pre-retirees

The Benefits Of Working Beyond the Typical Retirement Age

September 7, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

The Financial Advantage

First and foremost, extending your career offers a significant financial advantage. Most jobs pay better than the retirement benefits that follow. By working longer, you can bolster your income, reducing the need to draw from your retirement savings. This, in turn, allows your nest egg to last longer.

For instance, if you retire at 70 instead of 62, you have eight fewer years of retirement to finance with your savings. This can translate to a more comfortable retirement lifestyle. Additionally, working longer provides you with an opportunity to save more, further strengthening your financial position.

Mental Stimulation and Social Interaction

Beyond financial considerations, working beyond the traditional retirement age offers vital mental stimulation and social interaction. Engaging in meaningful work can keep your mind sharp and active. It prevents the feeling of life becoming a waiting game, as Larry aptly puts it.

The human need for intellectual engagement and social connection remains a driving force. Continuing to work allows you to maintain a sense of purpose, contribute to society, and interact with colleagues, fostering personal growth and well-being.

Personal Fulfillment

Larry Siegel stresses how remaining intellectually active and engaged can be personally fulfilling. By continuing to write books, give talks, and interact with colleagues and clients, he not only sustains his mental acuity but also enjoys the sense of purpose and fulfillment that comes with it.

At Intelligent Investing, we understand that the transition into retirement can be challenging. Husbands and wives often have differing goals and concerns. Our mission is to unify families through effective financial communication, helping couples make a successful transition into retirement.

Explore our retirement resources on our website to gain valuable insights into this transformative phase of life. We are passionate about minimizing financial stress and maximizing the quality of life for our clients.

Larry Siegel Bio

Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an author, consultant, and speaker on investment management and economics. Before retiring from full-time work in 2009 he was director of research at the Ford Foundation and, before that, head of research at Ibbotson Associates (since acquired by Morningstar). He attended the University of Chicago (BA 1975, MBA 1977). His book, Fewer, Richer, Greener, has been published by Wiley and is available, along with his other work, at https://www.larrysiegel.org.

Is Gold a Good Inflation Hedge?

August 10, 2023 by Hans Blake, CFA, CPA

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Evaluating Gold’s Track Record

Gold and Bitcoin have often been promoted as potential shields against inflation. However, to make an informed decision, we turn to empirical evidence. Let’s explore whether history validates gold’s reputation as a reliable inflation hedge.

When scrutinizing gold’s performance in the face of inflation, we find surprising results. Take, for instance, the period from 2020 to 2022, a time marked by significant inflation. Curiously, gold ended this phase down by about 4%, while inflation surged by approximately 14%. In essence, gold’s value slipped by 18% in real terms, negating its purported role as an inflation hedge.

An even more striking example stretches over two decades, from 1980 to 2002, a period characterized by high inflation. During these 22 years, gold lost over 85% of its real value. These historical data points prompt a reevaluation of gold’s effectiveness as an inflation hedge.

Alternative Perspective

Interestingly, gold’s claim to being an inflation hedge stands on firmer ground when we extend our horizon to a century or more. Across this extended span, an ounce of gold has maintained its purchasing power, reflecting its role as a long-term inflation hedge. However, this century-long hedge comes at the cost of a lack of real returns.

As Intelligent Investing, we believe in providing our high-net-worth clients with well-informed financial guidance. Gold’s questionable track record as a short-term inflation hedge underscores the importance of considering other strategies to preserve wealth and manage risks.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

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Why People Stop Working Even When It Is Healthy For Them

July 20, 2023 by Hans Blake, CFA, CPA

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In this episode of Intelligent Money Minute, we had the pleasure of interviewing Larry Siegel, the director of the CFA Institute Research Foundation and a prolific investment management author. The discussion revolved around why people stop working even when it may benefit them to continue working. In this blog, Larry Siegel sheds light on the reasons behind early retirement and the potential benefits of working beyond traditional retirement years.

The History of Traditional Retirement Age

Larry Siegel explains that the age at which most people stop working, typically between 62 and 67, can be traced back to the 1880s when Chancellor Otto von Bismarck in Germany established the National Pension Scheme. This age has persisted through the establishment of Social Security in the US by President Franklin Roosevelt in 1935 and the subsequent eras of defined benefit and defined contribution pension plans. Tradition and inertia have played a significant role in preserving this retirement age. Additionally, physical limitations and a desire for easier work, which often coincide with age, have also influenced the decision to retire.

The research indicates that for physically demanding jobs, retirement in the mid-sixties may be appropriate. However, for those in less physically demanding roles, retirement at this age might be premature. The concept of retirement has evolved, and now many of us are engaged in think work, which does not necessarily require physical stamina. For such individuals, retirement at this age may be too early, as their skills and productivity could still be valuable to the workforce.

Lack of Flexibility in Retirement Decisions

Despite the potential benefits of continued work, many employees face challenges in transitioning to easier roles or negotiating part-time work arrangements. Rigidity in employment laws and established customs often limit the options for workers who wish to continue working beyond the traditional retirement age. The result is that many employees are forced to retire when they could still contribute meaningfully to the workforce.

The decision to retire should be individualized, considering the unique circumstances of each person and their specific employment situation. At Intelligent Investing, we believe in customizing financial strategies to suit our clients’ goals and preferences. We leverage our proprietary Intelligrations® to help our clients run various scenarios, such as unexpected health crises or part-time work arrangements, to achieve optimal financial outcomes. Our passion is to minimize financial stress and maximize the quality of life for our high-net-worth clients.

Larry Siegel Bio

How Intelligent Investors Should Respond to Volatility

July 13, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes

In this episode of Intelligent Money Minute, I had the pleasure of interviewing Larry Swedroe, head of Financial and Economic Research at Buckingham Strategic Wealth, on the topic of how intelligent investors should respond to volatility. As a CFA and CPA, I understand the importance of navigating market volatility and its impact on investment strategies. In this blog, I will summarize the insightful discussion with Larry, providing key takeaways on the causes of volatility and how intelligent investors can respond to market uncertainties.

Causes of Volatility

Larry Swedroe begins by explaining that volatility is primarily caused by unexpected events. Since these events are unforecastable, investors should expect and prepare for periods of high volatility. Intelligent investors should incorporate this certainty into their investment plans and avoid taking more risks than necessary. Swedroe suggests assessing one’s ability, willingness, and need to take risks, ensuring that the investment portfolio aligns with these factors. He also highlights recent trends that have contributed to increased volatility, such as the shift from active to passive strategies like indexing. The rise of passive investing has led to lower turnover and reduced liquidity, resulting in greater volatility in pricing. Additionally, changes in trading rules and the Volcker Rule have further limited liquidity in the markets, amplifying volatility.

Intelligent Investor’s Response to Volatility

In response to market volatility, intelligent investors should adopt a well-structured investment plan. Swedroe emphasizes the need for a diversified portfolio and advises against taking excessive risks. He recommends keeping equity exposure within a range of 25-30% for those with enough wealth. Building a portfolio with more diversified assets can help mitigate risk without sacrificing returns. Additionally, Swedroe emphasizes the importance of sticking to the plan and not succumbing to panic-driven selling. By setting realistic expectations and aligning risk tolerance with portfolio composition, intelligent investors can navigate market volatility more effectively.

The Price of Admission

Volatility is often referred to as the price of admission for higher expected returns. Intelligent investors understand that market fluctuations are an inherent part of investing and should be prepared to weather these storms. By accepting the uncertainty and having a well-defined investment plan, investors can focus on long-term goals and avoid making impulsive decisions driven by short-term market fluctuations. Swedroe and I agree that risk should be carefully evaluated based on an investor’s financial situation, willingness to take risks, and specific investment goals.

Volatility is an unavoidable aspect of investing, but intelligent investors can respond effectively by incorporating it into their investment plans. By understanding the causes of volatility, such as unexpected events and shifts in market dynamics, investors can adjust their strategies accordingly. Building diversified portfolios, aligning risk tolerance with portfolio composition, and maintaining a long-term perspective are key elements of intelligent investing in the face of market volatility. Remember, a well-structured investment plan and disciplined approach can help you weather market uncertainties and maximize your investment potential.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

The Pitfalls of Recency Bias

May 18, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes

In a recent episode of Intelligent Money Minute, we had the pleasure of interviewing Larry Swedroe, the head of Financial and Economic Research at Buckingham Strategic Wealth. Our discussion centered around the dangers of recency bias, a common emotional tendency among investors. Larry emphasized the importance of understanding historical context and avoiding the trap of projecting recent events onto the future. In this blog post, we’ll share some key takeaways from our conversation and explore strategies to overcome recency bias in investment decision-making.

Recognizing Recency Bias

Recency bias refers to the tendency of investors to give excessive weight to recent market events when making investment decisions. We have a natural inclination to believe that what has just occurred will continue in the short term. This bias often leads us to ignore historical data and overlook the importance of long-term correlations. Larry stressed the need to become students of history and cautioned against relying solely on recent trends to guide our investment choices.

Larry highlighted that recency bias is one of the most detrimental mistakes investors can make. While there is evidence of short-term momentum, where recent winners tend to continue performing well for a limited period, it’s crucial to remember that trees don’t grow to the sky. Valuations can reach unsustainable levels, driven by investor enthusiasm. Larry cited examples like the dot-com era and the recent market bubble, where unprofitable companies achieved sky-high valuations based on recent success. However, high valuations eventually come back to haunt investors. To avoid this pitfall, he emphasized the importance of sticking to your investment plan and not being swayed by recency bias.

Strategies to Mitigate Recency Bias

To counteract the influence of recency bias, we discussed several strategies during the interview. One effective approach is disciplined portfolio rebalancing. By selling some of the high-priced winners and buying assets that have performed poorly but offer higher expected returns, investors can maintain a balanced portfolio and avoid chasing recent winners. Additionally, we explored the role of trend following, specifically managed futures, as an investment class that captures short-term momentum swings. However, it’s crucial not to allocate all your assets to trend following, as it can underperform for extended periods. Larry recommended considering a 5% to 10% allocation to mitigate tail risk during prolonged bear markets.

Recency bias can be difficult to overcome alone, especially during times of market volatility. That’s why having a financial accountability partner is vital. This partner can help design a financial plan and keep you grounded when fear and greed tempt you to deviate from your investment strategy. At our firm, we provide clients with proprietary interrogations that guide their decision-making and minimize financial stress. We believe in the power of having someone who holds you accountable and helps you stay on track to achieve your financial goals.

Recency bias is a common pitfall that can hinder investment success. By recognizing the bias and incorporating strategies like disciplined rebalancing and selective trend following, investors can overcome this challenge. Moreover, having a financial accountability partner can provide valuable guidance and prevent emotional decision-making. Remember, it’s essential to view investment decisions through a historical lens and remain committed to your long-term investment plan. By doing so, you can minimize the impact of recency bias and maximize your chances of achieving financial success.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

Why Did Traditional Diversification Fail in 2022?

May 11, 2023 by Hans Blake, CFA, CPA

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Reading Time: 3 minutes

Traditional diversification failed in 2022, but why did it happen, and will it happen again? On this episode of Intelligent Money Minute, Hans Blake interviews Larry Swedroe, the head of economic and financial research at Buckingham Wealth Partners, who also co-authored 18 books. According to Swedroe, traditional diversification, which was within the 60/40 stock and bond allocation, failed in 2022. Both stocks and safe treasuries had double-digit losses, which is the first time this has happened, making it almost the worst year for a 60/40 portfolio. Moreover, longer-term treasuries lost over 20%, and the S&P was down by about 18%. Correlation between these two risk assets has been negative for the last 20 years. However, if you look at the last hundred years, the correlation was positive at about 0.2. Therefore, traditional diversification failed because correlations between stocks and safe bonds are time-varying.

Swedroe emphasizes that investors shouldn’t treat correlations as a permanent number, as they are time-varying. He explains that correlations do not mean that when one asset goes up, the other goes down. It means that when one has a better-than-average return, the other one has a worse-than-average return. During the last 20 years, we had a negative correlation between stocks and safe bonds, so investors thought that when stocks got crushed, bonds would tend to do better than their average. However, that didn’t happen in 2022, making investors rely solely on safe bonds and equity bonds, which could be risky.

Swedroe recommends that investors consider including other non-traditional assets that will do well in such periods. For instance, reinsurance, private floating debt, long-short equity, private real estate, and other alternatives can help dampen the risk in an investor’s portfolio. He mentioned that last year, all of the alternatives he owned were up, which helped diversify his portfolio. He advises investors to consider adding other unique sources of risk to their portfolio and not rely solely on safe bonds and equity bonds. Lastly, he says that investors must have a diversified portfolio to help mitigate these unusual time periods when correlations of traditional assets rise.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

Should I Take Lump Sum Social Security Benefits?

March 10, 2022 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

So, you are about to start taking Social Security, and you set up a call with a Social Security agent. While on the phone, they tell you about a special option to receive up to six months of benefits in a lump sum when initiating Social Security retirement benefits.

You look over at your spouse who shrugs, and you tell the agent, “Yes. We’ll take a lump sum amount.”

Little do you realize, you may have rushed the decision and you didn’t understand the tradeoffs in taking this lump sum.

This blog is intended to educate you in understanding the tradeoffs so you can be more an Intelligent Investor and make a wise decision.

Social Security Lump Sum Benefit History

The lump sum benefit option isn’t new and has been available when claiming retirement benefits at your full retirement age (FRA) or later. This is usually between the ages of 66 and 70.

Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not, and since it is offered last minute, a knee-jerk reaction can make the applicant decide to take the offer—not fully realizing what they have done until hanging up the phone. The representative may even try and persuade the applicant to take the lump sum by saying things like, “Most people take it.”

The Way the Lump Sum Works

Once you’ve hit FRA (age 66 for those born in 1943-1954, and over age 66 on a sliding scale for those born after 1954), the option to take a lump sum is available.

You can choose to receive a lump sum of up to six months of benefits. You’ll get to start your Social Security retirement benefits with a nice big bonus payment. Sounds pretty good, doesn’t it?

The Cost of Taking the Lump Sum of Social Security Benefits

First, the amount of your monthly benefit going forward is reduced. Let’s walk through an example:

John Smith contacts Social Security and says he wants to start taking Social Security benefits when he hits age 70, receiving the maximum allowable benefit.

Under his earnings history, he’s due $4,000 per month.

After hearing the representative explain the lump-sum option, he chooses it and receives a lump sum of around $23,040 (six times the monthly benefit he would have received at age 69 ½).

But taking the lump sum option moves his official beginning age for benefits back to 69 ½ instead of 70, and the monthly benefits he’ll begin receiving will be based on that age.

He’ll receive $3,840 per month, which is 4% less than his maximum benefits at age 70. (Remember, by delaying benefits after FRA, your benefits increase 8% annually through age 70.)

What Should You Do?

Well, like most financial planning, it depends on several factors.

If John Smith decides to use the lump sum to pay off some high interest-bearing loan, it may make sense. However, if John has been waiting until age 70 to start taking benefits, it shows that he is disciplined and likely doesn’t have much debt.

If he invests the lump sum well, he could end up with more money than if he had taken the higher monthly benefit.

If John is married and is the higher-earning spouse, it may make more sense to decline the lump-sum benefit in order to maximize his monthly benefit so that whichever spouse survives has the highest possible monthly benefit for life.

The right choice also depends on your and your spouse’s (if you are married) longevity.

If you are single and suddenly diagnosed with a terminal illness you may want to take the lump sum and the smaller benefit. The lump sum could go to an heir, while the monthly benefit will end at the beneficiary’s death.

If you are married and facing a terminal illness, then the decision to take the Social Security lump sum benefit becomes a bit tougher to analyze. A higher-earning spouse faced with a suddenly shortened life expectancy may want to reject the lump sum. The reason is the survivor benefit will equal 100% of the higher earner’s benefit at his or her death. If the surviving spouse has a long life expectancy, the boosted survivor benefit can more than make up for declining the lump sum.

Let Us Help You with Your Social Security Benefit Questions and Planning

At Intelligent Investing, we are a boutique wealth management firm serving high net worth individuals and families. We would be happy to have a complimentary meeting over a call or coffee to learn more about your family and your financial needs.

We love organizing our clients’ financial junk drawers so that we can minimize financial stress to maximize lives. We’d love to do the same for you.

If you’d like to become a client of Intelligent Investing, please click here to call or schedule a “discovery” meeting.

Retirement Planning Is Boring?

September 7, 2021 by Hans Blake, CFA, CPA

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Reading Time: < 1 minutes

On today’s Intelligent Money Minute, we continue our conversation with Morningstar’s director of personal finance, Christine Benz on why retirement planning is boring. The last thing you expect to hear is that retirement is boring. Retirement finances and strategies can consume and overwhelm any pre-retiree couple. During this episode, Christine Benz explains how retirement planning can be simple and boring.

As Christine said, Doing the boring stuff such as saving and living below your means can really impact your financial future. Having both spouses working and saving for the same goals can be challenging, yet rewarding. Don’t be confused by other advisors that may confuse you into buying something you don’t need or want. If you are wanting a second opinion, we’d love to have a complimentary coffee or call with you to learn more about your concerns, struggles, and goals. If you want to learn more, you can click here to learn more.

Schedule a short discovery call or meeting

We’ll be interviewing Christine on several podcasts regarding retirement strategies, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Christine Benz Bio

Christine Benz is Morningstar’s director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. She holds a bachelor’s degree in political science and Russian/East European studies from the University of Illinois. Christine lives in the Chicago suburbs with her husband, Greg. She is an avid cook, a political junkie, and a long-suffering Chicago Cubs fan. Follow Christine on Twitter.