Reflections from a Pre-Boomer
I’m too old to be a Baby Boomer, so I guess I’m in the Silent Generation. Here are some definitions:
· Gen Z, iGen, or Centennials: Born 1996 and later.
· Millennials or Gen Y: Born 1977 to 1995.
· Generation X: Born 1965 to 1976.
· Baby Boomers: Born 1946 to 1964.
· Traditionalists or Silent Generation: Born 1945 and before.
There is an ancient Chinese curse – “May you live in interesting times”, well we certainly do! News travels at lightning speed. Smart phones provide easy communication and put all kinds of information at our fingertips. Mass production electric cars are around the corner. Self driving cars are being developed. I used to work for General Motors, and there was already an interest in self driving cars in 1963. It was recognized that 40,000 deaths a year from car accidents was unacceptable. Despite significant safety improvements such as seat belts, anti-lock brakes and air bags, we still have nearly 40,000 motor vehicle fatalities in the U.S. every year. That is actually a huge improvement in term of fatalities per million miles travelled; problem is that there are many more of us and we travel much more than 50 years ago. There are already some cars on the road that have advanced collision avoidance systems.
I was recently asked how to plan for retirement and manage retirement. Financial planners advise starting to save early in life. Time averaged investments and the power of compounding will do their magic to build a nice nest egg. CNBC reports that the average 50 year old has about $125,000 in retirement savings. The goal is to be able to support expenses at approximately 80% of the level during working years. So, with an annual budget of $50,000 you would need $40,000 per year after retirement. You could plan on receiving about $15,000 from Social Security. A nominal 4% drawdown from the $125,000 in savings would only provide another $5,000 per year, for a total of only $20,000 – not nearly enough. So, we have to do better. If you start saving at age 20 with only $25 per week and achieve a return of only 3%, then build up over time to $125 per week and get a return of 6%, you will have a nest egg of $500k by the time you are 65. Now you are in the ballpark, especially if you get a pension or build up a 401k plan. Then you can be comfortable instead of apprehensive about your approaching retirement.
Investing can be a bit tricky, but you can develop a plan – suitable for your age – to build a diversified high quality portfolio. You should target a mix of companies with good growth potential and “value” stocks, typically those with low debt and a reasonable dividend. If you are not comfortable picking your own stocks, you can select no load mutual funds with good 1,3,5 and 10 year returns. Today, you can select from a wide range of Exchange Traded Funds (ETF’s). These low fee funds are designed to track sectors, industries or indices. Just avoid those that must liquidate at the end of each day, since they are less likely to accurately track performance of the target sector. If you are young to middle aged, you will see many changes – such as the implementation of Artificial Intelligence, robotics, higher speed transportation, ships to Mars and even suborbital flight for ordinary people. You can participate in these exciting areas, much as investors who purchased Apple or Microsoft stock anytime in the past 25 years.
Fortunately, there are many resources available today to help investors to make wise decisions, and – more importantly – avoid risky investment. You don’t want to gamble with your nest egg. Most brokerages have “free” planning and research tools for their customers. It is relatively easy to access historical data on many parameters, such as earnings, stock performance, dividend yield, debt, valuation, etc. There are countless books which have been published about retirement and investing. You can also look into joining an investment club; it’s a great way to learn.
As you approach retirement, be mindful of the need for a will, adequate insurance and the development of a budget. Retirees should think about their planned activities – maybe join a book club or develop a “bucket list”. You need to stay active, both physically and mentally, so you don’t vegetate. Health is a gift, and you need to maintain it. Diet becomes ever more important as our metabolism slows down. Maintaining you weight will likely be a constant battle – but there are big benefits in the health department. A great doctor once told me that the most powerful weapon a patient has is a positive attitude.
Anthony Giamei
8/15/18
