After years of waffling on a more aggressive interest rate agenda, the Federal Reserve is indicating change may be ahead. Earlier this month, a new employment report showed the U.S. added 235,000 jobs in February. With job growth, wage growth, and other indicators on the rise, the Fed decided to raise the federal funds rate – or the rate for overnight loans – to a target range of 0.75-1.0%. In turn, it will affect interest rates nationwide – from credit card rates and lending rates to mortgage interest rates and more.
This hike comes after a three-month impasse – the last time the Fed increased its benchmark rate was in December 2016. As a New York Times article noted, this is the Fed’s third rate hike since the financial crisis of 2008-2009.
Now, how can this affect retired and near-retired investors - and does it mean future interest rate hikes?
The stock market has been surging to new highs. For the first time ever, the Dow Jones exceeded 20,000 in January. Then on the heels of President Trump’s first address to Congress, it charged ahead yet again. The Dow posted a 300-point jump, closing at over 21,000 on Wednesday, March 1. These gains come at a time when market volatility has also been on the decline. In early February the CBOE Volatility Index – more commonly known as the “investor fear index” – showed investor concerns on the decline.
However, even as the market goes up many people still worry about their investments. What will the market do next? Do they own too many stocks? When the market goes down, will it be just be a spill, a correction, or a crash? For that matter, do they have too much money in other risky, market-based investments?
For people close to retirement, this brings up an important question. Should you stay with your current portfolio allocation mix, or is it time to move into a safer strategy?
Good news: People are living longer. But it does come with downsides. For one, increasing lifespans bring greater financial risk, like outliving your retirement money or forking over income for costly health expenditures. Then there is the evolving question of what a longer retirement looks like.
Just some decades ago, many Americans shared a common vision. You worked for the same company for years, often in exchange for a defined-benefit pension. Then you left your job and shifted into a post-work lifestyle, drawing on your pension and living comfortably.
However, times have changed. As evolving trends and statistical projections indicate, retirement could last as long as 20-30 years, or perhaps even 40 years! Now it’s hard to define what retirement should be. That brings yet another challenge: How can we prepare financially for an extended post-work lifespan?
If you wonder about what you can do, here are some quick tips you can put into action. Before we go into those, let’s address an important topic affecting the near future: the pace at which longevity has changed over time.
It’s been said that the 70s are the new 50s. But if a new research study is any indicator, U.S. life expectancy may be set to grow even more. With current American life expectancy sitting at 78.8 years, researchers at Imperial College and the World Health Organization project that longer lifespans could be in store.
According to the researchers’ findings, U.S. life expectancy would lengthen to 83.3 years for women and to 79.5 years for men. The predictions jar against data published in December 2016 in a longevity report from the Center for Disease Control, which found U.S. life expectancy dropped in 2015 – the first time in 20 years.
Now, why does this matter? Longevity risk, or the possibility of running out of money in retirement. As life expectancy rises, the amount of post-work years for which you will need money may increase. According to the Social Security Administration, 25% of 65-year-old Americans today will live past age 90, and 10% of 65-year-old Americans will exceed 95 years of age. So, it’s important than ever to plan for old age in your financial future.
Chances are you know the concept of asset allocation. As Forbes contributor Mitch Tuchman puts it, asset allocation is the “collection of investments you own,” depending on your risk tolerance and your desire for potential investment returns. In the investing world, it is a strategy of apportioning assets to achieve a strategic balance of potential risks and returns that is right for an individual investor.
That’s all good and fun, you may say – but what does that have to do with retirement planning?
Well, from a planning standpoint, plenty. It is the same question of deciding how to allocate a retirement portfolio.
But in this case, decisions revolve around striking a balance between managing potential risks and achieving desired retirement outcomes, like income certainty, wealth protection, or other goals. In financial lexicon, this strategy is known as “diversification.” When it comes to retirement planning, diversification is arguably an essential part of a successful retirement strategy. But why?
Having been created by the Obama administration, the DOL fiduciary rule would bring wide, sweeping changes to the financial services industry. But as we noted in prior articles, a Trump administration could make this a different story. There was potential for the rule to be delayed past its April 10, 2017 “applicability date,” to undergo changes, or to even be abolished.
Since we first published on the DOL rule and its possible effects, there have been developments. Now the Trump administration has directed the Department of Labor to conduct an analysis of whether the rule could have any harmful effects, especially on retirement investors. That could potentially put the fiduciary regulations at jeopardy, depending on the department’s findings.
Because it is important to know how these news events may affect your future, let’s cover them in detail. Without further ado, here is a timeline of recent news updates, and how they may affect the outlook of the ruling.
Just two weeks into his presidential tenure, Donald Trump already is taking swift action. From sweeping executive orders to bold ambitions for tax reform, immigration, job growth, and more, these times are a whirlwind. Many Americans wonder what it might mean for the future. What effects could a Trump administration have on issues relating to their retirement?
During the campaign season, President Trump was a political wildcard. Not all of his policy stances were clear, and at that point, that meant uncertainty and wide-ranging speculation for retirement investors. However, since entering the White House, Trump has clarified some of his policy positions. The question then becomes what all of this means for hard-working American households, whether retired or getting ready for that stage.
If you are retired or preparing to retire within the next four years, this post will go over a few important ways the Trump administration can be impactful. Read on for some quick takeaways that will be helpful for your retirement planning future.
With its impending rollout in April, the DOL fiduciary rule will treat nearly all financial professionals as “fiduciaries.” As you can imagine, this has brought industry-wide changes in financial services. All types of financial companies, from stock brokerage firms and asset management companies to investment advisory organizations and insurance carriers, have been preparing for compliance. Of course, it also means change for you and other Americans, whether retired or not quite there yet.
If you have worked with a financial professional for investment decisions, you may have heard of a “fiduciary standard.” It is where an advisor holds legal and ethical obligations to provide investment advice in your best interest. In other words, the advisor serves as an impartial, independent guide. He or she is there to help you to make appropriate decisions for your financial future.
Prior to the DOL ruling, financial professionals considered fiduciaries were those paid for advice on an hourly rate or paid a percentage fee based on account holdings. Many Americans are familiar with the concept of a best-interest recommendation from those settings. But with rule’s expansion, recommendations in exchange for other forms of payment, including commissions, will fall under greater scrutiny.
Photo Credit: The Frances Perkins Building located at 200 Constitution Avenue, N.W., in the Capitol Hill neighborhood of Washington, D.C. Built in 1975, the modernist office building serves as headquarters of the United States Department of Labor. U.S. Department of Labor Headquarters, Creative Commons Photo, Author "Agnostic Preacher Kid," May 30, 2010, Property solely of author. Distributed with permission through Creative Commons Attribution-ShareAlike 3.0 Unported LicenseAttribution-ShareAlike 3.0 Unported License.
As a retirement investor, you may have come across the “DOL fiduciary rule.” A new ruling from the Department of Labor, it is scheduled to go into effect on April 10, 2017. But just what this rule means – and more importantly, what it entails for you and other retirement savers – may be less than clear.
In short, the DOL fiduciary rule expands the definition of an “investment advice fiduciary,” as laid out in the Employment Retirement Income Security Act of 1974 (or ERISA). As we briefly discussed in another post on 401(k) rollover options, this elevates financial professionals to a new status, ethically and legally speaking. Those who are paid to give recommendations about retirement accounts will be treated as “fiduciaries” under the rule.
As a result, they will be obliged to put your interests as a client first. The rule will require they give recommendations in your “best interest” as a retirement investor. They will also need to disclose any potential conflicts of interest which could influence their recommendation when they provide you investment advice for a fee or other compensation.
For a brief rule overview and how it will bring change, read on for some critical, need-to-know facts. In our view, this ruling is generally speaking a positive step for consumer protection. It helps protect you and other hard-working Americans from financial professionals who act unethically, do not act in your best interest when they should be, or do not consider your complete financial position before making a recommendation. However, it’s unfortunate that this sort of advisor conduct should require government-imposed conflict-of-interest standards to be levied – financial professionals should always act in their clients’ best interest, period, without exception.
There will be wide-sweeping changes to the industry, from capital investments by financial firms to move into compliance, as well as the business operational costs of maintaining compliance. As a result, in some ways retirement planning advice may be more costly to you and other retirement savers.
An important note: The DOL rule was published during the Obama administration; with the Trump administration coming in, there is a possibility of the rule being delayed past the April 10th deadline, being changed, or even being abolished.
As mentioned earlier, the definition of a fiduciary has been expanded from just financial professionals who give ongoing advice. Now it covers other professionals, including financial salespersons such as:
Retirement planning involves several decisions. For many retirement savers, an important question is what to do with their 401(k) retirement account. As they near retirement, investors must decide whether to leave the money within their account or choose another option, such as an IRA rollover.
The good news is Americans typically have six options for moving 401(k) assets around or leaving them alone. But not all of these possibilities may be appropriate, depending on the merits and downsides of a particular rollover option for your personal situation. It’s also not unusual for an investor to have the lion’s share, or even a large bulk, of their retirement assets in a 401(k) plan account. So, whatever they do with these retirement savings, it’s a decision that will have tremendous implications for the future.
If you are mulling over 401(k) rollover options, be sure whoever you work with understands all the ins-and-outs of different rollover outcomes. Your financial professional should clearly explain the positives, negatives, and details of each rollover option to you, and go over how it may help or hurt your personal situation. After all, this is your future at stake – one mistake can be costly, and once made, some 401(k) rollover errors are irreversible. Make sure you choose wisely and you are well-informed of each possibility before you decide.
In the meantime, if the question of “what are my 401(k) rollover options?” is a pressing matter for you, here’s a quick post which goes over some important factors to consider. Read on for some 401(k) rollover basics to start with making an informed decision. And as we emphasized before, make sure to work with a qualified professional for any 401(k) rollover considerations.