As I write this blog in February 2023, the last 14 months have given us a master class on how inflation can affect retirement planning and your purchasing power in general. Probably the biggest misconception I see when talking to retirees or soon to be retirees is that they worry about losing their "money" in retirement but they don't worry about losing their purchasing power.
It's January 23, 2023 and all the media pundits are trying to predict a recession as if they have any idea about anything at all. In my opinion, and by definition, the American economy was and is already in a mild recession. Let's define what a recession is and what the Gross Domestic Product is and what this means to you. Then we will talk about tips to help you through a recession. And before we start, I urge you not to panic. Recessions are common and often they are exactly what can cure a struggling economy. They are NOT to be feared!
Since 1948, there have been 10 Bear markets U.S. excluding the one we are in right now. The average number of years from the peak of the Bear market to the recovery, meaning the time it took for the S&P 500 to climb back to its previous highs was 3.9 years and the median/midpoint was 2.7 years. On five of those occasions, the market recovered in 2 years or less! In other words, market downturns feel much longer than they actually are.
In a society that has basically turned outperformance into a religion, the average investor is not only underperforming the markets, he is consistently underperforming his own investments!
Typically, you pay an advisor the same reason you pay a mechanic to repair your car. If you wanted to repair it yourself, you probably could, but what's your time worth? Is that really what you want to do? Can you do it right? What is your strategy for doubling your income in retirement? What is your strategy for tax planning in retirement? What is your strategy for claiming Social Security in retirement? If you aren't sure of those answers, it would be wise to sit down and talk to an advisor about your retirement planning needs.
The co-ops are a great place to work, no doubt about it, and I'm sure you love your job but would you do it for free? Because if you are considering retirement soon and wondering if you should retire this year or next year that may be exactly what you are doing. One thing I've found that people totally disregard when they think about retirement is interest rates. Interest rates directly affect your R&S Pension amounts and the dollar amount between retiring this year versus next year could mean that you end up working for free when you could have retired.
What a wild year so far in the in regards to the market. We've seen volatility like we haven't seen since March 2020 which was the beginning stages of the pandemic. Today I want to discuss why you should actually embrace temporary market declines rather than fear them. Notice I said, temporary market declines. I said temporary because they all are temporary and always have been temporary and will always be temporary. But the good news is:
Many of you will contemplate retirement this year and despite what the news is telling you, if you have a pension plan sometimes referred to as a defined benefit plan at your current employer, this could be a great time to retire. Most pension/defined benefit plans give you the option of taking a series of lifetime monthly payments or a one time lump sum cash payment. This is not a decision to take lightly or a decision to make quickly. This decision will affect you and your family for decades and even generations to come. And it has tax implications!
As if we don't have enough to worry about in our day to day lives, along comes the 24/7 financial "news" cycle to fan the flames and magnify any fears we have about our retirement money and our investments. They are relentless with their clickbait and flat out false narratives. So what are we to do? First let's understand the function of the financial "news" cycle.
Inflation is affecting all of us right now. And for many of us, we personally feel the hit in our wallet and our bank accounts. I've calculated that it's costing me and my family right at $8,000 per year just on the basics of fuel, food, and utilities. I shouldn't have to write this disclaimer but in today's political climate, I feel I should. This is not a political or a partisan opinion. Although I do have plenty of both of those, I intentionally keep them out of my blog. So who or what causes inflation? The answer is very simple thus this blog will be short. Here's a hint: It's not the Federal Reserve.
The past two years have been the most terrifying years for investors since the Global Financial Crisis of 2008-2009. First the pandemic, next a bitterly partisan presidential election and most recently a 40 year high inflation spike. You wouldn't be human if you haven't experienced market volatility fatigue and exhaustion at some point. I know I have. You might also not be human if after two years of this chaos you didn't want to ditch your financial plan and move all your investments to cash for "safety" and to get some rest from the constant volatility.
Without a doubt this is the number one question and concern I hear from people in regards to retirement. So let's talk about this and see if you can retire and have enough money to retire without running out. I think these are questions I can answer with a certain amount of confidence and hopefully I can give you some clarification in the process.
It seems that whatever I read, watch or listen to these days gets interrupted by a commercial with a current or former celebrity telling me I need to buy gold because of inflation, because Russia invaded Ukraine or because of (insert whatever manufactured crisis you want here). If I'm seeing this constantly then some of you are as well. So...let's talk about gold as an investment.
Good intentions sometimes have bad consequences. A perfect example can be opening a 529 plan for your child or grandchild. Depending on the financial situations of the parties involved the intentions of helping the child can possibly (key word is possibly) have the consequence of hurting the child chances of financial aid in the future. Let's explore how.
Every single day each one of us is inundated and sometimes overwhelmed by the tsunami of noise from the 24 hour "news" cycle. Much of it centers around timing of the market and the perfect selection of funds. The "experts" say things like "Big correction coming soon!" or "Here's the three next big technology stocks to jumpstart your portfolio!" and "Inflation is coming, buy gold now!" on and on and on.
Every night in the news or in any news article we read we hear about the government spending trillions of dollars on some new bill that's going to change the world. As our national debt snowballs it makes one wonder, will it affect your investments at some point?
