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Ponderings For the Week of February 22 to 28, 2021

Economic Recovery Continues, But Wall Street Worries About Rising Interest Rates

Inflation fears that had been in the background in the recent past came to the fore last week with economic reports showing producer prices rising the most since late 2009. Retail sales also rose over 5% in January, way over the consensus estimate. The concerns over this data and the specter of a $1.9 trillion coronavirus relief plan are that the economy could overheat, resulting in higher inflation. These events pushed the yields on longer-term Treasury bonds to their highest level in nearly a year. On the other hand, the Federal Reserve Board seems committed to limit the rise in interest rates.

Other economic data for the week was mixed. Jobless claims increased and housing starts declined. Corporate profit reports for the fourth quarter are winding down and have been stronger than expected. Despite some dents in the armor, the outlook for the 2021 economy continues to be strong. For the holiday-shortened week, stock indexes were mixed along a narrow range. It was a pretty dull week.

Making Sure You Never Run Out of Money

The biggest financial fear of retirees and those who are nearing retirement is whether they risk running out of money later in life. Here are some thoughts that will help you make this all-important assessment.

  • Your retirement projections show that you won’t run out of money until age 95. An 80-year-old man has a 12% chance of surviving until age 95; a woman that age has a 20% chance of surviving until 95. If you’re in pretty good health, the odds are higher that you’ll live at least that long. While some can’t imagine living into their nineties (including my mother who lived to age 97), you’d better plan financially for that possibility.
  • You own your home free and clear. About 25% of retirees still have a mortgage, and that percentage is rising. Being saddled with a mortgage—or any other debt—after you retire is okay if you’ve added all of those future costs to your budget. But carrying a lot of debt after you retire is a burden that many cannot easily afford, and you run the risk of having to eat into too much of your retirement savings to make loan payments.  
  • You can afford or have insurance to cover a skilled care facility stay or home health care. The average skilled care facility stay is 2½ years and costs over $200,000 – much more in high cost urban areas, At the rate health care costs are rising, that amount may be much higher by the time you need help. If you don’t have long term care insurance, you might be able to afford a basic policy but without all the other expensive options.       
  • You can reduce your spending by 20% in the event your stocks plummet or if interest rates stay very low. Retirees are understandably frightened about the stock market and are straining financially due to low interest rates. The point may come where you have to reduce your spending to avoid having the take too much money out of your investment principal. Cutting household expenses is very difficult, but may be necessary. Plan ahead.    
  • You won’t need a reverse mortgage until you are at least age 80. Reverse mortgages are touted as a panacea for financially strapped retirees. But there’s a lot less than meets the eye with reverse mortgages. The earlier you take out a reverse mortgage, the less income you’ll receive. They are best viewed as a late in life resource to be used to stay in your home, not to finance the good life.
  • The early death of your spouse or partner – or you – won’t cause financial hardship for the survivor. If you’re married or partnered, evaluate where each of you would stand financially if the other died tomorrow. Hopefully, you have arranged your finances to protect the survivor, perhaps including joint life pensions or income annuities.   

 

Smart Money Tips

  • Pay some attention to your investments – but not too much.  When the investment markets are steadily declining, the temptation to check on your investments all the time can be overwhelming. The same goes when gains are being enjoyed, as they pretty much have recently. I speak with people all the time who look at their investment balances every day, if not several times a day. They need to get a life, because anyone who checks up on their investments any more frequently than monthly is probably going to cause themselves a lot of unnecessary angst which can lead to making a lot of unwise changes to their investments. I think a quarterly review is just fine, monthly is okay, but life is too short to obsess over your investments all the time.
  • Don’t leave home without your umbrella (insurance). One of the most common gaps in insurance coverage is umbrella liability insurance. Also called extended personal liability, it picks up where your homeowner’s (or renter’s) and auto insurance leave off. Simply put, umbrella liability insurance can protect you from the legal costs of a lawsuit (which alone could wipe out most people) as well as any settlement costs. Umbrella policies generally protect you and other household members from most lawsuits arising out of your personal activities. It doesn’t cover job-related activities. The standard policy provides $1 million in coverage, but many experts are now recommending coverage of at least $2 million for those who have a high income and/or a lot of investments and home equity.

 

 

 

 

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