Ponderings For the Week of May 31 to June 6, 2021

Stocks Rise Amidst Mixed Economic Data

Stocks did okay last week, thereby enabling small gains for an otherwise unremarkable month of May. Technology and small-cap stocks led the way in a week of light trading volume in advance of the Memorial Day holiday.

Economic date sent conflicting signals. Weekly jobless claims fell to a new pandemic-era low and durable goods orders increased for April. On the other hand, manufacturing activity was not as strong as had been forecast, housing sales data declined, and bickering continued in DC over the infrastructure spending plan. Should a deal not be reached before Congress adjourns for the summer, Wall Street will not be happy.

Inflation worries continue to plague the investment community, despite the attestation of Federal Reserve Board members that any increase will be temporary. One personal consumption inflation measure released by the Commerce Department last week showed the biggest year-over-year increase in nearly three decades.      


How Will You Fare if You Have to Retire Earlier Than You Had Planned?

The statistics are scary. Among those who retire early, 40% do so involuntarily. Job loss is a major culprit, but unplanned early retirement may also be caused by health problems of the worker or having to care for a family member – a spouse or other relative in ill health or an aging parent.

While retiring earlier than you had planned may be the furthest thing from your mind, you should prepare a retirement projection that assumes an earlier-than-expected retirement. Here’s how:

  • If you are in your 40s or younger. Prepare two projections assuming you will have to retire at age 55 and at age 60.
  • If you are in your 50s or older. Prepare a projection assuming you will have to retire next year. This is probably unpleasant to contemplate, but it’s better to find out in advance should such an eventuality arise.

There are numerous websites that have programs to help you prepare retirement income projections. Also, the Social Security Administration website, www.ssa.gov, can provide an estimate based on your earnings record of the impact of leaving the workforce early and/or a decrease in earnings later in your work life.

Unplanned early retirement may not be as financially deleterious as you may fear. Throughout your working years, everything you do with your financial planning and your career is geared toward an overriding objective – to be able to retire comfortably. The more diligent you are in these endeavors, the better able you will be to cope with an involuntary early retirement. Consider the following couple:

I left work several years earlier than planned. It’s one of those things that we thought only happened to other families. The financial impact wasn’t as severe as we had originally feared, thanks to health insurance and our savings. Looking back on this a decade later, my leaving work early was frightening at first and while it resulted in a somewhat lower standard of living, I’m really surprised at how well we can live despite the disruption in our financial and retirement plans.      


Smart Money Tips 

  • Be particularly careful of irreversible financial decisions.  Some financial decisions are pretty much irreversible and arise when you’re about to retire or are already retired. These decisions include deciding when to take Social Security, taking an annuity for retirement income, and reverse mortgages. Evaluate your alternatives carefully because you don’t want to spend the rest of your life regretting your decision. With all of the above three decisions, you’re likely to be better off financially by delaying action.
  • If you have a summer job, there’s no rule that you have to spend all of your earnings. This tip is directed to students who are fortunate enough to have a summer job. (If you’re a parent, please forward this to any children who have a summer job.) While the temptation to spend the fruits of your labor may be strong, you should set some money aside to help pay your expenses during the school year. Your parents will appreciate it and, more importantly, you’ll start to get into the habit of living beneath your means. That may sound like something old people like your parents need to do, and that’s precisely my point. By paying some of your own school expenses, you can help them live beneath their means so you won’t have to support them in their old age. By the way, isn’t it fun seeing how much money is taken out of your paycheck for taxes and Social Security (usually disguised on your paycheck as “FICA”)? Get used to it.







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