Retirement Planning - Lessons Learned

   / Retirement Planning - Lessons Learned #732  
As a fixed income investor, I’d like to see interest rates move up into the 4% range. So do many retirees who would like to get out of stocks into fixed income.

Have you looked into annuities? They can easily provide 4% guaranteed income or more.
 
   / Retirement Planning - Lessons Learned #734  
I'm looking hard at municipal bond funds. I have found a couple highly rated tax free funds having equal distribution yields as taxable funds with similar risk profiles. And without federal tax liability that seems attractive for our taxable brokerage account.
 
   / Retirement Planning - Lessons Learned #735  
I'm looking hard at municipal bond funds. I have found a couple highly rated tax free funds having equal distribution yields as taxable funds with similar risk profiles. And without federal tax liability that seems attractive for our taxable brokerage account.

Bond values and interest rates work in opposite directions. If interest rates go up, bond values will go down.

In today's world, there is no better place to put money than a low cost index fund.
 
   / Retirement Planning - Lessons Learned #736  
Here is the thing about the last bout with inflation, it actually caused the greatest accumulation of generational wealth in the history of the US.

When inflation was really bad in the 70's, the Fed at the time under Volcker raised interest rates very high to combat it. In Economics, there is a law that says interest rates and asset prices move in opposite directions. So high interest rates decrease asset prices and low interest rates cause high prices. We are seeing this now. At the time, baby boomers were coming into their prime earning years. They were able to purchase assets, we'll use houses as an example, at very low prices, but very high interest rates. As the effects of inflation subsided because of high interest rates, the Fed moved to lower interest rates. Those baby boomers were then able to refinance to a lower interest rate and most reinvested the equity against the principle. This lead them to pay off their low priced house very quickly. Then they found themselves with a paid off house and a lot of earning years left. So they bought 2nd homes, condos, timeshares, or upgraded to a bigger house. Baby boomers still have a lot of assets that are worth a ton of money today, thus the baby boomers might be the most wealthy generation the world has ever know.

Now my generation will never have that same opportunity to build generational wealth, simply because of low interest rates. Every asset is super high and with low interest rates, they will never be able to refinance to a lower rate and reinvest the equity.

From my stand point, I am cheering on inflation and hoping interest rates move up. This should cause asset prices to come down and later on down the road an opportunity to refiance to a lower rate to cash in on some interest equity. I know this sucks for current retirees', but you had you turn at the trough.
You don't need inflation and high interest rates to make assets cheap, all you need is for the economy to take a dump. Just 10 years ago you could have picked up houses at half price mortgaged at rock bottom rates. I was telling anyone who would listen to buy a house on a 30 year fixed, because they would look like financial wizards ten years later. If your generation missed that opportunity, you must be really young. The next opportunity will be along soon. Save your shekels, situate yourself in a secure job, and cultivate a high credit score.

Volcker was in the '80s. I was a building contractor at the time, and he wiped me out. I learned the hard lesson that you can never trust the economy. The GenXers got rich in the '90s with the dotcom boom and a lot of them got wiped out. I warned a bunch of them that the bon temps don't roulez forever. I hope they listened. When 9/11 shut down the NYSE, you could pick up stocks at a 70% discount. Seven years later, you could buy a house for half price. Both of those opportunities happened during times of historically low interest rates.

While nobody knows when the next big crash will happen, it's a certainty that it will happen. There's a rule of thumb that the longer the financial gyrations stave off the downturn, the worse it will be. Signs are, the next crash will be horrifying. Position yourself right, and you will be able to pick up assets for a song.
 
   / Retirement Planning - Lessons Learned #737  
Don't be going all professor on me. What ever happened to him?> We could debate economics for days. I love it as he lived in the theoretical teaching world of economics and I live in the real life economics world. Two very different worlds that should have a lot of common ground, but as our debates showed...they is very little common ground.
I lived in both. 25+ years in banking and now I teach Economics. Professors who are in the theoretical and not tied to the real world are doing it wrong.
 
   / Retirement Planning - Lessons Learned #738  
You don't need inflation and high interest rates to make assets cheap, all you need is for the economy to take a dump. Just 10 years ago you could have picked up houses at half price mortgaged at rock bottom rates. I was telling anyone who would listen to buy a house on a 30 year fixed, because they would look like financial wizards ten years later. If your generation missed that opportunity, you must be really young. The next opportunity will be along soon. Save your shekels, situate yourself in a secure job, and cultivate a high credit score.

Volcker was in the '80s. I was a building contractor at the time, and he wiped me out. I learned the hard lesson that you can never trust the economy. The GenXers got rich in the '90s with the dotcom boom and a lot of them got wiped out. I warned a bunch of them that the bon temps don't roulez forever. I hope they listened. When 9/11 shut down the NYSE, you could pick up stocks at a 70% discount. Seven years later, you could buy a house for half price. Both of those opportunities happened during times of historically low interest rates.

While nobody knows when the next big crash will happen, it's a certainty that it will happen. There's a rule of thumb that the longer the financial gyrations stave off the downturn, the worse it will be. Signs are, the next crash will be horrifying. Position yourself right, and you will be able to pick up assets for a song.

08 was an anomaly to the system and housing specifically as the financial world was mixing bad loans with good loans and pushing them off a Grade AAA investments. One can argue fraud, but because the credit rating agencies were backing the grading, it was hard to pin on anyone. You can't count on that happening again. You can count on long term economic principles holding up as I noted. A dead guy buying a place in 08 would look good today, and a lot of people that were liquid enough in cash made a lot of money.

Volcker was the one that raised interest rates, regardless of what specific year he did it in.

I don't know how the next downturn will play out. It might be a brief 10-20% drop before it goes back up again. Those expecting a massive price fall, might not ever see that come again.
 
   / Retirement Planning - Lessons Learned #739  
I lived in both. 25+ years in banking and now I teach Economics. Professors who are in the theoretical and not tied to the real world are doing it wrong.

Oh I told him...then he would hit me with some graph on theory.

Bless his heart.
 
   / Retirement Planning - Lessons Learned #740  
Here is the thing about the last bout with inflation, it actually caused the greatest accumulation of generational wealth in the history of the US.

When inflation was really bad in the 70's, the Fed at the time under Volcker raised interest rates very high to combat it. In Economics, there is a law that says interest rates and asset prices move in opposite directions. So high interest rates decrease asset prices and low interest rates cause high prices. We are seeing this now. At the time, baby boomers were coming into their prime earning years. They were able to purchase assets, we'll use houses as an example, at very low prices, but very high interest rates. As the effects of inflation subsided because of high interest rates, the Fed moved to lower interest rates. Those baby boomers were then able to refinance to a lower interest rate and most reinvested the equity against the principle. This lead them to pay off their low priced house very quickly. Then they found themselves with a paid off house and a lot of earning years left. So they bought 2nd homes, condos, timeshares, or upgraded to a bigger house. Baby boomers still have a lot of assets that are worth a ton of money today, thus the baby boomers might be the most wealthy generation the world has ever know.

Now my generation will never have that same opportunity to build generational wealth, simply because of low interest rates. Every asset is super high and with low interest rates, they will never be able to refinance to a lower rate and reinvest the equity.

From my stand point, I am cheering on inflation and hoping interest rates move up. This should cause asset prices to come down and later on down the road an opportunity to refiance to a lower rate to cash in on some interest equity. I know this sucks for current retirees', but you had you turn at the trough.
I don't agree with this reasoning, and this is why. I'm sure you're familiar with inflation calculators. Here's one:


It's simple to use, simply enter the $ amount and year. It tells you in today's dollars what that equals. Now, when I bought my place in 1980 my 30 year mortgage rate was 14%. At that time I was making $3.50/hr. or $11.60/hr. today. I worked my behind off and paid mortgage off in 3 years.
I just now fooled around with the calculator a bit as well as looking at homes for sale in my area. First I compared what I paid back then to today, comparing similar home+land.
That was easy, and found similar ones for comparison.
Then I tried a different way. Knowing what my payments were then the inflation calculator showed me what that would be today. Taking THAT figure at today's low mortgage rates how much home could I buy for THAT dollar amount.
I was shocked beyond belief. With that same equivalent amount I was paying back then, today I could buy not twice but about three times the place I bought in 1980.
Granted, and this is beside the point, over the years I doubled size of home, had a large garage and horse stable built, bought land, etc.
The point is all things equal, employment opportunities are everywhere. Every business around here has help wanted signs. Right now wife & I are taking horse riding lessons. The instructor comes here, he's in his late 50s, yesterday he said his is a dying breed. Younger generation doesn't want to get in to doing that, so no one to carry on.
Baby boomers (I'm 69 and wife & I are) worked hard. Our parents and grandparents worked even harder (the Greatest Generation). Make no mistake...successful baby boomers had nothing handed to them and like our parents and grandparents worked hard for what we have.
 
 
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