Fiscal Cliff Shouldn't Change Your Financial Plans

The government's impending fiscal cliff is being widely portrayed as a looming financial crisis that could send the nation back into a recession. Coming so soon after the national elections and Hurricane Sandy, perhaps we've just been sensitized to think of this issue as yet another epic event with enormous consequences.

For people trying to save and prepare for retirement, the fiscal cliff certainly may seem like yet another plague sent to ruin their lives. Yet financial experts say this is precisely the time when individual investors should stay the course and not deviate from their financial plan.

It's easy to have a plan when times are good. It's much harder to stick to it when times get tough. If your plans are subject to regular shifts in response to current events, then perhaps they aren't really plans at all.

If Congress and the White House do nothing by the end of the year, here's how tough things might get:

1. Bush-era tax cuts would be rescinded, raising tax rates on income, dividends, and capital gains.

2. Federal spending would be automatically cut by nearly $1 trillion a year over the next decade, with fully half of the cuts occurring in defense spending.

3. The 2-percentage point reduction in Social Security payroll taxes, in effect for two years, would end.

4. Extended jobless benefits would run out.

5. The Alternative Minimum Tax, if not adjusted by Congress for inflation, would sock nearly 33 million taxpayers with higher taxes.

If you want to add some other adverse financial events, you can include:

6. Higher taxes on wealthier Americans to help pay for Obamacare, including higher Medicare taxes and a 3.8 percent tax on investment earnings.

7. The end of generous estate and gift taxes, to be replaced by a smaller estate exemption (to $1 million from more than $5 million) and higher tax rates on taxable estates and gifts.

It's unlikely all of these bad things will happen or stay in effect for an extended time. Pundits have been calling it the fiscal slope instead of a cliff. There is also rising support for junking the entire "fiscal" approach as confusing and renaming it the austerity crisis or bomb.

Whatever the label, experts stress that all this potential bad news would take time to have an impact. True, but this reality will not prevent jittery investment markets from punishing investors. Uncertainty has already rattled Wall Street. It's also reportedly caused businesses to pull back from investments that would help the economy continue to recover from the recession.

What's an investor supposed to do in the face of all this dire potential news?

"You shouldn't be making long-term decisions based on what's happening in the short term," says Dan Keady, director of financial planning at TIAA-CREF, the enormous investment firm that has long dominated retirement planning and investment services at the nation's colleges and their related academic, research, medical, and cultural outlets. TIAA-CREF regularly studies consumer attitudes and finds, not surprisingly, that many consumers are confused about retirement in general and about how to build a personal retirement plan that works for them.

"We can get overwhelmed by what's going on," Keady says. But for most people, financial plans shouldn't change because of a fiscal cliff or other possible event. "Some of it really remains the same," he notes.

Most financial plans, for example, include setting aside some cash or cash-like investments that can be tapped quickly in an emergency. If markets temporarily turn lower because of fiscal-cliff worries, people with emergency funds can use them instead of being forced to raise money by selling retirement investments at a loss.

Also, it might be tempting to sell certain types of investments and buy others in anticipation of the fiscal cliff. But rather than trying to guess what markets might do, Keady says, it would be better to maintain the investment mix in your retirement portfolio. Once any fiscal-cliff impacts have been reflected in that portfolio, he suggests rebalancing holdings (selling winners and buying losing asset classes) and continuing on your way to a stable and predictable retirement future.

And for the many people who may not have a plan, Keady's advice is even clearer: Get one. Start with small steps. Ease of understanding is crucial to adopting a plan and sticking with it. Even if you can only set aside a modest amount in savings, make sure you do this regularly and develop good savings habits. "It's very important to create that savings habit," Keady says.

Having a specific plan that is tied to your individual needs and goals is also crucial. One of the big changes in financial advice in recent years, he says, has been people's understanding that general advice is not nearly as useful as tips relevant to their specific needs. People are inundated with general information these days, but perhaps not with the kinds of specifics that help produce tailored savings and investment plans. "When you give people very actionable advice," Keady says, "you get a higher percentage of people who take that advice."

Twitter: @PhilMoeller



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Japan pledges $30 billion for Africa over next three years Reuters - 25 minutes ago

    Japanese Prime Minister Shinzo Abe told African leaders on Saturday that his country will commit $30 billion in public and private support for infrastructure development, education and healthcare expansion in the continent. Resource-poor Japan has … More »

  • Iran detects malware in petrochemical plants, says not linked to recent fires Reuters - 39 minutes ago

    Iran has detected and removed malicious software from two of its petrochemical complexes, a senior military official said on Saturday, after announcing last week it was investigating whether recent petrochemical fires were caused by cyber attacks. … More »

  • A monumental task: Getting Mainers to support a new park
    A monumental task: Getting Mainers to support a new park Associated Press - 58 minutes ago

    Among the empty storefronts on once-bustling Penobscot Avenue, longtime resident Jean McLean stood in her art gallery, the sole employee left at a business that once had three. "Right now, it's pretty ... … More »

  • Exclusive - Iraq plans to sell oil through Iran if talks with Kurds fail Reuters - 1 hour 32 minutes ago

    Iraq's government would consider selling crude through Iran should talks with the autonomous Kurdish region on an oil revenue-sharing agreement fail, a senior oil ministry official in Baghdad told Reuters. Iraq's State Oil Marketing Organisation … More »

  • Iraq willing to play active role in propping up oil prices - minister
    Iraq willing to play active role in propping up oil prices - minister Reuters - 1 hour 45 minutes ago

    Iraq is willing to play an active role within OPEC to support oil prices, its oil minister Jabar Ali al-Luaibi said on Saturday, without clarifying whether it was prepared to back a possible agreement to freeze output. "Iraq is seeking to play an … More »

  • Exlusive - Iraq plans to sell oil through Iran if talks with Kurds fail
    Exlusive - Iraq plans to sell oil through Iran if talks with Kurds fail Reuters - 1 hour 50 minutes ago

    Iraq's government would consider selling crude through Iran should talks with the autonomous Kurdish region on an oil revenue-sharing agreement fail, a senior oil ministry official in Baghdad told Reuters. Iraq's State Oil Marketing Organisation … More »

  • When death comes to stay: one Italian village's story
    When death comes to stay: one Italian village's story AFP News - 2 hours 19 minutes ago

    Nowhere was hit harder by the earthquake that brought death and devastation to a remote corner of central Italy this week than Saletta. Fewer than 20 people are permanent residents of the picturesque hamlet. On Wednesday, with the population … More »

  • Stronger Case for Fed Rate Rise Increases Volatility in Asia Bloomberg - 2 hours 58 minutes ago

    The Fed next meets Sept. 20-21 just hours after the Bank of Japan announces the results of its comprehensive review and decides policy, with Bank of Japan Governor Haruhiko Kuroda saying the review wouldn’t lead to a shrinking of policy. "A rate … More »

  • Japan’s Abe Dangles $30 Billion at African Leaders in Nairobi Bloomberg - 3 hours ago

    The Asian economy’s future investment in the continent of 1.2 billion people shows it has “faith in Africa’s future,” Abe told African leaders gathered in Kenya’s capital, Nairobi, for the sixth Tokyo International International Conference on … More »

  • Japan PM pledges to invest $30 bn in Africa by 2018
    Japan PM pledges to invest $30 bn in Africa by 2018 AFP News - 4 hours ago

    Japan will pour $30 billion (27 billion euros) in investment into Africa by 2018, including $10 billion in infrastructure development, Prime Minister Shinzo Abe said on Saturday at a summit in Nairobi. "When combined with the investment from the … More »

  • US, Russia move closer to new Syria ceasefire after talks
    US, Russia move closer to new Syria ceasefire after talks AFP News - 5 hours ago

    Washington and Moscow have made key steps towards agreeing a new ceasefire in Syria, but a final deal has not been reached, US Secretary of State John Kerry and his Russian counterpart said after talks Friday. Kerry and Russian Foreign Minister … More »

  • VTTI says it resumes operations at Malaysia terminal Reuters - 8 hours ago

    SINGAPORE, Aug 27 (Reuters) - VTTI, the storage unit of world's largest oil trader Vitol, said late on Friday it has resumed operations at its Malaysia terminal ATT Tanjung Bin (ATB). "The suspension ... … More »

  • Most Read on Bloomberg: Good-But-Busted ETFs, Drifting Stocks Bloomberg - 9 hours ago

    (Bloomberg) -- The most-read Bloomberg News reports from the past week are listed below. The rankings are based on daily statistics through Aug. 27. … More »

  • China July industrial profits rise, buoyed by increased sales, falling costs Reuters - 10 hours ago

    Profits earned by China's industrial firms grew at their fastest pace in four months in July, aided by a pick-up in sales and reduced costs, the statistics bureau said on Saturday. Profits in July rose 11.0 percent to 523.01 billion yuan, the … More »

  • 4 Lessons I Learned After Marrying My Foreigner Wife DollarsAndSense.sg - 11 hours ago

    Discuss your past. Discuss your future. The post 4 Lessons I Learned After Marrying My Foreigner Wife appeared first on DollarsAndSense.sg. … More »

  • Business Highlights Associated Press - 14 hours ago

    ___ Yellen suggests rate hike is coming but offers no timetable Federal Reserve Chair Janet Yellen said Friday that the case for raising interest rates has strengthened in light of a solid job market and ... … More »

  • California governor signs bill banning coal-export funding Associated Press - 14 hours ago

    California Gov. Jerry Brown signed legislation Friday banning state transportation funding for new coal export terminals. The bill represents a victory for environmentalists as they campaign aggressively ... … More »

  • Stada shareholder AOC pushes through board reshuffle
    Stada shareholder AOC pushes through board reshuffle Reuters - 14 hours ago

    Stada (STAGn.DE) shareholder Active Ownership Capital (AOC) succeeded in convincing stock owners of the German drugmaker to vote off its supervisory board chairman in a voting marathon, but the activist investor fell short of its goal of replacing … More »

  • Dollar rises following Yellen remarks on rate hikes AFP - 15 hours ago

    The dollar rose Friday against the euro, the yen and the British pound following remarks from the US central bank favoring a near-term increase in interest rates. In a much-anticipated address, US Federal ... … More »

  • Global markets drift after Yellen speech
    Global markets drift after Yellen speech AFP News - 15 hours ago

    European and US equities markets were split on Friday after US Fed chief Janet Yellen suggested interest rates could rise in the near-term. In words carefully parsed by market watchers, Yellen said recent months had seen conditions in the US … More »

  • How the Dow Jones industrial average fared on Friday Associated Press - 16 hours ago

    Stocks ended on a weak note Friday after Federal Reserve officials said the case has strengthened for raising interest rates above the super-low levels that have helped fuel a seven-year bull market. Phone ... … More »

  • Stocks end mostly lower after Yellen speech
    Stocks end mostly lower after Yellen speech Associated Press - 16 hours ago

    Stocks ended mostly lower on Friday after Federal Reserve officials said the case has strengthened for raising interest rates above the super-low levels that have helped fuel a seven-year bull market. ... … More »

  • UN ready to help Colombia peace deal
    UN ready to help Colombia peace deal AFP News - 16 hours ago

    The UN Security Council on Friday warmly welcomed the historic peace deal reached between Colombia's government and FARC rebels, and pledged to help ensure the agreement takes hold. The council met behind closed doors two days after the Bogota … More »

  • Kerry, Lavrov hold marathon Syria talks
    Kerry, Lavrov hold marathon Syria talks AFP News - 16 hours ago

    US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov held marathon talks in Geneva on Friday for an expected push towards resuming peace talks for war-ravaged Syria. Asked during a break how the meeting was proceeding, Lavrov … More »

  • US stocks mixed after Yellen says picture firming for rate hike AFP - 17 hours ago

    US stocks were mixed on Friday after Federal Reserve Chair Janet Yellen said the case for a rate hike is strengthening, raising expectations of a move by year-end. Trade was fairly quiet as Yellen also ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.129+0.001+0.78%
    N21.SI
    1.855-0.040-2.11%
    MC0.SI
    2.84+0.02+0.71%
    C52.SI
    4.22-0.05-1.17%
    Z74.SI
    0.58-0.01-1.69%
    5TP.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.29+0.08+38.10%
    5VI.SI
    0.36+0.07+22.03%
    BPF.SI
    0.192+0.030+18.52%
    AYD.SI
    0.27+0.04+17.39%
    BLU.SI
    0.40+0.05+14.29%
    BFK.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.205-0.055-21.15%
    BTJ.SI
    0.34-0.06-15.00%
    BCD.SI
    0.39-0.06-13.33%
    AYB.SI
    0.31-0.04-11.43%
    5VP.SI
    0.24-0.02-9.43%
    BAZ.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3582+0.0051+0.38%
    USDSGD=X
    1.5196-0.0071-0.47%
    EURSGD=X
    1.7809-0.0034-0.19%
    GBPSGD=X
    74.6820+0.437+0.59%
    SGDJPY=X
    5.7047-0.0235-0.41%
    SGDHKD=X
    2.9663+0.0023+0.08%
    SGDMYR=X
    9,748.1885-70.3965-0.72%
    SGDIDR=X
    4.9062-0.0141-0.29%
    SGDCNY=X
    1.0263-0.0043-0.42%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,324.00-0.60-0.05%
    GCZ16.CMX
    18.63+0.14+0.76%
    SIU16.CMX
    95.80-0.72-0.74%
    ^XAU
    2.080.00+0.10%
    HGU16.CMX
    47.29-0.04-0.08%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.24+0.08
    ^FVX
    1.63+0.06
    ^TNX
    2.30+0.03
    ^TYX