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Weekly Insights 10/18/21 – 10/22/21

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Did that Really Just Happen?

Sometimes when things are moving along nicely, whether it is a ride in a car or on a boat, or even on a larger scale as you go through life, something occurs that really catches you by surprise. These events can be good or bad and the impacts can be relatively minor or quite significant.  Often these occurrences happen so quickly you stop and ask yourself if that really took place.  The stock market seemed to have done just that last week, fortunately in a positive way. 

The markets began the week drifting lower in what appeared to be more of the same negative sentiment that we’ve experienced the past few weeks, but then something great happened on Thursday when the S&P 500 posted its largest single day gain since March.  This momentum continued with further gains on Friday. The big move was attributed primarily to a strong start to the earnings season, but also the weekly jobless claims numbers continue to drift lower reflecting continuing strengthening in the labor market.  It also helps that nationally we seem to be past the peak in the recent surge of coronavirus cases and a short-term agreement was made to raise the debt ceiling, averting a default by the federal government. 

Higher and Higher

We’ve all experienced higher prices recently on the things we buy, so it was not a surprise that the inflation data released by the government last week showed inflationary pressures persist. The Consumer Price Index (CPI) rose by 5.4% compared to a year ago, remaining at a 13 year high and the fifth month in a row inflation came in at 5% or higher. This was driven primarily by higher energy prices and a surge in food prices, plus the largest increase in rent in 20 years.  The Social Security Administration uses CPI data to adjust social-security payments and on a positive note announced last week the cost-of-living (COLA) increase for next year is 5.9%; the largest annual increase in about 40 years.  

Also on the inflation front, the Producer Price Index (PPI) increased 8.6% on an annual basis, which is the highest reading since the early 1980s.  The PPI measures the change in the price of goods sold by manufacturers and therefore is generally a leading indicator of consumer inflation.  Of note in this report was that a few months ago the price increases were attributable to a few products, namely lumber and used vehicles, but now the increases are more broadly spread amongst additional goods and services.  With inflation remaining persistent, many economists are no longer referring to it as being “transitory” but instead are now describing it as being “sticky.”

Looking Ahead

Earnings season kicks off in earnest this week, which we anticipate will provide further tailwinds for the markets.  Analysts are revising earnings estimates higher, albeit to a lesser extent than the previous two quarters.  Congress continues to consider large spending bills, but the price tags on each seem to be coming down which is likely another factor for optimism in the markets.  We continue to keep a close eye on interest rates, especially in light of the recent inflation reports. There seems to be a disconnect between bond yields and inflation, with low bond yields discounting that inflation will remain on a prolonged basis.  We think inflation will continue and bond yields will edge higher. Since bond yields and bond prices have an inverse relationship, any move higher in yields would cause a drop in prices.  Traditional fixed income may not provide the safety it has in the past so we would encourage you to consider other vehicles for providing income and diversification to your equity portfolio.  We would be glad to discuss strategies with you to protect your portfolio from inflation while providing protection in the event of downturn in the stock market. 

I will be sharing more insights and strategies during our monthly Lunch and Learn on October 25th.  You can join us in-person at our office here in St. Louis Park or watch online. See this week’s Secured Retirement Weekly Newsletter for more information and to sign-up. 

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.

info@securedretirements.com

Office phone # (952) 460-3260

Could you retire sooner than you think?

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Forbes: 7 Simple Strategies to Retire Early Click Here

“I’m never going to be able to retire.” Have you ever mumbled this to yourself? If you have, you’re not alone. Over 1/3 of all Americans don’t believe they’ll have enough money to live off of in retirement.  Ouch. With all the pessimistic view on retirement, then how in the blue blazes are there outliers that are able to buck the trend and retire in their 30’s? While they may be on the extreme side of retiring early there’s a lot to be learned from them.

So yes, even if you are one of pessimistic souls that believes that you can’t retire early, here are 7 simple early retirement strategies you can implement today:

1.      Know Your “Numbers”

2.      Lower Your Basic Cost of Living

3.      Stay Out of Debt

4.      Don’t Buy a House That Will Own You

5.      Save More Than You Thought You Ever Could

6.      You May Need to Increase Your Income

7.      Make “Balance” Your Investment Guiding Principle

US News: 8 Reasons to Pursue Early Retirement Click Here

Most people retire during their 60s. To retire earlier than that requires planning, discipline and paying close attention to your savings and investments. But the sacrifices and extra effort are worth the trouble. Early retirement planning makes you rethink what brings you happiness and life satisfaction outside of your career and improves your financial footing.

Here are eight reasons to pursue early retirement:

  1. Address the future today (set your retirement goal)
  2. Increase your income
  3. Circumstances may require you to retire early
  4. Improve your relationships
  5. Travel
  6. Prioritize your health
  7. Lower consumption and spending
  8. Failure isn’t a bad outcome – at least you’ll set your goal

WSJ: Let’s See How Ready for Retirement You Really Are Click Here

I have no idea when, or if, markets will settle down. What I do know is that it’s easy to get caught up in issues that are out of our hands: the markets, interest rates, changes in government programs, etc. At their worst, such anxieties can leave people paralyzed. Put another way, you could end up delaying—and delaying—your retirement for a very long time.

So…instead, focus on the parts of your retirement preparations where you have control. 

Pop quiz: If you are, in fact, retiring in 2019, how many of the following steps—for which you’re the boss—have you taken?

  1. Setting a budget
  2. Reducing debt
  3. Timing Social Security
  4. Creating a pension
  5. Managing taxes

Dave Ramsey: How to Retire Early Click Here

How do I retire early?

That’s a question I hear a lot when I’m on the road. Maybe you’re concerned about health issues. Perhaps you want to chase that dream of owning your own business. Or maybe you feel led to do volunteer work. Whatever the reason, the question is the same: What would it take for me to retire at 60? Or even 55 or 50? 

The answer depends on your financial situation, but if you’re serious about learning how to retire early, there are some things you need to do:

  1. Determine what kind of lifestyle you want in retirement.
  2. Create a mock retirement budget.
  3. Evaluate your current financial situation.
  4. Get serious about lifestyle changes.
  5. Pour everything into investing.
  6. Meet regularly with a financial advisor.
  7. Play it smart when you retire early.

The Motley Fool: Want to Retire Early? Handle These 3 Hurdles First Click Here

For many workers, the idea of retiring early is a dream they’ve pursued throughout their careers. Being able to have more time to do the things you want is a goal that nearly everyone has.

However, in order to make early retirement work, it’s important to understand the potential difficulties involved and to address them while there’s still time. In particular, if you want to retire early without ending up in a difficult situation, you’ll want to make sure that you have three key issues dealt with before making a decision you might regret later.

1.      Figure out where your money will come from

2.      Decide how you’ll bridge the healthcare gap

3.      Come up with a strategy for staying active socially

Kiplinger: Worried You’re Never Going to Be Able to Retire? Click Here

Some people spend more time thinking about retirement than others, but most everyone has at least a few ideas about what their life will be like when they don’t have to work anymore. 

Unfortunately for many, hoping and dreaming is about as far as they get in the planning process. They don’t know whether they can really achieve their goals because they haven’t taken the steps necessary to prepare for them.

If that sounds like you, and you’re anywhere close to the age you think you’d like to be when you retire, let me warn you: Your retirement reality could be far different from the lifestyle you’ve imagined. And if it is, it likely will be because you ignored one or more of these five basic threats:

Threat No. 1: Unclear plans.

Threat No. 2: Medical costs.

Threat No. 3: Investing too conservatively.

Threat No. 4: Not knowing how much risk is in your portfolio.

Threat No. 5: Inflation.

Why Diversifying Your Income is Critical in Retirement!

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Here are some recent headlines from The Wall Street Journal, MarketWatch and Investment News that should get your attention …

  • “Medicare trust fund will be exhausted in 2026.”
  • “Social Security to Tap into Trust Fund for the First Time in 36 Years.” 
  • “Stock Market Returns Over the Next Decade Will be Well Below Historical Norms.”
  • And “The Pension Hole for U.S. Cities and States is the Size of Germany’s Economy.”

Social security, Medicare, pensions, and stock market returns are all critical components of your retirement. But their financial stability is now in question. If you’re counting on any of these things to help support you, you have good reason to be concerned.

In a best-case scenario, this could have a serious impact on your lifestyle in retirement. In a worst-case scenario, it could force you back to work.

This underscores one very critical thing. You can’t rely on just one source of income in retirement. You must have a diversified number of income sources.

We will be covering why diversifying your income sources in retirement could help you avoid a financial disaster, as well as how to navigate the critical challenges ahead with Medicare and social security, your options to generate income today – no matter what’s happens next on Wall Street, and more.

Successful retirements are not built on assets, or the amount of money you’ve saved, they’re built on your ability to generate income in retirement. Stock markets go up and down, but your income is the backbone of your retirement game plan. You need a plan to make your money break a sweat.

Generating income is tougher today than ever before. Traditional “go-to” options for generating income are dead. Pensions are all but history. Although interest rates are on the rise, they are still historically low, meaning rates on CD’s and savings accounts are a joke. $500,000 in a one-year CD today will only fetch roughly $700 a month. And that’s before taxes! And it doesn’t look like these rates are going to significantly change anytime soon. Bond yields aren’t any better, and people still fear investing in a stock market that remains at near highs. Historically speaking, we are well overdue for a bear market.

According to a recent Kiplinger – From 1926-2017, bull markets lasted on average nine years. If that is the case, this bull market should be ending right about now, as it just turned 9 on March 9, 2018. Also, the typical bear market lasts 1.4 years, with an average cumulative loss of 41%. This mean trouble is on the horizon (just look at the recent volatility).

Show me someone who lives in constant fear of running out of money, and I’ll show you someone who doesn’t have a plan to generate income. It’s that simple. However, you can’t just have an income plan, you need a diversified income plan. It’s risky to rely on one source of income in retirement. The following are some potential sources of income, but this is where you should use your expertise to go over these topics in detail.

  • Dividend stocks – Most mature companies pay a recurring dividend to shareholders. In most cases, these dividends are paid quarterly to shareholders who owned the stock on the date of record. Typical yields for most dividend focused ETFs are 2-3%.
  • Investment grade corporate bond fund – has bond holdings from highly-rated companies in a proportion that is meant to mimic the indices they track.
  • Municipal bonds – debt obligations issued by states or other municipalities to fund projects. Some, but not all municipal bonds are exempt from federal tax for all investors and exempt from state tax if the investor lives in the state of the municipality issuing the bond.
  • REIT – Real estate investment trusts own a portfolio of real estate, the purchase of which is financed by debt and the issuance of securities to investors. A REIT can be public or private and open-end or closed-end.
  • Reverse mortgages – the bank pays you, you keep your home, and it remains part of your estate. Essentially, you are putting your home equity to work for you.
  • Commercial/residential/multi-unit real estate – Buying a rental property is a rather straightforward proposition, especially if you know the local market well that you’re investing in.
  • Annuities – insurance products that pay out over your lifetime, no matter how long you live. And these products have come a long way over the last few decades.

However, the specific strategies that will be used for you will be totally different than anyone else, because even a minor difference in your age, assets, risk tolerance, or life expectancy could trigger a major shift in strategy.

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Danielle Christensen

Paraplanner

Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!