13 scary financial statistics and how to avoid becoming one

With its roots in an ancient pagan holiday held to ward off evil spirits, Halloween and the weeks leading up to it mark the perfect time to sit around a roaring fire under the full moon and share stories of terror with one’s family and his friends. Arguably the best stories are those that contain just enough truth to strike fear into the hearts of the bravest among us, such as the tales of the grim “October Surprise”.

Also called the October Effect, the tenth month of the year sees even the bravest economists and investment managers nervously checking over their shoulders. Indeed, October is known for some of the scariest events financial markets have ever seen. These include the Bank Panic of 1907, which eventually led to the Federal Reserve Act of 1913 which created the Federal Reserve Systemthe stock market crash of 1929, which heralded the Great Depression, and Black Monday on October 19, 1987, when the stock market fell more than 20% in a single day.

Charity please?

Although these events all took place in the month of October, its reputation for producing the scariest financial statistics is perhaps a bit of a stretch. In fact, October is actually known as a bear market because it has historically signaled the end of more bear markets than the beginning.^* Still, that doesn’t mean there aren’t scary stories of financial woes lurking around every corner. For those brave enough to read on, we’ve uncovered thirteen scary financial statistics and the steps you can take to avoid becoming their next victim.

1. 56% of Americans can’t afford a $1,000 emergency expense from their savings account (The bank rate)
2. Only about two in three adults could afford a hypothetical expense of $400 in cash or its equivalent. (Federal Reserve)
3. 24% of consumers have no savings set aside for emergencies. (Consumer Financial Protection Bureau)
4. $8,942 is the average credit card balance for US households (WalletHub)
5. 56% of workers say they expect to have less than $500,000 in retirement savings, with 36% expecting less than $250,000 in savings. (plan sponsor)
6. Only 22% of Americans are nearing retirement say they have enough money to retire, up from 26% in 2021. (plan sponsor)
7. Only 23% have a written plan for retirementwhile 40% have done some planning but have no formal plan
8. 37% didn’t do any planning. (plan sponsor)
9. 44% of retirees say their retirement expenses are higher than expected (plan sponsor)
10. 51% of American adults delayed at least one major life decision in the past year for financial reasons, up 20% from a similar survey in 2007. (CPA Practice Advisor)
11. The consumer price index increased by 8.3% over the last 12 months in August, not seasonally adjusted (NSA). Additionally, the index for all items less food and energy rose 0.6% in August (SA); up 6.3% over the year (NSA). (US Bureau of Labor Statistics)
12. 6.89% was the current average mortgage rate for a 30-year loan on October 6, 2022, the highest level since November 2008 (The bank rate)
13. The S&P 500 ended September down 25.2%. (Carson Group)

How do you avoid becoming the next victim of a scary financial statistic?

Start saving now. If you don’t have emergency savings fund, create one now. An emergency fund creates a safety net to manage unexpected expenses. This can help you avoid incurring high-interest credit card debt or dipping into long-term assets that may be affected by market fluctuations in the event of job loss, health crisis , expensive car repairs or other unforeseen expenses. Most financial professionals recommend that your emergency savings cover six months of living expenses. However, even if you can only save a small amount each month, making savings a habit is more important than the amount initially set aside.

Maintain a budget. This is one of the most effective ways to find ways to cut expenses to save more. Even if you can only find $5 more per day, over the course of a year, that’s a savings of $1,825. And you can even make more money now thanks to rising interest rates. Your budget is also an essential tool for managing current debt and avoiding new debt. As you pay off existing debt, redirect those monthly payments into short-term and long-term savings.

Contribute to retirement savings. While inflation and high interest rates have made it harder for people to set aside money for short- and long-term savings goals, save for retirement is an essential element to maintain your lifestyle when you are no longer working. The longer you wait to start saving for retirement, the less money you’ll have when you’re ready to stop working. It matters because Social Security only replaces about 40% of the average worker’s pre-retirement income in retirement. Even if you plan to work later in life to fill the gap between what Social Security and a pension can provide (if you have one), circumstances beyond your control, such as illness, injury or a dismissal, could dictate a change of regime.

Fortunately, when it comes to your savings, time is always your friend. This is especially true when saving through a pension plan, such as a 401(k), 403(b) or Individual Retirement Account (IRA), through tax-deferred funding. This means that investments in your retirement account have the potential to grow even faster than comparable taxable investments, since income from the account is not subject to tax until it is distributed, usually at the retirement. Ideally, you want to maximize your savings potential by contributing the maximum amounts on an annual basis to all plans for which you qualify, including catch-up contributions, once you qualify.

Make a plan. A financial plan is your blueprint for building and managing your wealth through every stage of life. As reported in plan sponsor, 91% of people with a written retirement plan say it has been useful to them, with 33% saying it has been “essential” in putting them on a better path to retirement. A plan documents your goals and lays out a strategy that will support them at every stage of your life. It also lets you make adjustments over time as your needs change, your goals change, and milestones are reached. A well-designed plan can help you resist the urge to adjust your strategy based solely on current market conditions. Because it’s aligned with your short- and long-term goals, it’s designed to help you stay on track, regardless of daily market activity or changing economic conditions. This can go a long way in alleviating the fear and anxiety that volatility and uncertainty can create, especially in a year like this.

Do not be afraid of the reaper (of the market). According to Carson Group Chief Market Strategist Ryan Detrick, CMT, there’s no way to sugarcoat things – 2022 has been a tough year. While bonds have historically performed well when equities have underperformed, this has not been the case in 2022. The previous five times the S&P 500 has lost 10% or more for the year, bonds (such as measured by the Bloomberg US Aggregate Bond Index) gained each time, up 7.7% on average. While that might not sound great, it’s important to remember that the stock market doesn’t care what just happened, it only cares about what happens next.

“The good news is that once a bear market is down 25%, returns can be quite strong, with the S&P 500 up nearly 23% on average a year later,” Detrick says. “Also, many lows occurred shortly after this milestone was reached, so a major low could be near.”

So it’s even more important to stick with your current investment strategy, assuming it matches your goals, timeframe and risk tolerance. You want to avoid selling at the bottom of a bear market, especially if higher returns are likely in the near term. Selling at the bottom could have a huge impact on your investments for years to come. Many investors have found this out the hard way in the past. By exiting the market to avoid falling prices, they missed important rallies as stocks eventually returned to new highs. Keep in mind that the fourth quarter is historically the best quarter of the year, with the S&P 500 up 4.1% on average and nearly 80% of the time. While past performance is not indicative of future results, we believe higher returns could be very likely in the weeks and months ahead.*

For the latest insights from industry experts on markets, the economy, and your planning needs, be sure to visit our Resources Blog.

^*Carson Group, 7 things to know about the historically strong fourth quarter