Taking A Step Back From Risk

OCEAN CITY – While the wounds from the deep recession of 2008 aren’t quite so raw today, there is evidence of their having a strong long-term impact on how Americans think about their finances.

When Sallie Krawcheck, president of Global Wealth & Investment Management, Bank of America, recently traveled around the country to talk with clients about their greatest concerns and goals, a majority of those she spoke with said they’d become more focused in their investing style.

A range of financial responsibilities, from maintaining their standard of living and saving and investing for retirement to rebuilding finances to prerecession levels, have the potential to "keep them up at night," according to the families surveyed. Of particular concern are retirement and the rising cost of health care. More than two-thirds say they don’t think their retirement plans are sound enough to withstand an unexpected family event, and nearly as many say that health care costs are their No. 1 financial concern overall. Affording children’s college expenses is a big worry, cited by 41% of families.

As a consequence of financial stresses like these, families are spending — and saving — in a way that’s markedly different from what they did before the recession, according to a recent survey by PricewaterhouseCoopers.

Nearly two-thirds of households have cut down on their discretionary spending during the past year in order to bolster their savings, with 36% of respondents setting an aggressive goal of saving 7% or more of their disposable income during the next five to 10 years. The increased discipline comes amid increasing worries that pension plans may default on obligations and that a financially strapped Social Security program may have to reduce benefits to future retirees — possibilities that could mean that retirement income is insufficient to support many people’s lifestyle goals.

As households prepare to ride out America’s fragile economic recovery, their practical concerns frequently turn on one idea: liquidity, the access to the cash they need to meet their ongoing expenses. The credit that many counted on in the recent past to bridge gaps in income or to finance large purchases will likely remain tight for several more years. Meanwhile, portfolios that are still recovering from recent losses are better left untouched as sources of liquid funds.

According to Krawcheck, the great majority of people she has met in her recent travels are voicing a pressing need for a stable cash flow. In this environment, timely, dependable and efficient ways to turn savings into income are critical.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)