Retirement Realities

Yesterday during the show Street Signs, CNBC teased a magic number of sorts needed for happiness. The number turned out to be a $75,000 salary. I thought it was going to be a nest-egg number but obviously it wasn't. Would a $75,000 income (in today's dollars) git 'er done for you? Would you need more? Could you get by on less?

If $75,000 (in today's dollars) is the number you would like to have, if you plan on retiring, then you need $1.875 million socked away when you do retire. Of course the further away you are from whatever you consider to be retirement age the bigger the numbers need to be if there is normal inflation. Obviously the $1.875 million relies on the 4% rule which many are now starting to question.

Apologies for being harsh in this post but if you have $350,000 saved, need to get that up to $1.875 million in 12 years and are not on the verge of massive pay raise then something will have to give; either you get by on less than $75,000 in 12 years, wait longer than 12 years or figure a way to save $75,000 per year while getting fantastic returns out the market.

The other part of the dilemma is outlined by Cam Hui at Humble Student of the Markets who dives into the idea of the market being ten years into a 17.6 year (more precise than the 18 years often thrown around) round trip to nowhere. What does it do to your financial plan if in 2017 the S&P 500 is somewhere between 1000 and 1200 and your track record up to this point has been somewhat close to the index? That is not a shot BTW, being somewhat close to the index for most of the 1980s and all of the 1990s was clearly a homerun.

The reaction to the last ten years of round trip to nowhere (actually a little worse than that) is that data has started to suggest that many investors have been retreating from the stock market, giving up on it for being rigged or not working or whatever. Harsh comment alert but to the extent that data is correct who do you suppose is giving up on stocks? Could it be the same people who rode the market all the way down in 2008 and into early 2009? How many of those people also rode the market all the way down (the context here is riding down while fully invested) ten years ago? What are the odds that this group, if it even really exists, is right to shun equity investing now? I'd say pretty low.

To repeat from countless posts this is not a call to buy US markets with both hands, it seems pretty clear that the US equity markets have more obstacles to overcome than many other markets. The investing solution continues to be foreign investing. I've mentioned the results from other countries for the last decade many times as well. There were ample gains in many markets as the S&P 500 went down 24% on a price basis. If that repeats again this decade, or more specifically for the next seven years, there will still be countries that go up plenty.

We've had good luck for a long time with Chile (one of the countries I mention the most). This year that market as represented by the iShares Chile ETF (ECH), which a few clients and I own, is up 27% versus a 2% price decline for the S&P 500. Life in Chile goes on irrespective of the US' economy and while the lift this year is nice the longer term fundamentals have been more promising for years and they continue to be so in my opinion--Chile as one example of many that fit this bill. If you were down on the decade and don't want to be flat for the next seven years then one investing answer is investing in foreign markets but avoiding the ones (big, Western Europe and Japan) with similar issues to the US.

The behavioral answer for many will be figuring out how to get paid for doing something you enjoy past "retiring" (assumes you even want to retire). The goal with this should be having fun and relieving some of the burden off your portfolio as opposed to having to work full time to cover your expenses. This can include things like seasonal work for professional sports teams, seasonal work at some sort of national park, national monument or state park, monetizing a hobby (if you are an expert at some sort of hobby you'll know whether there is a chance to monetize it), sell crap on eBay (this task is waiting for us in a few of decades), work at your gym (free membership plus a few more bucks in your pocket), go to timeshare presentations, answer questions for the KGB texting service (they pay people to do this from their homes, no idea how much money) and one last one that could pertain to me if we need it is our FD pays for patrolling Friday-Monday during fire season. Working two shifts a week for the three months would be about $2400 which would cover a few things at least.

All of the ideas in the above paragraph have been mentioned in previous blog posts.

In addition to some sort of work is "getting right" with whatever amount you do have. If your number needs to be $1.875 million but instead is $960,000 what are you going to do? Chances are the person who accumulates $960,000 did so making more than $38,400 per year (applying 4% logic). A common reaction is denial, to go ahead and take that $75,000 out. Denial can be about future returns, the belief you will cut your spending later our just flat out denial of the entire reality. I'm not joking about any of that; it happens plenty.

Slightly bigger picture there could be some harsh realities headed our way (if they are not already here) in terms of what our markets can offer and the consequences of over-indulgence combined with financial illiteracy. It makes more sense to prepare for harshness that never comes than to be blindsided.

On a much lighter note 63 year old Bill "Spaceman" Lee won his start for the Brockton Rox in the Independent league. The article notes that Lee is believed to be the oldest pitcher to win a start in professional baseball.