating a plan to restrict the chances for your money to be outlived. Anyone of these unpleasant or baffling events can sometimes turn out to become a reality and in the absence of proper planning, it can play havoc on your otherwise robust financial plan.
Are you ready for unexpected healthcare expenses?
It’s not a surprise that health care expenses make up one of the biggest expenditures, especially after you retire. The main problem is that you are in the dark on how exactly what services or products you’ll require to pay for against what’s covered by your insurance policy (you can learn more about health care insurance here).
Besides a high price tag, the factor that makes these expenses particularly onerous to plan is the fact that the expenses take place without any warning.
In such case, long-term care insurance can assist safeguard your nest egg from nursing home costs or home health aid. If you consistently contribute to a health savings account, it provides a tax-advantaged ground to furnish payment for your additional out-of-pocket health care costs.
Can you sustain your spending all through your retirement?
This has been touched on briefly in the first question; however, longevity is just a single stressor to your ability to finance your life after retirement. The other stressor that gives you the ability to maintain your spending capacity is inflation.
It’s not at all difficult to forget the danger inflation can bring about after your retirement when thinking about how reduced it has been in recent years. However, it wasn’t long when inflation went up by 10% from the year 1979 to 1981.
The question now is will you be ready if there happens to be a period of sustained high inflation in the future?
Have you reduced your inappropriate debt?
Debt is relevant if you borrow against an asset that is appreciating one that grows in value with time. Homes increase in value in the long run, and, hence, mortgages become an appropriate debt.
Assuming that you have done your homework well, you’re a hard worker, you’re lucky and competent, business ventures are perfect.
Even your qualification is appropriate since your education pays more over time via professional growth potential and higher income.
A classic example of inappropriate debt is a credit card. Credit cards indicate that you are living above your affording capabilities, and should strictly be used as loans in times of crisis.
So, getting rid of your inappropriate debt is one fundamental aspect of passing your financial stress test.
By eradicating your inappropriate debt, your net worth turns out to be higher. Consequently, you’ll be having hundreds of additional dollars to save each month (if you want to know how to save even more, read our top 10 tips on how to save money in October).
The most important thing to note here is that this exercise takes you closer to pass your financial stress test.
It’s difficult to fathom how successful your plan will be until something unexpected happens. You will never know what will happen post retirement. However, by undergoing a stress test on your own, you’ll be prepared for what the market or your life throws at you.
Stay tuned for tips to improve your savings and live a stress-free life With us, you’ll learn how to have money all the time.