We’ve had a new round of bad economic news, but I can’t get too excited about it, even though it seems like a pretty severe storm. I think I’ve fallen victim to “bad news fatigue” after two years of the pandemic, rising inflation & interest rates, and declining investments.
Just in the last couple weeks …
⁃ The stock market erased all the gains since Biden took office
⁃ The Fed hiked interest rates another 75 bps (and threatened more)
⁃ Inflation stayed higher (8.7%) than experts predicted in August
⁃ Housing prices fell in 98 markets around the country
⁃ Corporate earnings have been coming in soft across industries
It seems like every day has some awful economic headline, yet I haven’t spent any time figuring out what they have all added up to in terms of negative impact on our retirement portfolio. We have a meeting with our financial planner next month, so I guess I will be forced to reckon with how much we’ve lost (on paper) at that point.
It’s times like these that I am glad that I have a big cash cushion. We typically carry about 2.5-3.0 years of spending in cash. This year we have even more, since about 40% of our annual spending is now covered with MegaCorp pension checks. I started taking those this past spring. This should be a cause for cheer, but my pension doesn’t have a cost-of-living-adjustment, so I’m already thinking that high inflation has already shortened the pension’s value by 2-3 extra years.
At some point, this recession will lift and maybe my financial enthusiasm will return. For now, I’m just weathering the storm and will try not to get to frustrated with our paper losses. Instead, I’m just enjoying the early autumn weather, football games, and outdoor activities before it gets too cold.
How closely are you watching the headlines? How much of a cushion do you carry in retirement?
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MrFireStation 
Too closely. Not enough. Batten down the hatches. Tighten the belt. Have a belt.
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Paradoxical common sense! 🙂
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I follow economic and political news about as fast as it comes out. Newt Gingrich has worked with the leaders of the Republican Party to develop the “Commitment to America” which will be implemented if they successfully take over both houses of Congress. They are planning to turn the White House into an assisted living facility for Biden, which should help the economy in the short term. The “Commitment to America” will use the power of the purse to bring us the first good economic news we have had since Biden got into office.
For the longer term, I am studying what Klaus Schwab and the World Economic Forum are up to. We are seeing the fruits of the WEF’s not very good thoughts playing out in Europe right now. Europe is going to have severe energy shortages at high cost during this Winter, the Continent is getting flooded with illegal immigrants, and The Netherlands is tampering with their farmers who are the second largest food exporter in the world. We are starting to see push back on this flawed thinking by the farmers themselves, and Italy just got their first female Prime Minister who is a Conservative.
My wife and went into my retirement with the bulk of our income coming from a Deferred Compensation Plan that is invested in a cash like investment that will pay out quarterly over ten years. This is equivalent to ten years in cash. This income will be replaced by Social Security that we are both waiting until age 70 to start.
We also have Taxable and IRA Brokerage Accounts that are invested primarily in dividend paying stocks that have decent current yields that are growing and have a high likelihood of doing the same going forward. The main performance tracking for this approach is Annual Income from the Dividends is up 12.32% YTD as a function of reinvesting in our IRAs and Dividend Increases across all accounts. The overall market value is down 10.02%.
Sanity is maintained by realizing the dividends currently being reinvested are being reinvested at a higher current yield, which will help grow the annual income faster.
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It sounds like you have a BIG cushion and can look the other way if you choose to right now, Klaus. That said, you follow the political news and have a better financial strategy for these troubled times than most!
I just read through the McCarthy ‘Commitment to America’. https://www.republicanleader.gov/commitment/wp-content/uploads/2022/09/CTA-One-Pager.pdf
I would like to see a few more specifics on reducing government spending and a goal of balancing the budget. Maybe we are too far gone from that at this point. The deficit has grown so large that it may be political suicide to make substantial spending cuts.
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My approach lags when Mr. Market is Manic, but does better when he is Depressive.
I like the “Commitment to America” a lot. Having a discussion purely about finances will not have broad enough appeal, because most people are financially illiterate. A question I commonly ask people is if they had a Personal Finance Class in High School. I attended Public Schools in Indiana through the 10th grade. Indiana had a requirement for everyone to take a personal finance their sophomore year. The personal finance class was taught by a local small businessman who owned a Kentucky Fried Chicken Franchise. Financial literacy is the antidote for Marxism.
The points about being able to afford to live, school choice, stemming the scourge of Fentanyl, and public safety have broad appeal and can be understood by financially illiterate emotional thinkers. Fixing these issues that all got worse under the Biden administration will reduce spending as a byproduct.
Due to the terrible policy and actions coming out of the numerous Departments in Washington D.C., I expect you will see either President Trump or DeSantis commence with massive firings and downsizing of our Federal Government for the first time in 2024.
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The Democrats pushed for a personal finance class requirement in MN. It didn’t get much attention, unfortunately … https://www.mprnews.org/story/2022/04/04/financial-education-in-minnesota-schools-could-help-reduce-economic-disparities
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This would be the most important course every student takes, as long as the class sticks to personal finance without any social agenda mixed in. However, financial literacy would cause people to scrutinize their politicians more. Bet this is why it died on the vine.
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I’m trying to ignore the news and focus on the long-term strategy. What is troubling is that BOTH stocks and bonds are down significantly for the year. It seems that in the past, using a balanced 50 / 50 or 60 / 40 portfolio, one or the other asset class would offset losses in the other. Such is not the case now.
With a recession or economic slowdown into 2023, bond yields will continue to increase and it might make sense to start holding longer bond durations sometime next year. Increased bond yields will act to depress the economy and slow wage growth. Stocks will eventually recover and supply-chain and inflation woes will likely subside as well. Now might be a good time to add quality stocks for the longer term. I’m just holding and waiting right now. Thankfully, I am not making any withdrawals from tax-advantaged investments.
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Agree – it’s a tough market for everything: stocks, bonds, cash, and now real estate. We bought a townhouse in January for our son, but I’m guessing that will be underwater soon too!
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We have been fortunate with our losses being about half of the market drop, despite returns having nearly matched the market over the past years. While down, we are considerably ahead of projections made 3 and 5 years ago.
With no mortgage, it is very easy to continue to live below our means from pension and social security. I expect to experience additional bull and bear periods before I am required to take RMD ‘s in twelve years.
We follow the long run philosophy in that our investment horizon is our grandchildren’s lifetime. Any longer and my brain can’t compute
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I’m guessing that’s where we are sitting … losers about half of what is happening in the stock market. I’m a long way from RMDs, so we are good on that. Someday we’ll have grandkids, then I can think about what that investment horizon is!
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