This time last year, the World Health Organization declared the spread of Covid-19 a worldwide pandemic.
Stringent measures in the U.S. were taken to slow the spread of Covid-19 to “flatten the curve.” Lockdowns and shelter-in-place orders dealt a body blow to the U.S. economy.
Investors had no prior experience with a shutdown and eventual reopening of the economy. It was like driving through a dark and foggy night with no headlights.
Investor reaction was swift, and the first down market (bear market) since 2009 descended upon investors. Volatility was intense.
The S&P500 (largest 500 companies in America) bottomed on March 23, 2020.
The mark drop “bear market” lasted barely a month. It was a swift decline, but was the shortest bear market we’ve ever experienced.
The ensuing rally has been nearly unprecedented. Since bottoming, the S&P500 advanced an astounding 77%. It’s 4,181 closing today is near an all-time high.
Where are we headed from here?
You’ve heard us say no one has a crystal ball, and no one can accurately predict what happens to stocks.
- The US economy remains on solid footing as we move into a period of exceptional economic growth. Economists estimate Gross Domestic Product (GDP – combination of all economic activity in the United States) will grow from 6 – 8% this year.
- U.S. unemployment has improved dramatically this year, adding 916,000 jobs in March.
- There are low level signs of inflation, which allowed the Federal Bank to let mid term interest rates rise slowly. We don’t think this is a long term issue.
- The housing market continues to be strong as the pent-up demand by financially secure millennials provided demand exceeding supply. Home sales are rising, not just here in Boise but throughout most of the west.
Treasury bond yields have increased as the government embarked on a $1.9 trillion stimulus package, and talk of additional spending from Washington is gaining momentum.
So, let’s not discount the possibility of a bumpy ride this year.
Eric’s dogs, Henry, Moose, and Maya enjoying the beautiful weather.
Avoiding 7 Retirement Traps
You have saved and invested for decades and are gearing up for retirement, or maybe you have already retired. It is a monumental change that can also be unsettling.
You will sail in a new direction, have many new freedoms and will take on new challenges. Your daily routine will dramatically change, and you’ll begin to rely on your savings.
What should you do?
1. A more conservative investment posture may be in order.
Market volatility can be much more disruptive. A big decline in stocks at the onset of retirement could create significant problems down the road.
We need to stay invested in stocks but may need to reduce our exposure and concentrate on less volatile stocks.
2. Don’t take Social Security too early. There are some reasons to opt for Social Security when it becomes available at 62. For many, however, that will reduce their lifetime earnings from Social Security.
Today, the full retirement age runs between 66 and 67 years old, depending on the year you were born.
Individuals who collect Social Security beginning at age 62 receive than if they wait until full retirement age. This assumes a full retirement age based on a date of birth between 1943 and 1959.
Delaying Social Security until 70 allows you to receive the maximum benefit available. It will provide you an additional 32% over what you’d pocket at full retirement age.
Rules governing Social Security are complex, and the information we’ve provided is simply a general overview. Much will go into your decision to begin collecting your monthly benefit. We are happy to how our Social Security Maximization tool which was recently updated.
3. Implementing the correct distribution strategy. Your 401k/403b/IRA distributions will be taxed at your marginal tax rate.
Watch out for the required minimum distribution, or RMD, for your IRA, which now begins at 72.
4. Spending too much or spending too little. When you retire, your lifestyle will change. You’ll have the opportunity to enjoy new experiences and enjoy them on your terms.
Let us caution you not to overspend in the early years of retirement. This is a great time to revisit your financial plan and understand your spending limits.
Also, don’t be too cautious about spending. Some have ample reserves but sometimes guard them too closely. We applaud those who want to leave a financial legacy to their children, but balance that desire and have some fun in retirement.
5. Be aware of scams. Be very leery of individuals and companies preying on you. We are always happy to provide an objective review of any investments you are presented with. Remember, if it looks too good to be true, it usually is.
6. Watch out for medical expenses. You have Medicare and you probably have a supplemental policy. But deductibles and health expenses not covered by insurance are always a challenge.
It’s important to understand insurance and medical expenses as you get older.
7. You may live longer than you expect. Life expectancy continues to rise at a rapid pace due to miraculous medical advances.
You may live well into your 80s and 90s. Continue to plan as if you’ll be tapping your savings long after you have retired.
Lastly, stay active and volunteer. It will help keep you physically fit and mentally sharp. Just as we have a plan for your finances, it’s critical to have a plan that keeps you active and helps you enjoy retirement.
We trust you found this review to be educational and informative.
Let us once again emphasize it is our job to assist you. If you have any questions or would like to discuss any matters, please contact us anytime 208-343-2001.
As always, we are honored and humbled you have given us the opportunity to serve as your financial advisors.