Politicians, economists and talking heads alike continue to debate whether we have entered a recession. Recessions have been officially declared by the National Bureau of Economic Research, a committee of economists who defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Six months of contraction in the economy is a long-held informal definition of a recession. The part that makes the current situation different than past recessionary environments is that we continue to see a strong labor market as the US Economy added 528,000 jobs in July. Because most of the financial gains have come to those still working, retirees are feeling more pain these days due to rising prices and a decline in investment values pretty much across the board. No one knows how long this will continue, but we believe that being proactive with your financial planning can keep you on track in retirement especially during uncertain times like these. Below we share some timely opportunities to spark conversations with your financial advisor.
Do I have too many “idle” dollars?
Consider I Bonds
We find that some retirees like to keep above the typical rule of thumb of 3-6 months of cash on hand for emergencies. As inflation and interest rates have risen, this may not be the best strategy moving forward. In our recent blog on inflation, we have encouraged many of our clients to purchase I Bonds through the US Treasury with surplus cash due to the currently high inflation that we are experiencing. As of this writing, I Bonds purchased today are yielding over 9%. This rate will vary over time based upon experienced inflation but will not go below 0%.
Brokered Certificates of Deposit
As short-term interest rates have risen to combat inflation, we have found greater opportunities to get increased interest from brokered Certificates of Deposit (CD). These are similar to traditional bank CDs that you may have owned in the past as they are issued by banks and carry FDIC insurance on your money up to applicable limits. Where they differ is that you have to purchase them through a broker or brokerage firm, and you cannot redeem the CD prior to its maturity date. You may be able to sell it to interested investors on the secondary market if the need arises. Selling on the open market may be subject to additional fees and market risks so we recommend sticking with shorter-term CDs or purchasing CDs in various amounts and different maturity dates as part of a CD ladder to help manage your cash needs as well as changes in interest rates.
A higher yielding alternative to CDs, but with more restrictions on withdrawing funds would be a fixed annuity. These are long-term contracts issued by insurance companies that offer a fixed interest payment over a specified period of time. These insurance products are able to pay higher rates of interest due to the associated early withdrawal penalties AKA “surrender charges” that may be applied so it is important to assess your short-term needs to avoid any surprises on the backend. Fixed annuities are not FDIC insured and are subject to the claims paying ability of the issuing insurance company. As such, we would advise sticking to the most reputable and highly rated companies.
What’s My Retirement Confidence Score?
Since 2019, we have used the Retirement Confidence Score to help measure if clients are likely to achieve their goals. As we emphasized earlier, declining account balances due to volatility in the stock and bond markets this year as well as potentially increased spending due to inflation can impact your long-term security in retirement. Just as healthy individuals should be checking in with their physicians periodically, planning for your retirement security is an ongoing process and you should be regularly reviewing things to make sure you are staying on track and updating your expectations and assumptions with your advisor. Times like these can be a good opportunity for your advisor to offer suggestions to help you get back on track if needed.
Market volatility and rising costs have had an outsized effect on those in retirement this year. While it is easy to understand why some may be feeling discouraged about the current environment, we urge you to have a conversation with your advisor to take advantage of some of these opportunities and to review and continually update your plans. Your financial plan is a starting point to help you get to your preferred destination. We’re here to help by being a guide in a changing landscape to make sure you are staying on track through the years.
 PBS News Hour https://www.pbs.org/newshour/economy/how-to-know-when-a-recession-has-begun
 MarketWatch https://www.marketwatch.com/story/coming-up-u-s-jobs-report-for-july-11659701564
Visionary Horizons, LLC nor any of its representatives provide tax preparation or advice. Please consult with a tax professional prior to implementing any strategy. Registered Investment Advisory Services are custodied at Schwab Institutional, a division of Charles Schwab & Co., Inc. (“Schwab”) Member SIPC., TD Ameritrade Institutional, a division of TD Ameritrade, Inc. (“TD Ameritrade”) Member SIPC.
Securities offered through Purshe Kaplan Sterling Investments, member FINRA/SIPC, Headquartered at 80 State Street Albany, NY 12207. Purshe Kaplan Sterling Investments and Visionary Horizons, LLC are not affiliated companies.
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