Some life and financial factors that can sometimes be overlooked.
We all have our “blue sky” visions of the way retirement should be, yet our futures may unfold in ways we do not predict. So, as you think about your “second act,” you may want to consider some life and financial factors that can suddenly arise.
You may end up retiring earlier than you expect. If you leave the workforce at “full” retirement age (FRA), which is 67 for those born in 1960 and later, you may be eligible to claim “full” Social Security benefits. Working until 67 may be worthwhile because it will reduce your monthly Social Security benefits if you claim them between age 62 and your FRA.
Now, do most Americans retire at 67? Not according to the annual survey from the Employee Benefit Research Institute (EBRI).
In EBRI’s 2020 Retirement Confidence Survey, 16% of pre-retirees expected to retire between ages 66-69, and 31% thought they would retire at age 70 or later. The reality is different. In surveying current retirees, EBRI found that only 6% had worked into their seventies. In fact, 70% percent of them had left work before age 65, and 33% had retired before age 60.
You may see retirement as an extension of the present rather than the future. This is only natural, as we all live in the present – but the future will arrive. The costs you have to shoulder later in retirement may exceed those at the start of retirement. As you may be retired for 20 or 30 years, it is wise to take a long-term view of things.
You may have a health insurance gap. If you retire before age 65, what do you do about health coverage? You may shoulder 100% of the cost.
Looking forward, you may need extended care, and it seems to get more expensive each year. Wealthy households may be able to “self-insure” against extended care, but many other households struggle. In Genworth’s 2020 Cost of Care Survey, the median monthly cost of a semi-private room in a nursing home is $7,738. In California, it is $9,023; in Florida, $8,803.
Suppose you become disabled or seriously ill, and working is out of the question. How do you make ends meet?
Age may catch up to you sooner rather than later. You may stay fit, active, and mentally sharp for decades to come, but if you become mentally or physically infirm, you need to find people to trust to manage your finances.
You could be alone one day. As anyone who has ever lived alone realizes, a single person does not simply live on 50% of a couple's income. Keeping up a house, or even a condo, can be tough when you are elderly. Driving can be a concern. If your spouse or partner is absent, will there be someone to help you in the future?
These are some of the blind spots that can surprise us in retirement. They may quickly affect our money and quality of life. If you age with an awareness of them, you may have the opportunity to manage the outcome better.
Focus on your overall approach during times of short-term volatility.
As an investor, it can be tempting to get caught up in daily news headlines. Consider how news about the election and COVID-19 vaccines have moved the markets over the past several weeks. But having a financial strategy can help you ignore short-term volatility and focus on your long-term vision.
As you know, investing is a process based on your goals, time horizon, and risk tolerance. Interestingly enough, it’s also a process that may help you prepare for life’s financial challenges.
For example, did you know that only 44 percent of workers have estimated how much income they would need in retirement? What is more, only 36 percent have calculated how much money they would need to cover healthcare expenses.
Creating a financial strategy means thinking about the bigger picture, including a variety of issues like monthly income needs, handling unexpected expenses, and preparing for healthcare costs. People who take a “do-it-yourself” approach can quickly find themselves overwhelmed by all the variables they need to consider.
If a current event or headline has caused you to reconsider your financial strategy, please give us a call. Sometimes, a newsworthy event can require a new approach. But many times, it may just be a “speed bump,” a momentary blip that is already factored into your long-term vision.
In this month’s recap: Stocks closed the year with a solid rally, fueled by the rollout of multiple COVID-19 vaccines and the signing of a new fiscal relief bill.
A tumultuous year ended on a positive note as stocks rose in December, spurred by the rollout of multiple COVID-19 vaccines and the signing of a new fiscal relief bill.
The Dow Jones Industrial Average, which lagged all year, picked up 3.27 percent. The Standard & Poor’s 500 Index gained 3.71 percent, and the Nasdaq Composite tacked on 5.65 percent.1
Vaccines Take Center Stage
Investors were buffeted by news of rising infections and new lockdowns even as they kept a close eye on the start of vaccine distribution in the U.K., which some observers referred to as “the beginning of the end” of the coronavirus pandemic.
Boost from the Stimulus Package
Much like November, stocks rallied when Congress made progress on the new fiscal stimulus bill but pulled back as talks seemed to stall. After some posturing, President Trump signed the new law, which helped stocks surge in the final week of trading.
All Eyes on the Election
As investors grappled with these headline issues, markets also saw several new and secondary equity offerings, including two high-profile technology initial public offerings (IPOs) during the month. This year, companies raised over $167 billion in IPOs, blowing past the record of $107.9 billion set in 1999.2
The majority of industry sectors posted gains in December, including Communication Services (+2.35 percent), Consumer Discretionary (+2.18 percent), Consumer Staples (+0.10 percent), Energy (+3.97 percent), Financials (+4.45 percent), Health Care (+2.30 percent), Industrials (+0.12 percent), Materials (+1.58 percent), and Technology (+5.14 percent). The Real Estate (-1.04 percent) and Utilities (-1.69 percent) sectors lost ground.3
What Investors May Be Talking About in January
After the November election, markets rallied due to initial tallies that seemed to point to a potentially divided government, which historically has been a positive for the equity markets.4
However, Georgia’s two Senate seats remain undecided and will go to a special election this month.
Ultimately, this runoff will determine which party controls the Senate and may give insight into the future legislative agenda of the incoming Biden administration.
Check your credit report annually for errors. Under federal law, you are entitled to a free annual credit reports from the big 3 credit reporting agencies (Equifax, Experian, and TransUnion) each year.
International stocks enjoyed a strong month of performance, with the MSCI EAFE Index gaining 5.24 percent.5
Vaccine optimism and an exit agreement between the European Union and the U.K. helped power the markets.
Germany gained 3.22 percent while the United Kingdom picked up 3.10 percent. France lagged a bit, tacking on 0.60 percent.6
Pacific Rim markets also enjoyed a solid month. The Hang Seng Index rose 3.38 percent and the Nikkei tacked on 3.82 percent.7
Gross Domestic Product: The final read on third quarter GDP was revised higher, from 33.1 percent to 33.4 percent.8
Employment: Nonfarm payrolls rose by a disappointing 245,000 in November. The unemployment rate ticked lower, falling from 6.9 percent to 6.7 percent. The labor-force participation rate was 61.5 percent, which is an improvement from April’s low but remains at a historically low level.9
Retail Sales: Retail sales fell 1.1 percent in November, showing a slowdown in consumer spending amid economic lockdowns and continued uncertainty. October’s retail sales number was revised downward, from an increase of 0.3 percent to a decline of 0.1 percent.10
Industrial Production: Rising for the seventh consecutive month, industrial output picked up 0.4 percent in November, powered by a 0.8 percent leap in manufacturing.11
Housing: Housing starts reached a nine-month high, rising 1.2 percent in November.12 Existing home sales declined 2.5 percent in November. It was the first decline in six months.13 New home sales slumped 11.0 percent compared to last month, but were 20.8 percent higher than in November 2019.14
Consumer Price Index: Prices of consumer goods and services rose by 0.2 percent in November, leaving the year-over-year inflation rate at 1.2 percent.15
Durable Goods Orders: Durable goods orders rose by 0.9 percent, marking the seventh consecutive month of gains.16
“Of all the hazards, fear is the worst.”
In its last meeting of 2020, the Federal Open Market Committee (FOMC) detailed its plan to continue purchasing $120 billion in Treasury and mortgage-backed securities.17
Fed officials said that they will continue the program until they see substantial progress toward meeting its inflation and employment goals. Officials at the Fed have indicated that achieving such goals may not happen for years.17
Sources: Yahoo Finance, December 31, 2020
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
Gary G. Blom CRPC | Financial Advisor
Michael Howell MBA | Financial Advisor
Address: 3340 Tully Rd. Ste B4, Modesto, CA 95350
Office: (209) 857-5207 | Fax: (209) 857-5098
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprises 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1. The Wall Street Journal, December 31, 2020
2. The Wall Street Journal, December 30, 2020
3. FactSet Research, December 31, 2020
4. HartfordFunds.com, October 2020. “The Election and Your Portfolio.”
5. MSCI.com, December 31, 2020
6. MSCI.com, December 31, 2020
7. MSCI.com, December 31, 2020
8. CNBC.com, December 22, 2020
9. CNBC.com, December 4, 2020
10. TheNewYorkTimes.com, December 16, 2020
11. FederalReserve.gov, December 15, 2020
12. CNBC.com, December 17, 2020
13. CNBC.com, December 22, 2020
14. Census.gov, December 23, 2020
15. BureauOfLaborStatistics.gov, December 10, 2020
16. AdvisorPerspectives.com, December 24, 2020
17. CNBC.com, December 11, 2020
Breaking down the enrollment periods and eligibility.
Medicare enrollment is automatic for some. For those receiving Social Security benefits, the coverage starts on the first day of the month you turn 65.
If you are not receiving Social Security benefits at 65, you may be delaying until you reach full retirement age, or until you reach 70. If you’re coming up on 65 and not receiving Social Security benefits, SSDI, or benefits from the Railroad Retirement Board, you can still apply for Medicare coverage. You can visit your local SSA office or visit www.socialsecurity.gov/medicareonly/ to determine your eligibility.
If you’re getting Social Security checks and approaching age 65, you’ll get a Medicare card in the mail three months before your 65th birthday. If you are getting SSDI (Social Security Disability Insurance; regardless of your age), the card is scheduled to arrive coincidental with your 25th month of disability. You must be a U.S. citizen or a permanent legal resident of this country. If so, you or your spouse must have earned sufficient credits to be eligible for Medicare, typically earned over 10 years.
When can you add or drop forms of Medicare coverage? Medicare has enrollment periods that allow you to do this.
*The initial enrollment period is seven months long. It starts three months before the month in which you turn 65 and ends three months after that month. You can enroll in any type of Medicare coverage within this seven-month window – Part A, Part B, Part C (Medicare Advantage Plan), and Part D (prescription drug coverage). As it happens, if you don’t sign up for some of this coverage during the initial enrollment period, it may cost you more to add it later.
*Once you are enrolled in Medicare, you can only make changes in coverage during certain periods of time. For example, the open enrollment period for Part D is October 15-December 7, with Part D coverage starting January 1.
Do you have questions about eligibility or the eligibility of your parents? Your first stop should be the Social Security Administration (see the contact information in the second paragraph above). You can also visit www.medicare.gov and www.cms.gov.