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Retirement Planning

The Challenges Facing Retirees Today

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Believe it or not, retirement is still a relatively new concept, by historical standards at least. People have only really been “retiring” for about 150 years – back to the time of Chancellor Otto Van Bismarck.

In 1883, Chancellor Otto Von Bismarck of Germany had a problem. Marxists were threatening to take control of Europe. To help his countrymen resist their blandishments, Bismarck announced that he would pay a pension to any nonworking German over age 65. Bismarck was no dummy. Hardly anyone lived to be 65 at the time, given that penicillin would not be available for another half century. Bismarck not only co-opted the Marxists, but set the arbitrary world standard for the exact year at which old age begins and established the precedent that government should pay people for growing old.

As you can see, the original retirees weren’t retiring into a life of leisure; they were basically awaiting death. Thankfully we are far removed from what life was like back then in almost every way.

But as time has passed, we face entirely new challenges. Contrary to the experience of retirees from more than a century ago (if we should even call them retirees at all), the modern retiree has many more challenges to face aside from the decline of their health.

Even since just a generation ago, the retirement environment has changed dramatically.

Thirty years ago, for Americans retiring in the late 1980s and early 1990s, retirement seemed pretty simple. Most retirees had a pension plan they could count on, an ongoing bull market in both stocks and bonds, quality health insurance and the restored health of the Social Security program following the 1983 reform.

Fast forward to today.

The modern retiree faces an uphill battle. Pensions – the incomes retirees of generations past could depend on – are quickly being eliminated from all but the most stable employers as companies seek to save costs.

Pensions, as a group, have been following a recipe for disaster as their investment management teams have been managing assets via the rearview mirror by purchasing the best-performing assets of the prior decade.  In most cases, this has been detrimental to their performance and has therefore caused the respective company to either reduce benefits or eliminate the pension program entirely.

Even for the few employers that have actively maintained a pension plan, given the transitory nature of modern employment (and perhaps thanks to a less than stellar work environment), many employees are no longer working their entire careers at a single employer.

Following a 30+ year bond bull market, interest rates are at or near historic lows. In the late 1980s, the 10-year Treasury yielded between eight and nine percent all while the inflation rate hovered around four percent.

In other words, a worker retiring in the 1980s could invest their entire portfolio (theoretically) in Treasuries earning eight percent, withdraw four percent and allow the additional four percent to accrue for later retirement years. This was essentially a no-risk portfolio.

Nowadays, the 10-year Treasury is yielding less than two percent with inflation hovering around two percent. Not ideal if you’re planning to retire using conventional strategies.

It’s pretty clear that a generous pension and a high-interest bond market are two comforts the modern retiree does not have.

Beyond the bond bear market that is likely to ensue (due to rising rates), we have a stock market that has consistently been at or near market highs for a few years now. While the data would show that this scenario is not indicative of pending doom and gloom, it does make folks nearing retirement and their advisors uneasy because what’s around the bend is unknown – and always will be unknown.

After a decade of fearing the return of the deep bear markets similar to 2000-2002 and 2007-2009, many portfolios have not kept up with the market due to this continued fear despite knowing that fighting the last battle is an ever-popular but losing strategy in the long run.

Making matters worse, there are the perceived risks surrounding Social Security with the Trust Fund on track to run dry around 2035. While this is a popular concern among retirees, it is not as dire as many people think.

Most of the above observations sound quite negative, but there is good news. Thanks to continuing medical advances, people are living longer lives than ever before. However, this good news poses its own unique challenges. What would ordinarily be viewed as a blessing is coupled with rising health care costs and potential long-term care needs.

To astute observers, much of the new construction around most major cities is the building of additional assisted living facilities and nursing homes. If anyone can sense what’s coming, it’s people seeking to profit from this inevitable trend.

Lastly, as retiree life spans have increased after their working career has come to a close, the modern retiree must find a way to find fulfillment outside of the workplace. Many Americans rushing to leave their office for the last time may find that life is not quite what they expected upon leaving.

Many retirees find that their life’s purpose is in their rearview mirror and are now met with a new relationship at home – one with virtually 24/7 interaction. This relationship is neither good nor bad, but different and one that often takes some time getting used to.

With six Saturdays and a Sunday each week, finding life satisfaction and fulfillment becomes a primary goal amongst the challenges listed above. Retirement isn’t just about retiring from something as it is retiring to something.

Having a plan that effectively deals with these issues is likely to be the defining factor of whether the modern retiree comfortably makes it through retirement, or doesn’t. The modern retiree needs to balance each of these issues and risks with the need to grow their assets (to ward off inflation) while protecting their income. This is a balancing act I hope I can play a small part in with various articles here on the blog.

My goal here isn’t to provide a doom and gloom view of retirement – long time readers of this blog know I preach optimism and believe all these issues are able to be overcome with good planning.

Because there is an obvious recency bias to all blogs given how blog posts are displayed, I thought it might be helpful to provide a consolidated one-stop shop article for each of the challenges mentioned to hopefully help you make some sense of these challenges and what you can do about them. Feel free to reach out with any feedback or questions.

Articles Addressing the Above Challenges:


This post is not advice. Please see additional disclaimers.

The post The Challenges Facing Retirees Today appeared first on Retirement Field Guide.

By: Ashby Daniels, CFP®
Title: The Challenges Facing Retirees Today
Sourced From: retirementfieldguide.com/challenges-facing-retirees/?utm_source=rss&utm_medium=rss&utm_campaign=challenges-facing-retirees
Published Date: Tue, 11 Feb 2020 18:49:57 +0000

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Ends-of-the-World Every Year Since 1970

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There always has been and always will be a reason not to invest or not to stay invested. This is all the mainstream media reports to us. Below you will find a list of some of the worst global events each year since 1970. I have some commentary to follow.

1970: War: US troops invade Cambodia.
1971: Civil Unrest: Anti-war militants march on Washington.
1972: Political: Start of Watergate Scandal.
1973: Economic: OPEC raises oil prices in response to US involvement abroad.
1974: Political: Nixon resigns as President of the United States.
1975: Political: Multiple assassination attempts on President Ford.
1976: World: Ebola virus.
1977: Political: Government shutdowns.
1978: Market: U.S. Dollar plunges to record low against many European currencies.
1979: World: Iranian militants seize the U.S. embassy in Teheran and hold hostages.
1980: Economic: Inflation spiked to a high of 14.76%.
1981: Political: President Reagan assassination attempt.
1982: Economic: Recession continues in the U.S. with nationwide unemployment of 10.8%.
1983: Economic: Unemployment in the U.S. reaches 12 million.
1984: Economic: 70 U.S. banks fail during the year.
1985: World: Multiple airplane hijackings around the world.
1986: World: Chernobyl Nuclear Power Station explodes.
1987: Market: DOW drops by 22.6% on October 22.
1988: Environment: Awareness of global warming and the greenhouse effect grows.
1989: Environment: Exxon Valdez dumps 11 million gallons of crude oil into Prince William Sound.
1990: World: Persian Gulf War starts.
1991: World: Mass shooting in Killeen, TX.
1992: Human Rights: Los Angeles riots following the death of Rodney King.
1993: Terrorism: World Trade Center bombing.
1994: World: Mass genocide in Rwanda.
1995: Terrorism: Oklahoma City bombing.
1996: Terrorism: Olympic Park bombing.
1997: World: Bird flu.
1998: World: Multiple U.S. embassy bombings.
1999: World: Columbine shooting.
2000: Economic: Start of the Dotcom Market Crash.
2001: Terrorism: Terrorist Attacks in NYC, DC & PA.
2002: Economic: Nasdaq bottomed after a 76.81% drop.
2003: World: The U.S. invades Iraq.
2004: World: The U.S. launches an attack on Falluja.
2005: World: Hurricane Katrina
2006: World: Bird flu.
2007: Economic: Start of the Great Recession.
2008: Economic: Great Recession continues.
2009: Economic: S&P bottomed after a 56.8% drop.
2010: Market: Flash crash.
2011: Market: Occupy Wall Street and S&P downgrades U.S. Debt.
2012: Political: Fiscal cliff.
2013: Political: Taper tantrum.
2014: World: Ebola virus.
2015: World: Multiple mass shootings.
2016: Political: Divided U.S. Presidential election.
2017: World: North Korea testing nuclear weapons.
2018: Economic: U.S. & China trade war.
2019: Economic: Student loan debt reaches an all-time high of $1.4 trillion.
2020: World: COVID-19.

While many of these events were undoubtedly terrible (and there are certainly others not named here that were worse), most of these were broadcast as end-of-the-world events for the stock market. Despite that attention, it is worth noting that these were, for the most part, one-time events. In other words, most faded into the newspapers of history. We moved on.

Obviously, some caused monumental shifts in the way the world works. Just think about how much air travel continues to be impacted by the events of 9/11. But, outside of the resulting inconveniences (if we want to call safety protocols inconveniences) associated with air travel, flying is safer than ever before.

Take a look at just about any of the events and you will find there are many that people will hardly remember. My point here isn’t that these events are to be ignored or that they were easy to stomach at the time, but that they have become a distant memory.

I want to also make the point that we should expect these types of negative events. As investors, we know these types of crises, economic catastrophes, and global phenomena are going to happen.

But in almost all cases, here is what we can say in the next breath – this too shall pass.

Will there be legal, humanitarian, economic, or some other aid required as a result of these events? Almost certainly the answer is yes, but that doesn’t mean it they won’t eventually fade into history.

Lastly, what’s worth noting is how the market has performed over these last 50 years despite the continual advertisements of the world crashing down around us. On January 2, 1970, the Dow Jones stood at 809 and the S&P at 90 -> those are not typos. These same indexes have grown (not including dividends) to 26,387 and 3,232 respectively. Amazing, no?

Perhaps what gets overlooked more than anything else is what separates the above one-time negative events from the positive stories that go largely ignored over our lifetimes. And that is a story worth telling. See the companion post below:

Unheralded Positive Events Every Year Since 1970

Stay the Course,
Ashby


Retirement Field Guide Mission:

“To help 10 million people make better retirement decisions.”


If you would like to join us in achieving our mission, I hope you will consider sharing our site if you have found it helpful in your own retirement planning.


This post is not advice. Please see additional disclaimers.

The post Ends-of-the-World Every Year Since 1970 appeared first on Retirement Field Guide.

—————–

By: Ashby Daniels, CFP®
Title: Ends-of-the-World Every Year Since 1970
Sourced From: retirementfieldguide.com/ends-of-the-world-every-year-since-1970/?utm_source=rss&utm_medium=rss&utm_campaign=ends-of-the-world-every-year-since-1970
Published Date: Tue, 04 Aug 2020 13:26:19 +0000

Did you miss our previous article…
https://getinvestmentadvise.com/retirement-planning/wildfire-prone-property-insurance-bill-in-california-due-for-hearing/

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Wildfire prone property insurance bill in California due for hearing

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The post Wildfire prone property insurance bill in California due for hearing appeared first on Live Insurance News.

The bill is expected to be heard in upcoming weeks as opposing sites prepare for major battle.

A new California bill, the outcomes of which will have a lot to say about coverage for wildfire prone property in the state, will soon be headed for hearing. The hearing is expected to be a heated one as strong opposing opinions have the opportunity to be voiced.

Opponents of this bill are calling it a direct attack on consumer protections in insurance.

That said, proponents of the bill claim it is the best method for making coverage available to wildfire prone property in California. The bill in question is Assembly Bill 2167. It was written by Assemblyperson Tom Daly (D-Anaheim). If it passes,it will create the Insurance Market Action Plan (IMAP) program. The IMAP program is meant to protect residential properties.

So far, AB 2167 has progressed quickly, when taking into consideration that a chunk of the legislature has been considerably restricted by pandemic crisis precautions. It was first presented in early June and backers have been saying that it was brought forward in good timing and that it has all the momentum it needs to be passed.

That said, AB 2167 has not been without opposition. In fact, it has faced considerable opposition, having been called an attack on Proposition 103, insurance consumer protection law. California Insurance Commissioner Ricardo Lara lobbed that argument at it, calling it an “insurance industry wish list, with nothing to help consumers,” and Consumer Watchdog, whose founder, Harvey Rosenfeld, was the original author of Proposition 103.

The insurance industry strongly supports the bill, saying it will help wildfire prone property coverage.

Insurance organizations such as the American Property Casualty Insurance Association and the Personal Insurance Federation both support AB 2167. The bill also has the support of the California Association of Counties (CSAC), as well as Fire Safe Councils of California, and the CalFIRE union.

The Consumer Federation of America, another watchdog organization, has predicted that if AB 2167 passes, it will cause 40 percent increases in insurance rates. On the other hand, insurance groups claim that the bill offers owners of wildfire prone property a greater opportunity for choice and competition among insurance companies based on coverage and premiums while avoiding the limitations and high costs associated with FAIR Plan coverage.

The post Wildfire prone property insurance bill in California due for hearing appeared first on Live Insurance News.

—————–

By: Marc
Title: Wildfire prone property insurance bill in California due for hearing
Sourced From: www.liveinsurancenews.com/wildfire-prone-property-insurance-bill-in-california-due-for-hearing/8549884/
Published Date: Fri, 14 Aug 2020 09:00:14 +0000

Did you miss our previous article…
https://getinvestmentadvise.com/retirement-planning/is-this-the-last-hurrah-for-bonds/

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Is this the last hurrah for bonds?

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Recently, I have written quite a bit about the long-term return expectations for investing in bonds. See here, here, here and here.

Spoiler alert: I don’t think it’s good.

But long-term bonds this year have been quite an amazing story as the COVID pandemic has caused the Fed to take historically monumental actions. As a result, we’ve watched long-term Treasuries tear the roof off the market. For instance, a 20+ Year Treasury Bond ETF (name withheld for compliance purposes) is up more than 31% YTD as of July 31st.

That is insane!

But there is a good reason for this increase shown below.

The red circle shows a decrease in the 30-year Treasury rate of almost 40% over a span of six months. That’s practically unprecedented with only two periods (2008 and 1981-1982) having similar declines over such short periods.

But this begs the question: Is this the last hurrah for bonds as a driver of any meaningful return? Below is the 30-Year Treasury rate over the last 40+ years.

For what it’s worth, people have been forecasting the end of the bond bull market since 2012 (maybe even earlier) and yet it has continued despite those predictions. But at some point, the bond party will come to an end.

The Fed has been clear that they are going to keep rates stable until at least 2022 which means this may not change for a little while longer. Or in the near term, I could even see the high returns continuing if we experience pandemic economic shutdown round two.

But, I can’t see a world where this is the case for much longer than that – most importantly over the span of a 30-year retirement.

The official end of the bond bull market depends on a recovery from the pandemic economy as well as a few other factors causing rates to rise. But when they do, it seems likely to me that this may be the last great hurrah for bonds for quite some time.

The question is when to get off that train and that undoubtedly requires a personal answer.

Stay the Course,
Ashby


Retirement Field Guide Mission:

“To help 10 million people make better retirement decisions.”


If you would like to join us in achieving our mission, I hope you will consider sharing our site if you have found it helpful in your own retirement planning.


This post is not advice. Please see additional disclaimers.

The post Is this the last hurrah for bonds? appeared first on Retirement Field Guide.

—————–

By: Ashby Daniels, CFP®
Title: Is this the last hurrah for bonds?
Sourced From: retirementfieldguide.com/is-this-the-last-hurrah-for-bonds/?utm_source=rss&utm_medium=rss&utm_campaign=is-this-the-last-hurrah-for-bonds
Published Date: Wed, 12 Aug 2020 13:47:16 +0000

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