Bob Bockel | Lead Strategist, BXY Financial Network
For those thinking about retirement, close to retirement, or currently retired we are in completely uncharted waters when it comes to the conditions we face today. It is a very challenging time to be a retiree based on this unprecedented combination of conditions.
Many of these conditions are directly or indirectly related such as:
Potential future tax increases to pay for record spending and deficits
Record low interest rates
Volatile equity prices and valuation
Potential future inflation
Uncertain social security
Continued increase in healthcare/convalescence cost
Increasing lifespans
Other unknowns: geopolitical events, pandemics, etc.
The financial “advice” we are getting from financial institutions has not changed much over the decades. They seem as shell shocked as consumers with today’s current conditions. There was a time when most people had guaranteed, lifetime pensions. This coupled with a retirement that only lasted 5 to 10 years made retirement planning very simple. These days retirement preparation may last 30 years and actual retirement could last the same amount of time. Retirement now is halftime. As 401(k)s replaced pension plans, a popular solution became to simply live off the interest of our assets and preserve the principal. This may have been possible when years ago risk-free interest rates were 6-8%. However, in today’s low interest rate environment, this is virtually impossible. The common solution to this issue is to simply take more risk into equity markets. A stock market correction when at or near retirement unfortunately can permanently derail future retirement plans.
The problem is no one ever could have possibly predicted the current conditions we face 10, 20, or 30 years ago. Unfortunately, today’s financial planning is merely taking conditions of the past and extrapolating them into the future. As much as the industry says “past performance is no indication of future results” they seem to violate that principle. If we built a “plan” to retire today based on conditions and variables from the 80s, 90s, or 2000s, our projections would be way off with almost every variable.
“It's tough to make predictions, especially about the future.”
― Yogi Berra
Here lies the problem – not a person on the planet knows what the future holds. That is a very scary reality for consumers, so we get our best and brightest to give their best guess. However, there are just far too many variables to be anywhere near accurate.
So what is the solution? The solution begins with us acknowledging that we do not know what the future retirement environment will look like. We have a strategy that is flexible to zig and zag based on unknown, changing conditions. We have control of our money so we can change course as needed. Ideally, we would be in a position to consume and enjoy our nest egg with contingencies to prevent us from running out too soon. There is no one, silver-bullet product that allows us to do all of these things. The answer lies in how we position all the products and strategies involved in our financial lives together so we can effectuate the perfect, ideal product/plan.