Three Ideas for a More Assured Retirement
Although you may be one of the fortunate few who have amassed sufficient assets to easily cover ongoing expenses in your later years, most people won’t have that luxury. Indeed, folks often pay little attention to what lies ahead financially until they are in their 50s or 60s, which may be too late to make key adjustments for a continuation of comfortable living.
Even so, there are options. One of the most obvious is the opportunity to keep working as you get older. This path may not be open for some people, but more likely than not it will be. Continuing to work may mean an extension of an existing routine or perhaps tapering off over a period of a few years. Either way, the positive impact on future financial health can be substantial.
In retirement, some expenses may continue, some may increase, and some may be reduced. Those that may continue include mortgage or rental payments, utilities, cleaning, property maintenance, and real estate taxes. Those that may increase could include vacations, entertainment, and travel in the early years, less so later. Those that may be reduced include medical insurance (thanks to Medicare), mortgage payments (if the mortgage is paid off), and work-related expenses.
Since the typical budget has ongoing line items for cell phone fees as well as subscriptions to streaming services such as Netflix, HBO Max, SiriusXM radio, and the like, there is a meaningful opportunity to cut costs. In most cases, a useful plan is to call these companies for the ostensible purpose of terminating the current arrangement. When doing so, representatives will typically respond with an offer of a lower price if you would be willing to continue the service. A series of calls of this sort may prove quite productive.
Increase Investment Returns
A penny saved may be a penny earned, but when it comes to investing the savings provided by doing it yourself will probably be quite disappointing. A recent 25-year study showed that results of individual investors in stock mutual funds underperformed the market average by 42%. For investors in bond mutual funds the result was even worse: 55% below the bond market index.
That’s not to say the simple approach of dividing invested assets between a stock index fund and a bond index fund is out of the question, but these days there are significant reasons for not doing so.
For one thing, the current valuation of the U.S. stock market is at the upper end of its historic range (1926 to present). For another, the persistence of increasing stock prices without a market pullback is far longer than almost any on record. In the past, this pattern has often led to drops of 10%, 20% or more. Yes, these drops have always been followed by rebounds to even higher levels, but the emotional impact of these corrections should not be underestimated.
The other problem is that we’ve passed the end of four decades of falling interest rates, which boosted bond prices. With rising interest rates likely ahead, prices of bonds, especially those with long maturities, will be under continuing pressure.
One More Thing
In addition to the matter of keeping finances in balance, the other critical issue is how you will spend your time. Those with a broad range of interests probably won’t have a concern here, but if the answer to this question is “I don’t know”, it’s an area that will need considerable attention.
N. Russell Wayne, CFP®
Sound Asset Management Inc.
Weston, CT 06883