Broker Check

Monday Money Report

| February 13, 2023

The markets had their worst week of the year, with investors worried that the strong jobs report will lead the Fed to keep rates higher and longer than expected.  The current unemployment rate of 3.4% is the best since 1969.[1] Fed Chairman Jerome Powell’s remarks on Tuesday that lowering inflation to the central bank’s 2% goal “is likely to take quite a bit of time” has spooked the market.

Which may make you wonder, if you are near or in retirement, why would you invest in stocks at all? Retirement is often described as living on a fixed income. We get that term from the idea that, when you retired, you maybe had a pension, which may or may not be adjusted for inflation every year, Social Security, and what investments you had went into bonds, which paid interest that was relatively stable, or fixed. That worked well when the average retirement was five to ten years.

With Covid and the opioid crisis, life expectancy has dropped for Americans. Even so, longevity risk is a big problem in retirement planning. Currently, the average life expectancy for an American male is about 73, and for women it’s 79.[2] But’s that’s the average from birth.

If you look at a 60-year-old, the average male will live to 82, and the average female to 85.[3]  That’s the average.  Which means that, for every man who passes at 80, someone else is living to 84. If you retire at 65 and live until 90, the price of everything will roughly double during that time. That “fixed income” we talked about that works for a five to ten year retirement doesn’t work for a 25 year retirement.

Over the last 50 years, the S&P 500 has averaged a return of just over 10% a year.  If you factor in inflation, it has risen just over 6% in real dollars.[4] While there’s no guarantee that will continue, or that you’ll see that return in a short period of time, stocks remain the best bet for growing wealth over time. If you spend 4% of your wealth a year, a 6% inflation-adjusted return leaves you with growth in the portfolio to keep up with rising prices in retirement.  A bond paying 4.5% just provides income today, with no room for growth for the future.

The stock market can seem scary.  On average, one of every three years is negative. But most of us aren’t looking at a three-year retirement.  What’s really scary is outliving your assets.

Your action item this week is to check your health insurance for wellness programs and discounts.  Many offer discounts, gift cards, or other incentives for completing health questionnaires and other wellness activities.  

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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.

[1] Wall Street Journal, Stocks Waver as S%P 500 Heads for Worst Week So Far This Year by Anna Hirtensteina dn Charley Grant 02/10/23


[3] Barron’s, Most People Can’t Answer this One Life and Death Question by Mark Hurlbert 01/14/2023