If you are approaching retirement, you’re likely facing a number of big questions. How will you spend your newfound free time? What kind of budget will you have? Will you downsize or stay in your home?
One of the biggest questions may be when to file for Social Security. While many people decide to file for their benefits as soon as possible, that’s not always the best strategy. By delaying your filing, you could reap some important benefits.
Planning on spending less in retirement? You’re not alone. Many people factor in a decrease in spending after they stop working. Even many financial professionals often factor in less spending when they help you with your retirement planning. But this assumption isn’t always accurate, and if your spending is higher than you’d anticipated, it could have a big impact on your financial stability.
The parades up Pennsylvania Avenue have ended and the champagne bubbles have burst in ernest celebration over the nation’s capital after one of the wildest election cycles in United States history. Yes, the parade of pundits & prognosticators in the financial press spouting off predictions for the year ahead is about over too. Once again as a new Populist Camelot emerges in D.C., the Madison Ave and Wall Street Wizards are telling us in the Money Magazines of the world that if we just buy and hold through any financial crisis, our children and legacies will be taken care of. In fact, Money Magazine itself in the January issue, serves up the theory or myth of “buy and hold” again as one of it’s top tips as it has after every correction or bull market. The lesson, this beneficial magazine misses always is how much buy and hold’s success depends upon family health & age, depth of desperation, and the extent of the bear market decline. In another words, the four words to run far and fast from are “this time it’s different”.
The mantra for Money magazine consistently seems to be that since the market(S&P 500) has never gone down over any 15 year period since 1928, the market must be for me with a good portion of my assets. The Disney classic, “Fantasia,” came out in the 1930’s and is a good metaphor for the hype of holding on and ignoring. When trade deals were passed in the early 1930s, President Hoover raised tax rates, and the Federal Reserve was out to lunch, the NY Times and Wall Street Journal has a similar message. Ditto Japan, the world’s second largest market in the 1980s during the last 30 years as their market remains down more than 50%, according to CNBC .
At Masterplan we consistently and creatively convey how this stock market is not your Father’s stock market. The W shaped pattern reflecting 2 nasty bear markets is completely different than the longest Bull market in history and vertical ascent of both the stock and bond markets during the 1980s. Stocks were propelled by favorable fiscal and monetary policy during the 80s, but also aided by bulging baby boomer consumer pocketbooks during their peak earning years along with the relative safety of pensions and a healthy social security system as a foundation for boomers to take more risk. As boomers remember, it was Up Up and Away into the 5th Dimension in the early 1980s for the capital markets right up until we “partied like it was 1999” and collapse in March of 2000.
As we head through the first quarter, many of the wirehouses will be touting the virtues of bonds and income-producing alternatives, like real estate or fixed annuities for income. Why shouldn’t they? The worst day for the S&P 500 last year was a 3.6% loss on June 24. That was worse than any year for the Bond Market in 40 years, according to MFS Funds, the oldest fund group in America. So bonds will dampen risk, in a diversified portfolio, unless we are talking about some of the lowest rates in history and knowing that bonds will sink if rates go up in a stronger Trump economy geared towards stimulative fiscal policy goals. For retirement income- oriented saversand investors in Metro Atlanta and Cobb County, we should be talking then about including pension- like alternatives that guarantee principal and income and provide the potential for bond-like interest and growth along with the ability use a portion of the principal or potential growth as an assisted living benefit. These safety nets were not around in the 1930s when the longest record in history of sub 3% GDP growth occurred. That record could be shattered when initial Q4 growth is reported Friday. If I invested in the 1930s period when a huge Keynesian monetary stimulus took place, I would still be looking to break even after taxes and inflation, according to Ibbotson, when singer Billy Joel released “Sometimes a Fantasy” in the late 1970s.
It is also fantasy to think that my Great Grandfather’s grandiose bear market in the 1930s can’t happen again. Buy and Hold and wait 50 years is not a viable strategy for successful retirees. So if you believe Great Depressions can still happen and don’t live in Venezuela, stay tuned for retirement income ideas that act like bonds in providing income but like pensions in protecting principal. These hybrid ideas can even provide a pension-like tax free income in the event of chronic illness
Finally, there is a prominent sign hanging outside a favorite business of ours in the Atlanta area that says “Is this the day you become complacent?” After an eight year bull market run, now is the time to laser-focus on ramping down portfolio risk and not letting the lessons of history provide a resounding lasting dent to planning.
Advisory services offered through MasterPlan Retirement Consultants, Inc. Insurance services offered through Fricks and Associates, Inc. Tax services offered through MasterPlan Tax Services, Inc. The aforementioned are affiliated companies.