By Susan E. Campbell
Whether the forecast for the economy and the investment markets is good, bad, or middle-of-the-road, retirement professionals agree that staying the course is the best course.
“The number one thing for 2020 is, in a word, uncertainty,” said Don Tenne, a financial planner with Ameriprise Financial Services and based in Glens Falls.
“Tariffs, elections, China and other international uncertainties are things that tend to slow down the market even though the economy is doing very well,” said Tenne.
Markets are driven not only by fundamentals but also by investor psychology, which can be impacted by alarmist media, he said.
“The media says a recession is coming, but we don’t know when,” he said. “Many experts say recession may be one to six years ahead. So we see the stories, and then they go away.”
“The retirement specialists in our office attend conferences and listen to economists from such firms as Dreyfus and BlackRock, and they don’t expect a recession in 18 months,” said Ryan Lambert, founding partner with Three Buckets Wealth Management which serves the region and has an office in Glens Falls. “Their forecast is fundamentally looking very positive.”
“For the past several years the press has been saying the market has to go down,” said Eileen Vitarelle, who founded Peridot Wealth Partners LLC in Clifton Park. “Anyone who panicked and sold during the final quarter of 2018, which posted a 19 percent drop, would have missed out on all the returns of last year.”
“It’s hard to say what’s real because reality can change in a day, week or year from now,” said Vitarelle. “The 24-hour news cycle has skewed a lot of people’s thinking and done damage, but in the short term, the markets can be irrational.”
While the public tries to separate what is really going on from what they hear is going on, retirement specialists work to take the emotion out of investing and help clients focus on their individual plan—and stick to it.
“The country is divided on a financial front and people are making emotional decisions,” said Lambert. “Our job is to be a circuit breaker to get clients to think about their specific situation, not the particular political environment. The markets do not like uncertainty.”
“When the market gets shaky we reach out to clients to assure them to stay the course because long term, that’s how their retirement accounts are going to do better,” said Vitarelle.
“One study showed that six out of the 10 worst days in the market since 1999 occurred within two weeks of the best 10 days,” she said. “That demonstrates how unpredictable the markets are. Long term, markets tend to be rational.”
“The biggest thing we talk to clients about is accumulating money for retirement,” said Lambert. “But the biggest challenge is the de-cumulation phase,” which is when assets are withdrawn to pay for expenses in retirement.
“When you are young you have time on your side, but approaching retirement, if you take money out of the wrong account, you cannot put it back in,” he said.
That is why his firm sets up three investment buckets as a client makes the transition into retirement. This strategy ensures that withdrawals come from the right account from a tax perspective and a risk perspective, he said.
Lambert said the first bucket is the no-market-risk account investing for zero to three years until retirement. The second is the income-deriving bucket for years four through seven before retirement age, and thus has a strong position in fixed-income investments. The third is the longest-term bucket, eight years out and longer.
“The long-term bucket can accept fluctuations with the stock market because it has a chance to grow,” he said.
Lambert said “there is always an underlying fear” that an individual may run out of money during retirement, now that life expectancy is not years but decades longer than when the social security system was established.
“This is one reason why some people don’t do retirement planning or financial planning, because they do not want to face this fact,” he said. “The longer one lives, the greater the fear.”
“If younger people do not take control, no one will,” said Vitarelle. “This is no longer a world where people get pensions, and social security does not come near replacing the income needed in retirement.”
On the other hand, some people end up working longer than they had to because “they never did their homework and didn’t know where they stood” financially, he said.
“People should invest for the future first, then figure out how much they have to spend,” said Vitarelle. “I ask my clients to consider, do you want to live life like you want to today at the expense of your future?”
Retirement saving accomplishes the goals of “paying yourself first” with money that accumulates with current and future tax benefits, said Vitarelle.
Moreover, since retirement contributions are systematic, “it takes the emotion out of investing and purchases are being made during all market conditions,” she said. “But the more volatile the markets, the better the concept.”
“Long-term money, like retirement money, belongs in the market,” said Vitarelle. “Every financial decision has a risk, but investing in stocks is the only way to beat inflation.”
On the legislative front, Lambert said there are two things to look out for. “If passed, the Secure Act will impact the financial world,” he said.
“One aspect is that the mandatory distribution age will move from age 70 1/2 to age 72, allowing retirees to accumulate assets another year and a half before forcing withdrawals based on life expectancy,” he said.
The other aspect is less favorable to beneficiaries of taxable IRA acocunts.
“Inherited IRAs or Stretch IRAs may have to be paid out in only 10 years, down from 25 years,” Lambert said. “Most people have not heard of a Stretch IRA but it becomes a factor as we age.”
This change means the U.S. Treasury may collect taxes on distributed assets sooner because beneficiaries cannot keep them accumulating another 15 or 20 years, according to Lambert.
“With the lowest tax brackets ever, IRS needs to collect revenues faster,” he said. “The budget deficit cannot go on forever.”
Lambert and Vitarelle said that whether looking ahead to another year or indeed, another decade, it is best to make sure client portfolios are positioned properly.
“The past does not tell us what the future will be, but it does inform the decision process looking ahead,” said Vitarelle. “We prefer to consider goals and risk tolerances and be appropriate with the particular client’s investments.”
“If not investing or talking to a financial advisor, you should start, and the sooner the better,” she said. “After all, it is time in the market, not timing the market, that is important.”
By Susan E. Campbell