Retirement Enemies

I’ll begin this week with a bit of a market update.

The biggest news from the markets last week was that long-term US Treasuries saw yields rise nearly ¼%.  By bond market standards, that’s huge.  A rise in bond yields which means a decline in bond prices was not surprising given the big advance in bond prices seen over the past couple of months.

I expect, given the massive quantity of sovereign debt yielding negative rates worldwide, that yields on US Government bonds could continue to fall as well.  A decline in stocks could be a catalyst for this anticipated move in bonds.

The Dow to Gold ratio once again rose back to 18.  I am forecasting an ultimate move to at least 2, but more likely 1, as improbable as that may seem presently.

From my perspective, it seems that stocks may be poised for a big move.  At least that is the conclusion I reach when looking at the charts.

The chart I’ve reproduced here is a chart of an exchange-traded fund that has the investment objective of tracking small-cap stocks.

The yellow, light blue and violet colored lines on the chart are moving averages of price.  The yellow line is the 5-week moving average of price, the light blue line is the 15-week average of price and the violet line is the 30-week average of price. 

To plot each line, closing prices from the past 5, 15, and 30 weeks are averaged.  Notice that presently, the moving average lines are all converging.

That means that the market’s consensus of the value of stocks over each of these time frames is approximately the same.  It is from chart set ups like this that big moves in price often emerge.

Based on this chart, I believe the probability is high that we see a big move in price.

Should that be the case, and should the big move in price be down, are you protected?

Big drawdown is the number one enemy of those wanting to retire comfortably.

There are a number of resources at if you would like some additional information as to how you might protect yourself.

This has never been more important.  The American dream of the last 80+ years has been to work a fulfilling career and then retire comfortably with no stress.  That aspiration is quickly becoming a fantasy for many Americans.

The website “Zero Hedge”, a market-focused blog that offers a wider variety of viewpoints and perspectives, recently published a piece on those of retirement age.  It seems that the data tells us that many of retirement age are not retiring.

This from the piece (Source: (emphasis added)

Forget about millennials working until they die. As we’ve repeatedly reported, there’s a far more pressing retirement crisis gripping America. And it’s the unprecedented number of contemporary workers of retirement age who are putting it off. Some are still reeling from losses during the financial crisis. Others never had enough socked away to begin with and didn’t start paying attention to their situation until it was too late.

Seniors have many reasons for lingering in the workforce, either part-time or full-time, until after the age of 66 (the age at which American citizens can start receiving full Social Security benefits). In an attempt to learn more about the reasons seniors often delay retirementProvision Living commissioned a study asking seniors about why they’re delaying retirement.

As it turns out, overwhelmingly, seniors decide to stay in the workforce after being eligible for social security for financial reasons. Though some claim they’re still working for personal reasons like boredom or because they still enjoy working. According to the survey, it’s a 60% to 40% split.

For those who are still working, a slight majority say they’re only working part-time, vs. full time. The average age of switching from full- to part-time? 61.

Out of the seniors who are still working, a whopping 47% said they wish they were retired. Another 33% said they were happy still working, while another 20% said they’re happy to work, but would like fewer hours.

Much more shocking is the average retirement savings of seniors who are still working: $133,108 – far less than the roughly $2 million people of retirement age are supposed to have socked away to ensure they won’t run out of money at the end of their life. And that’s for college-educated retirees.

The average retirement savings for non-college-educated seniors is just $80,221.

Surprisingly, when it comes to retirement income, an equal percentage of respondents said they’re relying on a 401k as pension-related payouts. 

For many, retirement is the ultimate reward after a lifetime of work. But if the baby boomers who are just reaching retirement age are struggling, just imagine what these numbers might look like when the millennial generation reaches retirement age.

The point is this.

If you haven’t saved enough for retirement, or even if you have, you probably can’t afford to experience the kind of drawdown in your portfolio that you may have lived through during the financial crisis.

The current stock chart indicates that could be a possibility.

But, to complicate things, there is another retirement enemy of which you need to be aware and from which you need to protect yourself.  It is the devaluation of the currency.

The current policy response is money creation. 

Money creation saps the purchasing power of savings.  Even if you’ve saved enough for retirement, it now seems to be inevitable that the currency will continue to buy less over time.

So, in addition to managing drawdown exposure, one also needs to have inflation hedges in place to protect the purchasing power of one’s savings.

And, don’t think that Social Security’s cost of living adjustment will keep up, it won’t.  It was announced this week that current retirees receiving benefits from Social Security will get a 1.6% cost of living adjustment in 2020.

That’s far from the real inflation rate.  According to Shadow Stats, a website maintained by past RLA Radio guest, John Williams, the inflation rate calculated as it was in 1980 is presently 9.4%.

To attempt to address these possible outcomes, I suggest a two-bucket approach.  A deflation hedge to help to protect from drawdown and an inflation hedge to assist in preserving the purchasing power of the currency.

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