North American markets today, Friday, viewed several hours before opening, appear very mixed with the DOW in the green and NASDAQ and the S&P 500 in the red. However, both are slowly climbing at time of writing and either or both could make it into the green before or after market opening. Canadian indicators are also in the green.
European markets are open at time of writing and major indicators there including the FTSE100, CAC 40 and DAX are positive.
Amongst commodities gold is down while silver is up.
Amongst currencies the Canadian dollar is flat while the EURO and British pound sterling are down against the American dollar. That was to be expected according to Jeremy Thomson-Cook, Chief Economist at London-based payments specialist Equals Money. “It has been a boring week for currency markets and sterling’s stubborn unwillingness to break out of its pre-defined ranges hasn’t made for much excitement,” he says. However, the Summer outlook is changeable. “As Summer winds on and investors swap keyboards for surfboards we do expect GBPUSD to inch higher.”
The U. S. Labor Department’s consumer price index data came in above consensus yesterday. That helped drive the debate over whether price increases mean long-term inflation in spite of assurances from the Federal Reserve that inflation increases are transitory, according to a Reuters report. However, since much of the price surge came from commodities and airfares, it is likely to be transitory, according to the report. That in turn means that the Fed is unlikely to make any immediate moves. “Another upward surprise, but the key point is that quite a lot of it is still in the transitory category so I don’t think the Fed will be particularly concerned,” suggests Colin Asher, senior economist at Mizuho in London, in the same Reuters report.
Whether or not the inflation proves to be transitory very much remains to be seen but it’s a factor that we have to consider both in our investing, our day-to-day spending and our retirement outlook
The $64000 question is; if it’s not transitory, who will feel it most? Generally, those approaching retirement are likely to be the hardest hit by inflation, according to Clark Kendall, President of Kendall Capital in Rockville Maryland. “They do not have the time to save up the extra funds that they’ll need to comfortably retire,” he says.
Some who see those commercials with the tanned couple in white linen outfits dancing on a sun-drenched beach may have to re-calibrate some of their plans. By comparison Generations X and Z and millennials have more time to plan and structure their portfolios against inflation and other threats to their portfolios.
This means that those currently on the cusp of retirement need to consider whether their resources will carry them to their 90’s.
We first heard the phrase ‘longevity risk’ approximately a fifteen years ago. The concept teaches that due to improvements in medical care, lifestyle and other areas we can expect to live longer but in the absence of careful planning and structured decumulation, we run the risk of outliving our resources. For insurance companies it means added payouts as individuals live longer. For governments it means added costs of pension and social benefits in spite of reduced tax revenues. However, a precise calculation of the risk is near-impossible since we do not have a firm estimate of the effect of these improvements.
If you are planning to retire soon, now is the time to work out your cash needs. If you don’t think you have enough money to last you into your 90’s with inflation at play, you may want to consider your options.
No retirement planning strategy is foolproof but one strategy that will help in planning is to ask the financial advisor to calculate how much you can draw down from all sources of retirement income on a monthly basis, taking taxes into account and allowing for unforeseen circumstances. In effect, your decumulation strategy amounts to receiving a monthly paycheck in retirement.
Add to that an estimate for social security payments.
Seeing that total in black-and-white will help to focus planning.
If the total figure appears sufficient to cover all retirement residential, medical and lifestyle needs you are very fortunate.
If it does not cover all anticipated needs, there are several choices:
- Cut back on anticipated needs
- Continue working fulltime
- Working part-time
- Set up a business
Kendall suggests three main strategies for dealing with inflation:
- Diversify your portfolio with short-term investments for short-term needs and long-term investments for long-term needs.
- Don’t use below-expected inflation rates on 10-year treasury bonds for long-term protection of purchasing power.
- Consider Dividend-paying stocks such as IBM, Johnson & Johnson, Proctor & Gamble, Kellogg are great ways to protect long-term purchasing power.
Disclosure: I do not own any shares in any company mentioned in this column. Al Emid is a financial journalist broadcaster and author, His next book. The 2021 Emid Report on Volatility is scheduled for a Fall release.