Financially Speaking: Retirement Dreams & Market Realities
As I sit down to write this article, it is early May. The buzz over the last month has been about tariffs, and the question is how they will affect you. President Trump had dubbed April 2 as Liberation Day. Well, do you feel liberated?
That line brought me back to “Dirty Harry,” the iconic 1971 Clint Eastwood movie. You know the line I’m talking about: “You’ve got to ask yourself one question: Do I feel lucky?” Well, do you? Over the past month or so, I have spoken with a lot of people, and many have told me “No.” I don’t believe in luck, either – especially when it comes to investing.
If you’re younger and have a long runway until retirement, then you should have no worries. What you should do is increase the amount you’re contributing to your 401(k) plan, since you’re buying more shares each month with the stock market down. If you’re approaching retirement age, then you may have some concerns. However, if you’ve invested your portfolio, including your 401(k), based on your risk tolerance, you should also have no worries. I’m not here to defend or condemn the president’s move. It ultimately comes down to you staying true to how much risk you’re willing to accept to meet your goals. The markets will bounce back – maybe by the time this article is published, or maybe not.
In the spring issue, I said to “focus with the end in mind.” I referenced this advice for those in their 20s, 30s, or 40s with poor spending habits or budgeting problems. But it also holds true for those in their 50s and 60s who are now focusing on retirement. As we grow older, our expenses generally go down – especially once you’ve paid for your children’s education, their weddings, and once they’ve moved out of the house. When this happens, you should be able to focus on your future retirement with the end in mind. Remember, there are generally only two things that can harm your retirement: a long-term illness and adult children. It’s amazing how many times I’ve met with clients in their 60s who are still carrying the expenses of their adult children. This will certainly impact your ability to save for retirement.
Do you dream about where you’ll spend your retirement years? Go on – it’s fun to think about with your spouse or partner. Do you envision traveling, especially in the chilly winter months? You might see yourself basking in the sun on an island, in Florida, or in the Valley of the Sun, Arizona. Visualize this and make it happen if that’s one of your goals. Retirement isn’t a destination; it’s something you visualize and make a reality. In your late 50s or early 60s, take winter vacations to scout out areas where you may want to live. Depending on your situation, consider renting to make sure you like the location. If you already own your family home and have a vacation home at the shore, ask yourself: Do I really want the expense of a third home?
I know retirees who love living in warm weather during the winter months. They say it’s everything they dreamed it would be. They settle into a place where they have family and friends, and then it happens. They’ve been enjoying the lifestyle, and then the guilt kicks in. Some can’t stand the thought of not being there to help their kids and grandkids. Some make it work by traveling back and forth every few weeks. I’ve seen conflict when one spouse wants to sell the winter home – the one they always dreamed of – and the other doesn’t. Communication is key. Think it through.
A funny thing happens: The grandkids grow up. They have their own friends, play sports, and although they love you, they don’t need to see Grandma and Grandpa as much as they used to. If you’re someone who feels a strong pull toward your children and grandchildren, then rent at first when you retire.
My wife and I are blessed to have a home in Naples, Fla. It was never part of our dream. When we were planning our retirement, we envisioned spending the winter months in a different location each year – Florida one year, the islands another, Arizona, Hawaii, Europe, etc. Our decision to buy was happenstance. I traveled to Florida and other parts of the country to meet with clients during the winter months. Then the financial meltdown happened in late 2007 and lasted through early 2009.
If you remember, before the financial crisis, people were buying homes they couldn’t afford because financial institutions were lending money to anyone with a pulse. You might remember the stories: people buying homes, flipping them, and using the profits to buy even more. I remember one person who couldn’t believe he could buy homes in Naples, flip them quickly, and make a killing. It was going so well that he purchased a couple of homes, and then the financial crisis hit. He got squeezed, took a major loss on all the houses he intended to flip, and almost went bankrupt.
After the crisis, someone I knew told me he bought a two-bedroom condo in a golf community in Naples for $125,000. That got us thinking about owning instead of renting. While at a conference in Amelia Island, we were waiting to be seated at a restaurant and saw pictures of homes for sale in the window of a real estate firm. I couldn’t believe how low the prices were. We purchased a home in Naples in 2011, just as Florida – and the rest of the country – was beginning to recover. The price was about a third of what the home would have sold for before the financial crisis.
So now, the markets are reacting to tariffs. In 2007, the markets began to plummet during the financial crisis. When the dot-com bubble burst in March 2000, the days of easy money in the stock market ended. Before that, people were buying and selling stocks and making a fortune. Many of you may recall friends or family who got burned during those times.
The idea of this article isn’t to let what’s happening now in the market rain on your retirement parade. Warren Buffett offered this famous advice: “Be fearful when others are greedy, and be greedy when others are fearful.” If you buy undervalued assets – whether real estate or stocks – during a period of panic, hold them long-term, and realize their intrinsic value, you can come out ahead. So don’t panic. Maybe you’ll even find an opportunity to secure your retirement.
Take a breath. Head to the beach with your book, chair, and favorite beverage. Soak up some rays, and dream about your ideal retirement location. And don’t forget the sunscreen.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth
Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.
Advisory services offered through Planning Directions, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal.
Past performance is no guarantee of future results.
