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Adapting to New Financial Realities

 by Nancy McCready

Nearly half of affluent Americans view today’s heightened economic uncertainty not as a passing phase, but as a more permanent reality that will persist for the foreseeable future, according to the 2012 Merrill Lynch Affluent Insights Survey. These Americans are most concerned about the rising cost of health care and their ability to fund a financially secure retirement.

Social Security and Medicare benefit trends are difficult to project with certainty, but without question, individuals are now more responsible for saving and investing well for retirement than in many decades.

Replacing Fear and Paralysis with Knowledge

It has been said that fear is a more powerful emotion than greed – while greed simply blinds us to risks, fear paralyzes us and makes us blind to facts. Adding uncertainty to the mix tends to entrench fear, along with fundamental economic changes that shape our professional and personal choices. The facts of life for many in the legal profession, and America at large, also include:

  • Less career stability and predictability
  • High debt burdens – mortgages, school loans, credit cards and other consumer debt
  • Staggering educational expenses (for ourselves and our children)

We face the need to protect our lifestyles and fortify the assets that we have worked hard to build, against the challenges of a riskier planet. In order to replace fear and paralysis with knowledge, we must adapt our financial strategies to our new realities.  We also need to determine whether the “facts fit the fear.”1

In spite of a lingering sense of anxiety for many about our future financial well-being, evidence continues to emerge of a halting economic recovery in the U.S and China.  Growth may gain ground later this year, though the decision by Congress to address Fiscal Cliff issues on a piecemeal basis may prolong the current uncertainty for Americans. Also, three-quarters of U.S. taxpayers will now be hit with a higher tax burden.2

What is the Fiscal Cliff?

Many Americans are unclear about what exactly the term “Fiscal Cliff” means. “Fiscal Cliff” was coined by Federal Reserve Chairman Ben Bernanke to capture the combined impact of federal tax increases and spending cuts that were due to take effect on January 1st. The unmanaged collision of these forces risked a renewed U.S. recession – with global repercussions – and accompanying stock market turmoil.

What may come next – the Triple Threat                                                                                                                         

While the U.S. and international economies wrangle with the effects of the Great Recession and continue their transition toward recovery, three looming critical factors could curtail future investment returns – rising taxes, the return of inflation and higher interest rates. Our government’s struggles to balance its budget and prevent a new financial crisis could lead to further changes in the tax code. The return of inflation, already evident in the cost of health care and higher education, is likely to accelerate more broadly across the economy within the next few years. Interest rates, which have remained artificially low for several years, are likely to increase as the U.S. economy and the unemployment rate improve, and will increase the cost of carrying debt.3

A roadmap for reaching your financial goals – in any environment

Start by identifying your personal and family financial goals and then create a strategy for reaching them – much as you would map out a route for a road trip. Adopting a financial strategy can help you see the big picture and simplify the process of making sound financial decisions. You can also gain a direction to increasing your chances of achieving a personally meaningful financial security. You may want to consider working with a qualified financial professional who can provide advice and personalized guidance, as well as objectivity, support and accountability.

  • Along with creating a financial strategy, take action to get – and keep – your financial house in order
  • Make sure to live within your means – review your spending habits regularly
  • Manage debt – debt does not have to be negative, unless the payments eat up too much of your income or the kinds of debt taken on fail to enhance your financial picture
  • Save for a rainy day – maintaining an adequate cash cushion will help you cope with unexpected expenses or take advantage of new opportunities
  • Invest for specific goals – not to compete with an external standard, such as “beating the market”
  • Monitor your investment performance – rebalance your portfolio periodically and as  warranted
  • Pay attention to investment fees – you can help offset the effects of rising inflation and taxes
  • Be wary of financial gimmicks – scams proliferate, especially on the Internet
  • Review employee benefits and other insurance coverage – ensure an adequate safety net for your lifestyle and your loved ones
  • Make financial fitness a family affair – communication with a spouse or partner and any children is an important reality check and a potential form of reinforcement for your goals
  • Consider your legacy – plan for any minor children who may need care, provide for those loved ones and causes who matter to you and reduce your estate settlement costs

Bright Spots on the Horizon

Worrisome circumstances nearly always contain silver linings and a way forward. The U.S. is still the world’s innovation capital.4 Our housing recovery is building momentum.5 Other key developing trends could spark renewed economic vitality, such as America’s coming energy independence.6 The global energy map “is being redrawn by the resurgence in oil and gas production in the United States” and the U.S. is projected to become the world’s leading oil producer within this decade, according to the International Energy Agency.7 The resulting benefits could be felt across the entire economy, including job creation and more stable and cheaper American energy prices – not to mention potentially productive investments8.


Economies and financial markets continue to evolve. The challenge is to move past fear, adapt and embrace changes that can also represent new opportunities. Static financial approaches that may have worked in one cycle can prove lethal in the next. Seek professional help if you lack the expertise or the time to manage your increasingly complex financial affairs or to stay current on rapidly evolving market trends. The Certified Financial Planner Board of Standards offers guidance for choosing a Certified Financial Planner® at and

1 Lisa Shalett and the Chief Investment Officer Team, Merrill Lynch CIO Report, November 19, 2012

2Lisa Shalett and the Chief Investment Officer Team, Merrill Lynch CIO Report, January 2, 2013 and Merrill Lynch U.S.

 Macro Watch, January 2, 2012

3Ian Bremer & Lisa Shalett, Seeking Growth in a G-Zero World, 20124

4 Ian Bremer & Lisa Shalett, Seeking Growth in a G-Zero World, 2012

5 Bank of America Merrill Lynch US REITS Year Ahead 2013, December 12, 2012

6 Bank of America Merrill Lynch Global Energy Weekly, July 6, 2012

7Merrill Lynch Investment Alert, November 14, 2012

8 Merrill Lynch Wealth Management, U.S. Energy Heats Up, September, 2012

Nancy McCready is a member of WLALA and a financial advisor and Certified Financial Planner® certificant with Merrill Lynch in Los Angeles. She also holds a Chartered Retirement Planning Counselor designation and an MBA from the University of Virginia and teaches financial planning at UCLA Extension.

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