It has been a rather interesting year in the markets. Leading into that today, I want to talk about the Thanksgiving that we had just a few weeks ago and I'm going to dovetail into a conversation about the Thanksgiving Day meal at the very, very tail-end of this post. First, I just want you to have some insight into how our Thanksgiving usually works. I don't know about your house, but at our home we get up early in the morning to prep. So, I got up early in the morning and started cooking the giblets in order to doctor-up the dressing and the stuffing for the turkey, but I'm very, very aware that we are spending four-to-eight hours preparing a meal that will only last about 20 minutes.
I'll get back to the second-half of that story in a moment. I want to share some interesting information that I found in The Wall Street Journal from the November 14th issue titled: A classic strategy for investors falls apart. The article was talking about the craziness of the market this year. In the past, portfolios often were considered to be the best mix if you had about 60% stocks and about 40% bonds. That was thought to give you some downside protection, but what we found during the credit crisis in 2008 is that that did not always work. In 2008, when stocks were going down, bonds were also going down because (and this had never really happened before) we had two different sectors of the economy going down at the same time, two different kinds of securities.
Here is some information from the article that I found interesting: “This year, the U.S. Treasurys could wind up having their worst year going back to 1801…central banks have swiftly raised interest rates in a bid to quell inflation. The iShares Core U.S. Aggregates Bond exchange-traded Fund, which tracks investment-grade bonds…” and this is typically not the case, but this year, as of the date of this article “…lost 14% on a total return basis.”
There is retirement anxiety. “Roughly 51% of retirees are living on less than half of their pre-retirement annual income…market returns have grown increasingly important for U.S. households trying to prepare for retirement.” Now, we talk about these things in the office quite a bit. The article goes on to say that “In 1983, 88% of workers with an employer-provided retirement plan had coverage that included what is referred to as a defined-benefit pension.” What does that mean? The benefit is defined. It’s basically a pension. You knew what you were going to get at retirement. It was a set dollar amount. “A defined-benefit pension, which provides payments for life…In the following decades, traditional pensions were replaced by 401(k)- style retirement plans. By 2019, 73% of workers with an employer-plan had only defined-contribution coverage.”
Defined-contribution means: we have a set amount that's going in, but we don't know what's going to be coming out. Again, a defined-benefit plan meant it was someone else's responsibility to put the money in and you would have a defined amount that would be coming out at retirement. So, we live in a world today that employer-provided plans have been turned around. Now, most people have a defined-contribution plan, which means they don't know what their retirement benefits might be.
How does this tie into my conversation about Thanksgiving from earlier? On Thanksgiving Day, you spend 4-8 hours preparing for a meal that is over in 20 minutes; that is how you should be thinking about retirement. The focus should be on the preparation, so you can have that last great meal of your life, not knowing exactly how long that is going to last, but you have to put the work in up front. Nowadays, it seems like people want to flip it. They want this huge, long retirement, to retire as early as they possibly can for a retirement that could last 20, 30, 40 years. The amount of time that people want to spend preparing for this “long-meal/retirement” is very, very short. It’s almost as if they went to the grocery store looking for a microwavable feast to serve for Thanksgiving.
So, what are your thoughts? Are you preparing over a long period of time for the Thanksgiving-like retirement that you wish to have, or do you want to have this long, extended retirement Thanksgiving, but are planning it with your microwave. That’s my thought for today. If you want to have a further conversation about this, perhaps it’s time for you to contact our office and schedule your Financialoscopy®.
