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Three Key Risks of Retirement

Ready for Retirement?

As Boomers get older, we can expect that the number of retirees will grow each year.  After all, the oldest member of this generation is now 74 while the youngest is 56.  If we look at the statistics of Pew Research Center starting in 2012, the annual increase in the retired Baby Boomer population has run between 1.5 million to 2.5 million a year… until 2020.  The increase in 2020 was markedly higher at 3.2 million, for a total number of 28.6 million retired Boomers.

Some Boomers made a lifestyle choice in 2020, accelerating their retirement plans for personal reasons.  Others may have been furloughed, or lost their positions, and decided to not get back into the game.  For whatever reason, this choice is best made with preparation – emotionally and financially.

Let’s begin with our financial readiness, including the consideration of the risks during retirement. The Society of Actuaries identifies 160 retirement risks, but protecting against all of these is not possible.  Many are completely out of our control and not probable. Here are three significant financial risks, however, for which we can make plans:

  1. Longevity risk. This risk of outliving our money is a sobering one, especially considering the extension of our life expectancy.  Recent statistics are that for a 65-year old couple in relatively good health, there is a 50% chance that one in the couple will live to age 92, and a 25% chance that one in the couple will live to age 97.  Planning for 30 years of retirement is becoming the norm, and we should prepare ourselves accordingly.
  2. Market fluctuations.  If your life savings are invested in the stock and bond markets, you can expect to confront the uncertainty of market fluctuations.  Historically, 20%+ downturns in the stock market have been less frequent than people realize, but they do happen (remember March?) and create anxiety.  This is when an investment plan which dovetails with our personal needs and risk tolerance is critically important.
  3. Unexpected spending needs. It would be nice to know what negative surprise might present itself, and when it might happen, but that is not the nature of unexpected needs. What we can do, though, is model various scenarios for unexpected expenses and plan for addressing them. Stress-testing our plans also provides confidence that even an uncertain future can be handled.

Downside risks are a reality, but we can create peace of mind by addressing them. When we do, we are truly bringing together our money with the meaning it serves in our retirement lives.

Retirement planning can be an exciting process, filled with dreams of being liberated from a more structured schedule and envisioning more time to enjoy life, friends and family. Whatever our dream, planning financially and emotionally will help us enjoy it.

For disclosures, please click here.

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Thoughts in Charts: Office Space

 

Office Uncertainty: it’s a real thing. With so many people working from home, I’d love to see a graph about how much time people have spent wondering if they will ever return to the office. It’s probably up there with the thought time spent how to make sourdough.

Office uncertainty has also led to some discussion about the virus’s impact on the broader real estate market. With people leaving cities, will apartments struggle? Now that companies know we can work from home, will they cut down on the overhead of office space? We learned that everything can be delivered to our door – will we ever go back to shopping in person?

The answers to these questions may not matter as much for publicly traded US Real Estate Investment Trust (REIT) investments as you may think. These investments allow liquid access to real estate exposure, so they are a nice fit for most clients. Like many things, all of the uncertainty around the virus left this investment space pretty banged up, but the above chart challenges the notion that real estate can’t thrive without offices and malls.

A large part of public real estate is now cell phone towers and data centers.  I recently spoke with a fund representative who reminded me that when you order something from your phone, you actually engage three types of real estate: cell phone towers, data centers, and industrial properties. By his measure, that is about 45% of the public REIT universe.

That office space we have been pondering so frequently lately – it makes up about 7% of the public REIT space.

Alright, so about that sourdough…

For disclosures, please click here.

Thin(k) About Your 401(k) Plan: Reflections on 10 Years as An Advisor – Part 2

As I continue looking back over the last 10 years as an advisor at ThirtyNorth Investments, I realize that 2020 reflects a critical early lesson about discipline I like to share with clients and prospects. Recent conversations brought clarity to what I mean. With Covid-19 raising its ugly head again and the recent election, I have had people ask me whether or not they should stay in the market.  Research shows that taking into account individual time horizons, staying invested is more likely to lead to success than trying to time the market by jumping in and out.

When Covid-19 first appeared, there were multiple clients like now who asked me if they should leave the market. One person got out and is now wondering when to get back in.  The other person, after watching his account value fall in March and then recover over the ensuing months has thanked me for helping him decide to stay invested.

I have watched the market soar incredibly and also some very fast declining days.  Other times, it seemed like we were going sideways for what felt like years.  Anyone who tells you that they can predict consistently and with certainty what the market will do in the short-term isn’t being truthful.

What ThirtyNorth does is to look at economic conditions around the world and shift our globally diversified portfolios to lean into favorable conditions for certain asset classes when we think appropriate.  Not taking large bets, rather tweaking allocations.  Certain times favor growth stocks over value, and vice versa.  Other times favor small cap stocks over large cap, though it hasn’t felt that way for a while.  Nonetheless, we make sure our clients are invested in these asset classes at varying weights over the long-term.

At ThirtyNorth Investments, we help clients bring together money and meaning.  We believe that our best chance to succeed in this mission is to understand each client’s ultimate goal for their money.  That way, we can do our best to plot a course to reach that goal and help our clients avoid the temptation to bet large on the current “winner” being touted in the financial press.  Or we help avoid the other big temptation to get in and out of the market in an attempt to only be invested during the good times.  Both of these strategies are fraught with peril, which brings me to another of ThirtyNorth’s core principles.

Discipline is Everything – While many investing strategies and philosophies have merit, it is an investor’s ability to stick with a strategy that ultimately leads to success. Attempts to chase recent performance are generally unsuccessful and result in more trading costs and taxes. We believe that discipline and patience to follow a well-researched strategy rewards investors over the long-term.

Follow this link to see our other Investment Principles.

For disclosures, please click here.

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Thoughts in Charts: The Price of Pie

Back in May, I posted “Thoughts in Charts: The Price of Food” which explored food inflation as a portion of the changes in prices we see in our daily lives. This chart from The Wall Street Journal article “Thanksgiving in a Pandemic Means Smaller Birds, Fewer Leftovers,” puts a Thanksgiving spin on the issue. It reports that the typical price of a Thanksgiving meal will be 3.5% higher this year than last.

Curious, I went back to the US Bureau of Labor Statistics to check on the 12-Month “food at home” category. It turns out that the increase in food prices has actually fallen slightly in the last few months. The food at home year-over year increase peaked at 5.6% in June, and is now down slightly at about 4% as of the end of October.

Economics 101 reminds us that an increase in demand on limited resources increases prices. The Wall Street Journal article reports that grocery stores are stocking Thanksgiving food early this year due to concerns about high demand. With food suppliers already struggling to keep up with demand, there is little incentive for food items to be discounted this season.

In true ThirtyNorth fashion, I’m always challenged to think about money and meaning. With food making up a large portion of most people’s monthly budgets, the charts remind me that donations to charity holiday food drives are even more valuable this year.

Just a little “food for thought” – if you will.

For disclosures, please click here.

 

Thin(k) About Your 401(k) Plan: Reflections on 10 Years as An Advisor – Part 1

I just celebrated 10 years as an advisor at ThirtyNorth Investments. The cliché holds that time flies when you are having fun.  I remember the day when my partner, Suzanne, and I met, and I learned about the Registered Investment Advisor structure and the fiduciary nature of our client relationships.  It was like a light bulb lit up as I learned that when it comes to investment advice, my client’s interest would always come before the firm’s or mine.  ThirtyNorth is legally bound to a fiduciary standard of care, which is a cornerstone on which our firm is built.

The concept of an investment advisor delivering objective advice is so foreign to most people that I sometimes struggle to explain it to prospects.  At first, they might not believe it, but once I have succeeded, I see the same light bulb lighting up in their eyes. I’m not selling a product for a commission.  There are no trailers. There are no fees coming from fund companies.  I am helping clients invest their money in a diversified portfolio while striving to take only the appropriate amount of risk for their personal situation.  Often the goal is saving for retirement and sometimes it is leaving a legacy.  Whatever the case, at ThirtyNorth Investments, we help clients bring together money and meaning.

We do this because we believe that the more a client understands and trusts the investment strategy, the more comfortable they will be with market fluctuations.  When clients are confident, they tend to remain invested through ups and downs. Many times, sticking by a plan leads to clients reaching their long-term goals, demonstrating one of ThirtyNorth’s core principles.

Time Matters – Investors are rewarded for taking risk in the market over extended periods of time. We can be confident there will be another market downturn, but it is impossible to know the timing of a downturn in advance. The ability to take a truly long-term view to investing is paramount to a successful investment approach, where “long-term” is not measured in days, months, or years, but in multi-year intervals.

Follow this link to see our other Investment Principles.

For disclosures, please click here.

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Thoughts in Charts: Red or Blue Economy?

As we near some answers about the presidential election, I’m breaking out one of my favorite political prospective charts.

This Pew Research Center survey found that economic perspective varies significantly based on political leanings. The red line scrolls above the blue during a Republican presidency and the blue above the red during the Democratic presidency. We shift our sentiment on election day – prior to new policy implementation.

Our economy has all sorts of hurdles in front of it, but I use this chart to check my own biases. It reminds me that economic prospects may be a bit more middle ground than they feel.

For disclosures, please click here.

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Thoughts in Charts: We Will Pay for This

Source: Congressional Budget Office

This week’s graph is a bit of a bummer, so if you are having a “rainbows and butterflies” type of day, maybe just skip it. The chart is the Congressional Budget Office’s (CBO) projection of the national debt as a percentage of output if we don’t make any changes to current taxes and spending. We are already at World War II levels, and the projected uptick is steep.

There is a solid argument out there that says that the national debt really doesn’t matter that much. I tend to agree with a lot of that – to a point. I also believe that there is a level at which it very much will matter. I buy into the CBO’s statement that:

“High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.” 1

The good news is that this is a ratio. If Gross Domestic Product (the denominator) goes up, then the overall percentage goes down. If we produce more than anticipated, it may not look quite so bad down the road.

Will we reach a point where changes will be required? As I look at this chart’s big picture, I think we will eventually have to face the spending and revenue numerator in this ratio. Yes, I mean changes to both government spending and taxes. I warned you that this wasn’t a feel-good read.

At some point, it seems likely that this level of debt will matter enough that we need to act. That being said, there are a lot of variables at play. If you’d like to dig in and find out what drives this projected ratio, “The 2020 Long-Term Budget Outlook” is very readable – plus, it has a lot of great charts!

For disclosures, please click here.

1 Congressional Budget Office. “The 2020 Long-Term Budget Outlook.” PDF file. September 21, 2020. https://www.cbo.gov/system/files/2020-09/56516-LTBO.pdf

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Thin(k) About Your 401(k) Plan: SECURE Act – Treatment of Part-Time Employees

I know it seems a long time ago, but at the end of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act.  The Act had a number of provisions, but I want to focus on the one aimed at part-time employees.  This change will require employers to permit employees who work 500 hours for three consecutive years to save using the company’s 401(k) Plan.  Employers are not required to match or make any contributions for these employees.  However, if an employer does match or contribute, relevant vesting schedules apply.

This requirement effectively begins in calendar year 2021.  Therefore 2024 would be the first year this group of employees would be allowed to contribute.  It also means that companies will have to track and monitor this employment status beginning in 2021, something heretofore likely not done.  As I type this in late October, I wonder how many companies are prepared to track this employee cohort starting in just a few months?

Let me know if I can help.

I found this article from Kiplinger very helpful: SECURE Act Basics: What Everyone Should Know

For disclosures, please click here.

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Where Did It Go?

When special US government programs distribute money to individuals broadly, we often wonder how the money was actually used. It can occur after a natural disaster, and it happened in March with the $2.2 trillion CARES Act stimulus in response to the pandemic.

Federal Reserve Bank of New York economists published in Liberty Street Economics the results of surveys they conducted to answer this very question. You can read the entire report, “How Have Households Used Their Stimulus Payments and How Would They Spend the Next?” Here are the key points:

  • While the payments ($1,200 for qualifying adults and $500 for each child) were a significant boost to the economy, only a small share (29%) was spent by June 2020. The remaining funds were allocated to savings (36%) and paying down debt (35%).
  • Survey results suggest “households expect to consume even smaller shares of a potential second round of stimulus payments, while they expect to use a higher share to pay down their debt”.
  • Across all demographic sectors, an average of 8% of the funds were spent on non-essentials, such as hobbies, leisure or other items not absolutely necessary. This 8% is included in the 29% spent by June 2020, as is 3% which was donated.
  • The same survey found respondents receiving Unemployment Insurance payments during June consumed in approximately the same percentage (28%), but that amounts allocated to savings were less (23%) and a greater amount was used to pay down debt (48%).
  • The New York Fed Survey of Consumer Expectations (SCE) is a nationally representative, internet-based survey of approximately 1,300 U.S. households. The analysis in the post is based on data collected as part of two special surveys on the pandemic fielded in June and August, 2020. In the June survey, 89% of respondents reported that their households had received a stimulus payment.

While the allocation of these payments varies among differing income and age levels, the results speak to the high uncertainty of how long the pandemic will last and the possible economic impact on recipients. Questions abound about how much money will be needed and when. For example, were parents concerned about “holding the spot” with their daycare provider? Was there concern about how long rent forbearance would last? Concern about layoffs this fall?

For a rough validation of the results of the survey, you can consider that the average U.S. FICO credit score increased in July to 711, the highest level in the past 15 years. Consumer debt levels represented by credit card balances have also decreased from $6,934 in January to $6,004 in July.

The average American was likely using sound financial strategy with their stimulus payments. The choice to forego spending where possible, add to cash reserves, and reduce personal debt is a healthy one during uncertain times and should reduce the possible negative economic implications as we work out of this situation.

Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC.

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

For disclosures, please click here.

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Thoughts in Charts: Vaccine Progress Report

 

There is a chance that the investment world is keeping track of vaccines about as obsessively as health organizations. Along with the physical and mental health implications, the economic stakes of a vaccine are high as well.

As a result, we have seen wonderful graphical vaccine progress reports. This table came across my deck from a Goldman Sachs piece, and I found it very informative.

I do love when there is a lot of information in a nice tidy visual!

For disclosures, please click here.