It’s that time again…time to recap “nuggets” from recent webinars and conferences that I attended. Below is a list, in no particular order, of insights, facts, and recommendations that stood out to me as being original, significant, and/or useful:
New Definition of Retirement- The word “retire” does not necessarily mean “stop working.” Instead, it
means “not having to work.” Retirement is not a uniform experience for
everyone. Ironically, people with the most capacity to choose leisure are frequently
choosing labor. Many people stick with activities that they are comfortable and
competent with.
Inflation Rate- Annual
inflation rates reached four-decade highs during the first half of 2022. The core
inflation rate strips out food and energy but includes housing, used cars, airline
tickets, and more. Inflation is measured by the consumer price index (CPI)
based on data from household spending surveys conducted by the Bureau of Labor
Statistics. The Federal Reserve is increasing interest rates to slow down the
economy in an effort to combat high inflation.
Lack of Retirement Planning- Many people spend time planning meetings that last an hour, weddings
that last a day or a weekend, and higher education (4-5 years). However, when
it comes to planning what they will do over what could be a 30-year retirement,
many people “just show up.” A benefit of planning is increased likelihood of a
desired outcome.
Life Expectancy- On
average, retirement has almost tripled in length and can last 20, 25, even 35
years for some. In 1935, if you lived to age 65, you had a life expectancy of 6
years. In 2018, the life expectancy of a 65-year-old was 17 years. The needs of
60-something retirees are very different from those in their 80s or 90s. There
are a lot of nuances.
Retirement Stages- There
are six distinct stages of retirement, although not everyone experiences every
stage, depending on their lifestyle. The stages are 1. Euphoria (new-found freedom
from…and checking off “to do” items), 2. What, That’s It? (a disillusionment
when unstructured time becomes unfulfilling), 3. Re-engagement (figuring out
how to spend time), 4. Grandparenthood (a new center of attention), 5. Adult Caregiving,
and 6. Widowhood (loss of someone’s “co-pilot”).
Bitcoin Basics- According to
algorithms laid out in a 2008 white paper by Satoshi Nakamoto, there will be a
finite number of bitcoins. Only 21 million bitcoins will ever exist, and one
estimate is that the year 2140 is when all bitcoins will be in circulation.
Advantages include user anonymity, accessibility, and high return potential
(albeit with high risk). Bitcoin disadvantages include extreme volatility and
no government regulations or support in the event of a loss.
Blogging Tips- Bloggers
should post at least once a week and use keywords (for easier searchability)
and graphics (to attract users and keep them online longer). They should also
try to get backlinks, which are external links that lead to a website.
Backlinks are an important factor for high search engine optimization (SEO)
rankings. Blogs should also include a disclaimer stating that posts are for
educational purposes only and do not constitute personalized advice.
Financial Literacy- This is
one of few topics today that crosses political party lines and has bipartisan
support. As of May 2022, 13 states have financial education mandates. An
increasing body of rigorous research with randomized control trials has found
clear evidence of positive effects (e.g., increased credit scores, lower loan
delinquency) of financial education on financial behaviors. An understanding of
personal finance is a key to success for a person’s entire life. Three key
points: financial education is good for students, parents want it, and teachers
are prepared to teach this subject.
Decision-Making- If someone
does not make a decision due to procrastination, an inability (or lack of
interest) to narrow down options, fear of making a mistake, or any other
reason, a decision has still been made. To quote a phrase attributed to Harvey
Cox, “Not to decide is to decide” because someone has still made a choice.
Money Conversations with Children- Many parents want to have money conversations with their kids but don’t
know how to get started. Experts recommend using “life as it happens” (e.g., a
shopping trip or a visit to a bank) to talk about financial topics (e.g., using
coupons to save money and compound interest) . It does not have to be a special
time.
Sequence of Returns Risk- This is a stock market downturn late in someone’s working years or
early in retirement. If money is withdrawn during this “fragile” time, asset
value can be difficult to recover. To avoid this risk, older adults are advised
to build a cash cushion (2-3 years of expenses above guaranteed income) to
avoid having to sell securities.
Financial Stress- It is
not just a high level of debt that causes people financial stress. It is also
the absence of protection when bad things happen. This speaks to the need to
boost financial resiliency through savings, insurance, community resources, and
other methods. COVID-19 showed that people hit the hardest by negative events
had the fewest resources.
Tax Diversification- Ideally, retirees should have savings in tax-deferred, taxable, and
tax-free accounts (e.g., Roth IRAs and municipal bonds or bond funds). Each has
a different type of tax treatment. Tax diversification provides an opportunity
to strategize to manage taxes better in retirement. For example, to manage
taxable income so it is below the limits for the IRMAA Medicare premium
surcharge for high earners and the 3.8% net investment income tax (NIIT).
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.
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