Jonathan Satovsky discusses fears around recent volatility, and the importance of playing an active role in your retirement savings plan, whether you are saving for retirement or spending in retirement.
Good afternoon. This is Jonathan Satovsky on December 13th of 2018 with a video blog update.
Today, I wanted to talk about in the holiday season, the Federal Reserve, fears, and financial planning habits for 2019.
So we’ll start quickly with the Federal Reserve – next Tuesday and Wednesday people are expecting with Federal Reserve to have a policy meeting where they’re raising rates by a quarter of a percent.
What that means is consumer and business borrowing costs may go up a bit. And, the concern is that if they raise rates too quickly, it may tip our economy into recession in 2019 and 2020.
The language is likely to have a very immediate impact on financial markets next week where you could see a 2,500 point move down or up in the Dow Jones Industrial Average the equivalent of a 10% swing based on the mood of the markets and how people feel about the tenor of that commentary.
So that uncertainty has created a lot of fear. Add to that trade wars and geopolitics and uncertainty around political leaders, and this week the AAII Sentiment Survey has indicated that bullish sentiment has dropped to 20%, almost 18% below the historic average, while bearish sentiment has risen to close to 49%, equally, almost 18% above its average.
So very wide from historic patterns, 80% of the population has a neutral to negative outlook about the future, and it’s not a surprise. Empathetically I can feel that fear in ongoing conversations with clients about the financial markets and perspective about the future.
So let me give a couple financial planning tips that may help weather whatever happens, whatever uncertainty that tomorrow may bring.
So there’s been a lot of work done for helping people plan for retirement and live in retirement healthier lives and wealthier and more chill existences. And it’s about the math of money.
So this is part of financial planning and behavioral finance 101 but, in retirement plans, we have an ideal plan participation rate of 90% and people ideally contributing 8 to 10% of their salaries toward their retirement.
But in reality, only 2 out of 10 people are actually participating in their retirement plans, and those that are participating are only contributing 3.5%.
So our anecdotal evidence for trying to encourage people to save for their kids education or their own retirement is fairly consistent with this, this is a daily nudge that needs to happen to motivate people to get into better habits here.
And then for a retiree, ideally we want to be able to get them down to a 3-4% spending rate proportional to their assets. Yet the reality is many people are at 7-10% and higher.
Well this is important math to understand because if you’re 70 years old and you’re retiring and you likely have a high probability of living the 95 or 25 year time frame, if you’re spending 10% of your assets, the probability of your lasting for the next 25 years is rather slim and it leads to a lot of speculative behavior, people trying to throw a Hail Mary in football, equivalent parlance.
So let’s get to the basics, blocking and tackling and the fundamentals, at least 70-80% should be back to the basics. And, periodically you can try to throw the Hail Mary and play the lottery ticket, but if you get back to the basic fundamentals for 2019 and into good habits, you will immensely increase the probability of your success.
And then whatever happens in the market, up 2,500 points, down 2,500 points, it won’t impact you quite as materially.
And with that have a happy, healthy holiday season and we look forward to a wonderful 2019.