Dissecting Barron's Retirement Cover Story
Barron's cover story this weekend is about the extent to which the Covid Pandemic might be causing people to reassess many or all aspects of their retirement plan. Below are some highlights from the article along with my thoughts.
The article started with a quick anecdote from someone looking to retire in a year. He said “if the market tumbles 30% to 50% by the time I’m ready to retire next year, I’m looking at one more tour in the foreign service.” If investible assets are going to be part of your equation then a year or two before you plan to retire you should set aside some number of months of expected expenses. That number should be based on individual comfort. If you've done that, then a fast crash like we had in the spring doesn't need to derail your plan. I might argue that if you don't have enough to set aside 6-12 months of expenses because you need the potential return, then you may not be as financially prepared as you think or hope you are.
"Among the near-retiree set of 50- to 64-year-olds, confidence about having enough saved for retirement has fallen to 48% from 65% before the pandemic." Ok, if you're in this boat, how many years do you have to figure something out? That might sound harsh but, quoting Joe Moglia, no one will care more about your retirement more than you. If you're closer to 50, then you have quite a few years to save money. You also have quite a few years to create other streams of income. If you're older, then you have less time so you might have to figure a path to working longer. I appreciate that this is probably an undesirable outcome but if you're undersaved, regardless of the reasons why, then something has to give and that something might be working longer.
"More than half of 50- to 59-year-old investors had saved $100,000." I won't sugar coat it. Having $100,000 is a great emergency fund, not really a sustainable retirement income source. If you're 50 with that balance and can save $10,000/yr plus get a couple of thousand more from an employer match then you can add $180,000 over the next 15 years and if the stock market doubles in that time (far from impossible, even if it doesn't happen) then you'd have enough for a sustainable retirement income source, even if the income is less than you need. It'd be something. If you're 60 and have $100,000 then using the same numbers, you'd add $120,000 in ten years and if the next ten years is like the previous ten years then again, you'd be in much better shape. You need to be prepared for mediocre returns though, not great returns and the implication is working until 70 which might a bummer but it would also let your Social Security max out.
"The total debt held by 60- to 69-year-olds has more than doubled from 15 years ago." Mark Baker (@guruanaerobic on Twitter) talks about being orthogonal to society. I love the concept but I like to tweak the idea to know where to be orthogonal to society and taking on debt is a big one. Make going against this tide a top priority. How much money do you need per month when you have no house payment, no car payments and no revolving consumer debt? Every aspect of retirement planning gets easier when these expenses are eliminated. Also, you're probably not saving for retirement after you've already retired which is another way that monthly outlays can decline.
"34% of 50- to 64-year-olds in the Edward Jones/Age Wave survey said that Covid-19 has changed their retirement timeline." This one baffles me, unless maybe the survey was done at the depths of the market decline. Markets are very close to all time highs. If you didn't panic in the spring then you are pretty close to where you were before the pandemic started.
Kind of related to the previous one, "indeed, nearly a quarter of older Americans said the crisis had caused them to reduce their risk tolerance for the long term." Markets are close to all time highs so if you want to change your exposure to risk/volatile assets, now would be a great time to do it. Keep one thing in mind though. If you reduce your risk exposure, are you doing it over concern for the next six months or ten years? Where do you think the S&P 500 will be ten years from now and how old will you be then? I'll be 64 in ten years and something would have had to have gone wrong for me to be concerned about how much the market had gained by then (meaning Plan A is that I will still be working). Feeling good for six months at the expense of 10 or 20 years is a bad tradeoff.
Back to the diplomat in the first item to close the article out, "for the diplomat Daizovi, the stock market rebound has provided an opening to sell some of his positions and build a bigger cash buffer, so he can follow through with his original retirement plan—and still have some money to buy stocks when the market dips. 'This situation has given me a reason to take a hard look and come up with a plan B,' he says." Not only should you already have a well thought out Plan B now, I would argue you should have the general frameworks for Plans C and D. My Plan A is that I never retire from managing money down through my plan D which is somehow utilizing my EMT certification for as long as I am physically able. Figure these things out ahead of time. I've quipped before that waking up on day one of retirement and asking yourself ok, now what am I going to do will very likely lead to a bad outcome. Similarly, not having at least a Plan B one year from retirement will also very likely lead to a bad outcome. You are not prepared for retirement if you don't have even a partial backup plan.