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Ponderings For the Week of December 17 to 23 2018

Stocks Continue to Decline

The year is about to end and the refrain from investors is shaping up to be “good riddance.” Last week, the major indexes reported losses of around 1%. The catalyst was new evidence that economic growth in Europe and China is slowing. While economic indicators in the U.S. are more robust, this couldn’t allay the fear that the contagion will eventually reach our shores. Another concern last week was the impending Federal Reserve Board meeting. Amidst the December carnage, Wall Street will not welcome another interest rate hike.   

While the stock losses are far from a rout, many investors are inclined to give up, at least partially. Stock withdrawals apparently set a weekly record last week. Of course, it’s easy to conclude that the investment world is ending if you’re selective in the period over which you base your opinion. For example, this month so far has been awful. The Standard & Poor’s 500 had its worst start of the month of December in almost 40 years. The big three stock indexes are all in correction territory. That’s the awful truth. But facts are curious things. Consider the year so far rather than the first half of December. The Dow and the S&P have each declined less than 3% while the Nasdaq Composite has managed a tiny gain. Painful, yes, but hardly the debacle conjured by a large cohort of investors.
 
 

Making Sure You Never Run Out of Money

 

The biggest financial fear of retirees and those who are nearing retirement is whether they risk running out of money later in life. Here are some thoughts that will help you make this all-important assessment.

  • Your retirement projections show that you won’t run out of money until age 95. An 80-year-old man has a 12% chance of surviving until age 95; a woman that age has a 20% chance of surviving until 95. If you’re in pretty good health, the odds are higher that you’ll live at least that long. While some can’t imagine living into their nineties (including my mother who lived to age 97), you’d better plan financially for that possibility.
  • You own your home free and clear. About 25% of retirees still have a mortgage, and that percentage is rising. Being saddled with a mortgage—or any other debt—after you retire is okay if you’ve added all of those future costs to your budget. But carrying a lot of debt after you retire is a burden that many cannot easily afford, and you run the risk of having to eat into too much of your retirement savings too early to make loan payments. 
  • You can afford or have insurance to cover a skilled care facility stay or home health care. The average skilled care facility stay is 2½ years and costs over $200,000 – much more in high cost urban areas. At the rate health care costs are rising, that amount may be much higher by the time you need help. If you don’t have long term care insurance, you might be able to afford a basic policy but without all the other expensive options.      
  • You can reduce your spending by 20% in the event your stocks plummet or if interest rates stay very low. Retirees are understandably frightened about the stock market and are straining financially due to low interest rates. The point may come where you have to reduce your spending to avoid having the take too much money out of your investment principal. Cutting household expenses is very difficult, but may be necessary. Plan ahead.   
  • You won’t need a reverse mortgage until you are at least age 80. Reverse mortgages are touted as a panacea for financially strapped retirees. But there’s a lot less than meets the eye with reverse mortgages. The earlier you take out a reverse mortgage, the less income you’ll receive. They are best viewed as a late in life resource to be used to stay in your home, not to finance the good life.
  • The early death of your spouse or partner – or you – won’t cause financial hardship for the survivor. If you’re married or partnered, evaluate where each of you would stand financially if the other died tomorrow. Hopefully, you have arranged your finances to protect the survivor, perhaps including joint life pensions or annuities.  

 

 

 

Smart Money Tips

  • There’s still time to make charitable contributions. If you can spare any money or appreciated securities, this is a good time to help out a worthy charity and reduce your income tax exaction. As long as you mail the check or make a donation on your credit card before January 1, you’ll earn a deduction for this year even though the check doesn’t clear until next year or the charge doesn’t appear on your statement until next year. If you have the time, consider donating appreciated securities rather than cash. You’ll get to deduct the full value of the securities you donate without having to pay a capital gains tax.
  • Get set to set some money goals for 2019. No matter your age or financial situation, it’s always important to set some money goals each year. Whatever goals you set, make them achievable … with some difficulty. If they’re too easy, you aren’t accomplishing a whole lot. If they’re too difficult, you risk getting discouraged and abandoning your good efforts. Starting next month, I’ll be offering 19 financial resolutions for 2019. Hopefully, you’ll be able to pick out a couple of goals that will help you improve your financial status. 
     

 

 

 

 

 

 

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