The University of Michigan is one of our nation’s most well-respected universities. In the world of business and economics, it’s well known for its Michigan Consumer Sentiment Index, a monthly survey of public attitudes about the economy and their personal finances.
The surveys indicate that, in recent months, more and more people are feeling less confident about their own financial situation. Drill a little deeper and you see that many households with larger stock portfolios still do have confidence in the economy.
Conversely, the confidence of households with little or no stocks is declining.
This divergence in attitudes falls in line with another piece of financial data I recently came across in a business report from Yahoo Finance. It indicated that, in the second quarter of this year, the top ten percent of earners in the country accounted for nearly half of consumer spending.
We can all speculate about the direction of the economy, but nobody knows for certain what lies ahead. Generally speaking, most long-term investors have seen their accounts perform quite well over the last few years. So, they are likely to feel confident about the future. However, I’ve been around long enough to understand that the financial markets exhale and inhale over time. So no one should be surprised if the market uptick pauses or takes a step backward.
I have a suggestion for anyone contemplating early retirement at the end of 2025 because you feel your account values look great. Give it a second thought. Do an alternate calculation using just 85 percent of your current account values.
See if you’re still confident about retiring early. Understand that we’re currently near the high-water mark for many investment portfolios. Yes, your portfolio value could increase or hold steady and is likely to do so. But, what if it doesn’t? On the other hand, it’s unlikely that the market is going to correct by 10 percent or more in the months after you’ve taken that early retirement. But what if it does?
Over the years, I’ve heard people say, “I crunched the numbers, and I think I can make it work.” Not a comment that inspires a lot of confidence. An alternate calculation utilizing lower investment values is simply a more conservative way of reinforcing that you can indeed retire comfortably. And that’s why I suggest doing it.
If you’re contemplating retirement, whether or not it’s early, it’s important that you anticipate higher costs in the coming years and prepare accordingly. If you’re waiting for car or housing prices to decrease, I can almost guarantee that it’s not going to happen. The same can be said for both health and casualty insurance.
I recently bought a new battery and tires for my car. Going in, I thought to myself with a smile, “This used to cost me about $100, now it’s probably going to be $200.” I was wrong. It was $250. And if you’ve bought almost anything lately, you’ve had a similar experience.
Higher account values may give you a false sense of financial confidence. But if the current bull market stalls or decreases, more people will feel less confident in their financial path forward. I continue to be optimistic about the economy and the investment world, but a little bit of caution is always a good approach.
Email your questions to kenmorris@lietimeplanning.com
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
