Will there be income in retirement? Ordinary Americans ask

There are times when the pressure of providing 24-hour financial news coverage causes a story to sensationalize when a calmer, more factual approach would be in viewers’ best interest. The most recent example is the downgrade of the US bond rating from triple “A” to “double A plus” by one of three bond rating agencies. The other two agencies did not follow suit with a similar downgrade, but global markets responded with a tumultuous couple of days that have many Americans wondering if they will have any income in retirement. This is a fair question when looking at Washington’s inability to work together on a sustainable logical plan and when the prospect of another, even deeper recession looms over the worried minds of many working people.

Too many Americans feared there would be enough income in retirement if markets continue to fall or do not recover quickly. In fact, the retirement income will still be there, as long as we don’t need to withdraw all our money at once. Equally important is that we pay attention to the balance of our investments, always maintaining a well-diversified portfolio. “Diversified” simply means that some money is invested in stocks, with a mix of stocks that might pay dividends along with some stocks that will give us growth. The mix is ​​necessary so that our purchasing power remains intact. This is the crucial thing that each of us must protect as we look to the future: our purchasing power. Living in an inflationary environment like we’ve had for the past six decades, it’s important that we send enough money upfront so that we can continue to pay for the things that are important to us.

In the language of the 24-hour financial news networks: we need to make sure our investments keep up with inflation. Here’s a practical example of what that statement really means: I paid more for my car in 1978 than my parents paid for their house! This is inflation, where the cost of things increases substantially over time. Does anyone remember when sending a letter cost 15 cents? That was only in 1980, and how much is it now, 44?

However, to keep up with inflation, we can’t invest all our money in one place, even in Treasuries, whether or not we agree with Standard & Poor’s downgrade. That will not buy us goods and services in 10, 20 and 30 years. We need growth in our portfolio and as long as we quantify our risks, we can live with them. In fact, we cannot live WITHOUT some risk (read: growth) in our portfolios, precisely because of inflation.

Before we get into serious retirement income concerns, let’s consider the actual results of the downgrade:

1. Note that while Standard & Poor’s is one of the three major credit agencies that rates all bond issues, the other two bond rating agencies, Moody’s Investor Service and Fitch Ratings, did not similarly downgrade US rating. Don’t we usually go with the opinion of two out of three?

2. The downgrading of Treasuries was supposed to infer that Treasuries would no longer be a “safe haven”, what actually happened was a move by many stock market sellers TO Treasuries. We saw US Treasury prices go up and their returns go down.

3. On the world stage, where it was feared that China might sell US Treasuries if it believed the US might default on its sovereign debt, that didn’t happen.

4. The world’s central banks have bought over $2 trillion in Treasuries in the week before and after the downgrade! The fact that our Treasuries are so liquid and so safe (and that we still have a “triple A” credit rating from both Moody’s and Fitch and in the eyes of most of the world) is why.

5. Coincidences that are probably related:

has. Standard & Poor’s is the same bond rating agency that was accused of not downgrading banks and mortgage companies fast enough in early 2008. Some have said that this recent downgrade of US bonds is revenge. .

b. Bank stocks faltered on the first day of trading after the downgrade announcement partly (or mostly?) due to the pending AIG lawsuit.

With markets so emotionally volatile, you need to keep the big picture in mind at all times.

The average investor must remember that their portfolios must be effectively diversified and, just as important, that much of their portfolio is “earmarked” several years into the future; i.e. 5+ years. Markets fluctuate; and they bounce back, as history has shown, time and time again. The number of days and the extent to which that recovery percentage occurs is anyone’s guess. Which is precisely why one needs to STAY invested, in order to Do not miss those first days of recovery.

While America can’t keep borrowing 40 cents for every dollar we spend, we also can’t get people back to work without investing some capital in job opportunities, one of the most important components of economic growth. (Despite rumors surfacing that jobs are available, corporations just don’t release them.) Examples of smart spending abound, including spending $10 trillion to fix our bridges and roads now, which would create serious jobs, or wait 3 years. when will the cost increase to 40 trillion? Just like leaving out depreciation expense on a balance sheet, we must “nurse” and keep our infrastructure safe, making down payments so we don’t face future catastrophic measures and aggravated damages as well.

The markets are emotional and, at least in the short term, we should expect continued volatility. Yes, there will be income in retirement…for those of us with a cool head and nerves of steel.