What do you do when you get conflicting advice? There are two choices when the sun is shining. One person remembers the saying as “you build an ark when the sun shines.” Another says no, the saying is “make hay when the sun shines.” Market conditions have been sunny this year. Should an investor prepare for stormy weather, or should he or she stay invested and capture more gains?
We’re entering the fourth quarter, which traditionally has a remarkable track record. For example, the S&P 500 has been positive for 25 of the past 30 years, ranging from a high of plus 21 percent (1998) and a low of minus 22 percent (2008), and averaged 5.3 percent for the quarter. However, there is a wide range of forecasts and interpretations of current conditions. The “hay makers” talk about slow but growing economies, low inflation and low unemployment. And on average, election outcomes have little relationship to S&P market performance – so best to separate investment decisions and politics.
Thus, the dilemma. You and I are standing on the same street corner; one’s advised to turn right, the other left. I have yet to meet a consistent and accurate forecaster. As much as we expect the best and plan for the worst, prepare to be surprised. Should an investor “make hay” or “build an ark” in this relatively sunny weather?
You are right – the prudent answer is a bit of both.
We each face issues today. They run the gamut – simple, complex, emotional and some that are polarizing and divisive. However, I’m reminded daily to focus on things that we control, prioritize what will have the greatest impacts, and seek objective and qualified feedback. Isn’t it better to get help in thinking things through? We benefit from expertise, different perspectives, and checking our blind spots and biases, to name a few.
One of the reasons you invest wisely is to adequately fund retirement. Retirement age is a key variable in planning. There are several studies that show a noticeable gap between expected and actual retirement date. It is wise to make planning adjustments for the potential for early retirement. I’ll highlight some of the findings of David Blanchett of Morningstar and share some planning implications you might discuss with your family and team of trusted advisers.
- Major variables in retirement planning include age of retirement, annual funds needed, returns and life expectancy. (These factors themselves may change throughout retirement.)
- People tend to retire earlier than expected by about four years; the average age of retirement has increased to 62 (from 59) as has the expected age to 66 (from 63). (Waiting until Medicare eligibility makes sense!)
- Earlier retirement can have negative impacts — less time to save, reduced Social Security benefits, higher medical insurance costs, and money needs to last longer assuming health stays the same. But 28 percent of retirees still work!
- A driver of early retirement is health. It can impact life satisfaction and ability to adapt; and bad health can shorten life expectancy and increase costs of care.
- Postponing happens in economic downturns; work also serves to provide purpose and meaning.
Goals are an important part of planning; however, they’re not the central conversation. There’s a big difference between goals and transitions. Goals are what we want to happen (i.e., retiring at age 65). Transitions are what’s happening anyway: my health declined; my company restructured and I’m retiring at 62; my daughter’s getting married; my nephew is graduating from college. And who has a goal of Dad getting Parkinson’s?
That’s life. Transitions are important because they often have financial implications. And it’s much better to prepare than to repair.
You can also view this article on the Reno Gazette Journal.