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The Most Critical Question to Ask About Your Retirement Plan Most people can't answer it, and it's a reason for financial insecurity

By Pamela Yellen Edited by Frances Dodds

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"Stocks escaped a scary October and set records. So what's next for your 401(k) in 2019?" USA Today recently posed this question, noting that the stock market made it through October without crashing, as it did in October of 1929, Black Monday in 1987 and in the 2008 financial crisis, which started on Sept. 29. It was also a big change from October 2018, when the Dow fell by more than 1,000 points in two days, making that month the most volatile for stocks in 118 years.

But while the financial media are crowing that stocks made it through October unscathed, nobody can answer the second half of the question: What's next? That's a big problem for Americans, many of whom are heavily invested in the market through their 401(k) and other conventional government-sponsored retirement plans. In fact, I would argue that the single most critical question you must be able to answer about your retirement plan is the one that almost no one can answer: What will my retirement account(s) be worth on the day I plan to tap into them?

The answer to that question will determine whether you live out your golden years in financial security or find yourself constantly scrimping to make ends meet. Yet most people could not answer it if their life depended on it -- and your life really does depend on it.

For example, studies show that even relatively small stock market declines are linked to early death, illness and fatal car accidents. Researchers found that having just 10 percent of your wealth in the stock market when it experiences a 10 percent loss significantly increases your risk of dying early, having a physical health problem like high blood pressure or experiencing a mental health problem such as depression or anxiety.

Related: Want to Retire Rich? Don't Make This Common Mistake

Your Life and the Bottom Line

Another reason your life may depend on your bottom-line retirement number is that out-of-pocket medical costs (those not covered by Medicare) are now estimated at $285,000 for retirees. That number keeps going up and does not include costs for nursing home or home health care, which can easily bring the total to a half-million dollars -- almost four times the amount the typical couple approaching retirement has saved.

Then there's this: The American Psychological Association consistently finds that money is a significant source of stress for a majority of Americans. And financial stress is closely linked to health issues including anxiety, depression, insomnia, and cardiovascular disease. A few years ago, the APA reported: "Regardless of the economic climate, money and finances have remained the top stressor since our survey began in 2007." While gun violence and presidential elections have eclipsed finances as the stress source du jour, money stress is always present for many Americans, adding to their worries and robbing their enjoyment of life.

A survey by Northwestern Mutual states that financial security is "the most important attribute of a positive outlook on life," adding that an "overwhelming nine in 10 Americans (87 percent) agree that nothing makes them happier or more confident than feeling like their finances are in order." Yet despite that finding, Americans continue to put the lion's share of their retirement savings at risk in the stock market (or as I call it, the Wall Street casino), according to the Federal Reserve Survey of Consumer Finances.

Related: Planning for Retirement? Let These NFL Players Be Your Teachers

The Beast You Can't Control

More than a decade into the longest-running bull market in history, Americans who have put all their retirement eggs in the Wall Street basket ignore an important lesson of history: The longest bull markets have ended with a bang, not a whimper. The last two crashes wiped out 50 percent or more of the typical investor's life savings since just the year 2000.

We can't predict exactly when the next market crash will occur or how devastating it will be. But as with the next major earthquake, it's not a matter of "if" but rather "when." Which brings me back to the question: Do you know what your retirement plan will be worth on the day you plan to tap into it?

If your money is in those conventional plans that are typically invested in the stock market, it's a question you can't answer. And it doesn't matter if you sit tight and stay calm while others are losing their heads. The reality is you could be as cool a cucumber, and your portfolio may still evaporate. The only real guarantee that today's government-approved retirement plans offer is the guarantee that brokers, mutual fund managers and fat cats on Wall Street will make money, no matter how much money you lose. For all these reasons, I strongly advise you put at least a portion of your retirement savings into assets that are secure and guaranteed. Then you will be able to answer that all-important question, no matter what happens with the markets.

Pamela Yellen

Financial security expert

Pamela Yellen is a financial security expert, a two-time NY Times best-selling author and President of Bank On Yourself. Pamela's latest book is "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans – and How to Avoid Them."

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