As you’re nearing retirement, you might be feeling anxious about it or you’re excited at the possibility of what you’ll do when you finally retire. Ideally, you’re spending your time traveling and or your favorite hobbies when they retire and not worrying about paying the bills. Unfortunately, this is what many Americans are facing. According to a survey conducted by Fidelity Investments, they found that most people are not saving early enough. In addition, certified portfolio manager and financial planner with FBB Capital Partners, Kathleen Hastings, mentioned she never witnessed a soul complain about having “too much money” for retirement. She adds it sucks to be a senior, especially one with no money.
Even if you may not currently have enough for retirement, it doesn’t mean that you can’t retire. Here are a few strategies you can to if you wish to live rich enough to live comfortably.
Save More Now
If you want to retire wealthy, the first step is to start saving as much money as you can in your savings account. Thanks to compound interest, a little bit will go far no matter how small your monthly contributions may be. The longer you can contribute, the more you will have.
Let’s say you decide to put $400 away per month once you hit 25 then increased the amount by 2.5% annual and earned 7% each year. That person would have about $1.5 million by the time they are 67. Waiting a decade later to do this would mean they would only have about $66,000 at the same age.
Don’t think of savings as a choice, think of it more as a requirement. Michael Hard, certified financial planner at Mollot Hardy, says everyone should save on either a monthly or weekly basis through automation. Those that add funds to their retirement accounts can have their money taken from their paychecks or via a scheduled deposit plan. Hardy adds that setting it up like that will eliminate the chances that you stop putting money aside for your retirement. According to Fidelity’s retirement preparedness study, Americans on average, save only 8.5% percent of their earnings each year. It’s recommended that you save at least 10% –ideally 15% — of what you earn. If you can do more than that, do it.
Reduce Unnecessary Spending
Some people may just believe that they do not have enough money to put on the side to retire, which is simply not true. You can save more than you think if you carefully comb through your budget. Tom Corely, author of “Rich Habits: The Daily Success Habits of Wealthy Individuals” states everyone should look at their statements monthly. He says you are likely to unveil payments for things you no longer use or want. It also helps to shop often for the internet, phone, and TV services for the most competitive rates.
Ken Weber, author of “Dear Investor, What the Hell Are You Doing?” and president of Weber Asset Management, believes in some risk. He mentioned that most individuals believe the key to investment success is to just save. Although this is true to a certain degree, he believes people should not just store their money in an in savings vault. Weber says you have to be willing to take some risk to get the reward later. He mentioned that for every stage of life, they should be invested with as much risk as they can tolerate. Ideally, people would put a majority of their retirement savings into a stock mutual fund when you are in the 20s or 30s.
As you get older or are near retirement age, you have the choice to lower that risk by investing in fixed-income assets like bond funds or stocks. Alternatively, you can think about a target-date fund that will automatically fix your allocation of bonds and stocks.
Mollot Hardy also adds that a person should never put all of their retirement funds in one basket. The best thing you can do is to diversify your portfolio with a combination of bonds and stocks. Getting a hold of mutual funds would be even more ideal since they contain an array of bonds, stocks, or both.
If you decide you want to invest in mutual funds, monitor the expenses and fees companies charge. It is important to keep your eyes completely peeled on this one because they can eat into your returns and decrease the amount of money you can have saved for retirement. According to the US Department of Labor, if expenses and fees on your account are 1.5%, for example, you will have a balance that is 28% less once you hit retirement compared to somewhere else where the fees were only .50%. You will likely have several plans offered to you via your 401, which all have various fees, so think about switching to investments with lower rates.
If you work somewhere where your employer matches any contribution you make to your workplace retirement plan, ensure to contribute enough to get a complete match or else you are losing cash. Most will match 50 cents for every dollar. Continuing on the investment route, you can also get tax-free retirement income with a Roth when you contribute to a Roth IRA, which can help you with taxes when you’re retired. Another option is to create a side business to increase your income. You can also get a second job or start doing the hobbies you love while making money from it. One example is to think about purchasing income-generating real estate. Todd Tresidder, a financial coach and founder of FinancialMentor.com says that the trick is to buy and finance a place carefully and not rush through it. If you are thinking about working as a self-employed, you may be able to contribute to a Simplified Employee Pension (SEP) plan or solo 401k. Using either of the two will still be tax-deductible for you.
You might also want to consider downsizing your home when you’re ready to retire. Cutting costs from rent or mortgage to utility, insurance, and maintainable fees will be reduced. While you are thinking about that, you may want to relocate to a different city or state that is cheaper.
If you feel overwhelmed, find professional help from an advisor if you feel you need help creating a financial plan and want to stick with it. You should look for help from a Financial Analyst (CFA), Chartered Financial Consultant (ChFC) or Certified Financial Planner (CFP)
El-Erian: Investors Must Prepare For A ‘Reckoning’ In The Markets
Investors are too optimistic and need to prepare for tough times ahead, warns Mohamed El-Erian, Allianz’s chief economic adviser and former CEO of Pimco.
El-Erian says the financial stress created by the coronavirus pandemic is “far from over,” in a recent op-ed piece for the Financial Times. He expects a “reckoning” as liquidity concerns spread from the most vulnerable businesses to sovereign borrowers.
What Investors Can Do
Investors can get ahead of the coming troubles by not buying assets at “valuations stunningly decoupled from underlying corporate and economic fundamentals,” he said. Instead, they can focus on the recovery value of their assets to get ahead.
Because the country avoided the worst-case projections for the pandemic, a sense of complacency has overtaken investors. El-Erian says all the liquidity created by government money printing coupled with a surge in new retail investors has helped push stocks higher.
“Liquidity-driven rallies are deceptively attractive and tend to result in excessive risk-taking. This time, retail investors are front and center.”
El-Erian also says you can see cracks starting to form if you know where to look. This is despite the stock market surging higher.
“There are already plenty of worrying signs: a record-breaking pace for corporate bankruptcies; job losses moving from small and medium-sized firms to larger ones; lengthening delays in commercial real estate payments; more households falling behind on rents and continuing to defer credit card payments; and a handful of developing countries delaying debt payments.” says El-Erian
He adds that investors are all too happy to ignore these worries. Some even believe that the government will step in and provide help.
“Yet, judging from a range of market indicators, investors are showing insufficient concern. Some continue to expect a sharp, V-shaped recovery in which a vaccine, or a build-up of immunity in the population, allows for a quick resumption of normal economic activity. Others are relying on more backstops from governments, central banks and international organisations.”
How Things Can Fall Apart
Should we not see a v-shaped recovery or a vaccine soon, things could quickly fall apart. Also, El-Erian warns the destruction will spread beyond the financial markets.
“The potential damage is not limited to finance. Disruptions in capital markets could also undermine the already sluggish economic recovery by making consumers more thrifty, as they worry about their job prospects, and by encouraging companies to postpone investment plans pending a clearer economic outlook.”
This means investors need to be prepared and shift their investing approach.
“The investing challenge may well shift in the months ahead from riding an exceptional wave of liquidity, which lifted virtually all asset prices, to steering through a general correction in prices and complex individual non-payments, says El-Erian.
He adds, “No wonder, then, that an increasing number of asset managers are raising funds in the hope of deploying a dual investment strategy.”
“The first involves waiting for a correction to buy rock-solid companies trading at bargain prices. The second involves engaging in well-structured rescue financing, debt restructurings and collateralised lending as countries, and some bankrupt companies, seek to reorganise and recover.”
Investors should also consider increasing their cash position to have dry powder ready to go. They should do so in case we get the correction that El-Erian expects.
Millionaires Sign Petition To Voluntarily Increase Their Own Taxes
A group of millionaires has signed a petition asking for the government to force them to pay higher taxes. They did so in an effort to help the global recovery from the coronavirus pandemic.
The group, which includes the likes of Ben & Jerry’s co-founder Jerry Greenfield, Walt Disney Co. heiress Abigail Disney and former BlackRock managing director Morris Pearl, call themselves “Millionaires For Humanity.” Their sole objective is to encourage governments to increase taxes on the world’s wealthiest individuals to help pay for the billions of dollars needed to support health care, schools and security.
The letter states: “As Covid-19 strikes the world, millionaires like us have a critical role to play in healing our world. No, we are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door. But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.”
Millionaires Call for Higher Taxes
The letter continues by asking governments to raise taxes on “people like us. Immediately. Substantially. Permanently.”
The group warned that the impact of the crisis will last for decades. They also mentioned that it could push 500 million people into poverty. Hundreds of millions of people are at risk of losing their jobs, many permanently, the group said. Nearly 1 billion children are out of school due to the pandemic. They also mentioned that many of these kids lack any resources to continue their education.
The petition adds, “Unlike tens of millions of people around the world, we do not have to worry about losing our jobs, our homes, or our ability to support our families. We are not fighting on the frontlines of this emergency and we are much less likely to be its victims.”
“So please. Tax us. Tax us. Tax us. It is the right choice. It is the only choice.”
This petition serves as Pearl’s second attempt to make millionaires – himself included – pay higher taxes.
A Similar Call
He wrote a letter last year supporting the “millionaire’s surtax” introduced in Congress. In it, he said any new tax plan has to be “relatively easy to enact and relatively hard to avoid.”
“Rich people like me are good at dodging taxes. We can lobby to stop new taxes from ever becoming law, or if they do get enacted, find loopholes to get around them.”
“Any plan to tax me and my fellow wealthy Americans needs to be relatively easy to enact and relatively hard to avoid,” Pearl also said.
The millionaire’s surtax, as Pearl points out, would only affect married couples making more than $2 million per year. Alternatively, it also affects a single tax filer making more than $1 million.
“This tax would simply add 10 percentage points to the existing tax rates paid by couples making over $2 million a year and singles making over a million. Though it would only apply to the wealthiest 0.2 percent of taxpayers like me (or about 330,000 taxpayers) the millionaires surtax would raise an estimated $635 billion over 10 years, according to the Tax Policy Center.”
Pearl, undoubtedly knowing that many will doubt his motives, says he’d rather pay higher taxes than see his country falter economically.
“You may well ask: Why would anyone push to pay higher taxes, like I’m doing by supporting the millionaires surtax? It’s because I know it’s not actually in my long-term economic interests for the United States to become more and more like a developing nation, with a tiny elite at the top of the mountain and everybody else struggling for a foothold.”
Thus far, 80 individuals have signed the Millionaires For Humanity petition.
As Earnings Season Begins, Prepare For A Bumpy Ride
The stock market has rallied nearly xx% in the second quarter of the year. However, don’t expect the upcoming corporate earnings season to paint an equally rosy picture.
Expectations are for Q2 corporate earnings to be the worst in more than 10 years. It dates back to the depths of the financial crisis.
Adding to the uncertainty for investors, a significant number of companies have withdrawn their guidance – including almost a third of S&P 500 companies – and many more have yet to provide quarterly updates ahead of their scheduled earnings release.
“There’s a deficit of information that needs to be filled at some point,” said Sebastien Leburn, senior portfolio manager at Boston Private, during an interview with MarketWatch.
A Possible Disconnect from Reality?
That means investors will only be able to start matching up actual corporate performance with the stock performance on the earnings call. That could lead to some massive repricing if the stock prices have disconnected from reality.
“That’s why I think earnings will be very important, because they’ll provide a dose of reality,” said Brad Cornell, professor emeritus of finance at UCLA. “They are going to tell us exactly whether a company is on a path that justifies this run-up.”
“It’s all about clarity and having some guidance,” said Boston Private’s Leburn. “Without that, you have nothing to work with.”
Particularly worrisome are the expectations for year-over-year growth estimates for earnings per share. On March 31, expectations were for an 11.1% decline in EPS growth during Q2.
As of yesterday morning, that decline in EPS growth has ballooned to a -44.6%, according to FactSet data. That would be the largest decline in earnings since the fourth quarter of 2008. In that year, earnings fell 70% in the depth of the financial crisis.
Somehow, this massive decline in EPS growth since the end of Q1 has coincided with the stock market rallying xx%. This provided bearish investors with more proof that a detachment exits between the markets and reality.
The Rally’s Vulnerability
The stock market rally could be particularly vulnerable should just one or two of the larger S&P 500 companies post disappointing numbers.
Just five companies now make up more than 20% of the index. These include Apple Inc., Microsoft Corp., Amazon.com Inc., Google parent Alphabet Inc., and Facebook Inc. Additionally, a poor earnings report from any one of those companies could drag the index down. It can even bring the rally to a grinding halt.
It’s unlikely that one of those five companies will decide to “kitchen sink” the quarter. However, you can expect many companies to take advantage of the pandemic to flush all the bad news, bad ideas, and bad decisions out at once.
“Second-quarter earnings will likely be a ‘kitchen sink’ report from many companies,” said Marc Lichtenfeld, chief income strategist with the Oxford Club, an independent investment newsletter publisher. “They can throw in all of their write-offs and other expenses and know they will likely be forgiven for an earnings miss due to the extenuating circumstances.”
Most importantly, investors need to view corporate performance and stock performance as two completely separate indicators of a company’s overall health.
James Gellert, CEO of Rapid Ratings, a data and analytics company that assesses the financial health of private and public companies, says “Nobody should equate strength in the S&P 500 with underlying corporate strength.”
Buckle up, the next few weeks could be a bumpy ride.
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