Welcome to Season 3 Episode 3 of Retire Eyes Wide Open, hosted by Scot Landborg.
In this episode, we dive into the topic of scary markets and whether they are here to stay. With international conflicts, high interest rates, and fluctuating oil prices, investors may find themselves unsure of what to do. Scot gives insight with his Money Monologue, we'll provide our comprehensive Money Rundown, answer listener questions, and discuss the popular financial product, the RILA, in our segment Money with Murph.
Tune in to gain insights on how to process current market conditions and develop a level-headed strategy to navigate them.
Welcome to Season 3 Episode 3 of Retire Eyes Wide Open. I'm Scot Landborg.
Today, we're talking about scary markets. Are they here to stay? International conflict, high rates, oil prices on the move... What's an investor to do? We'll cover the top news in our Money Rundown, we'll take listener questions, Money with Murph we'll talk about one of the most popular financial products today - the RILA.
How do we process what's happening and have a level headed strategy to deal with it?
This is Retire Eyes Wide Open!
And now for the Money Monologue.
Are scary markets here to stay? August and September were bad for the markets. S&P down 6%, bonds down 3.5%, NASDAQ down 8% in two months - rough and tumble for sure. Some perspective - third quarter is typically the toughest time of the year from markets. But there truly are some scary headlines out there. Israel, attacks, over 1000 people dead, conflict in Gaza. How much does this escalate into something larger? Ray Dalio says there's a 50% chance of WWIII. Jamie Dimon for JPMorgan Chase warning of potential escalation. You've got a 30 year mortgage rate now at 8%. Slowing growth slowing economy. And now energy prices are surging again, does that mean inflation is going to come raging back? If you look at the 70s and 80s, when inflation was going down, the stock market went higher. But when inflation was going up, the stock market was falling. It seems like we have the potential to see that again. The rally we've seen in stocks is coinciding with a fall in inflation. If inflation comes back, the markets could get hurt. It's a real possibility.
What's an investor to do? Are you better off putting all your money in a CD, selling everything and getting out of the way? The biggest positive in this market today is really seasonality. Seasonal strength. The fourth quarter is the strongest of the year, really double of any other quarter on average. Almost half of all growth in the market, on average comes in the fourth quarter. What's more, according to research from from Carson when the market is up the first half of the year, then down in August and September, since 1950, there's been a 93% chance that the market ends higher in the fourth quarter. That's a big positive. Now there are a bunch of negatives in the market - headline risk, concerns fundamentally about higher rates for longer about international conflict, some inside baseball, our technical indicators about the market, they're mixed, about 55% bullish 45% is bearish. We've moved slightly more conservative, as a result really across the board.
Here are my best tips for dealing with a scary market.
Number one, don't be emotional with your decisions. Being emotional as an investor is one of the worst things that you can do. Because you end up buying at the absolute peak and selling at the absolute low. If you're going to make any changes in your portfolio, you've got to make sure that's deliberate, your eyes are open, you've got a strategy behind what you're doing, you're not just being emotional about it.
Strategy number two, ask if you have risk management strategy as part of your plan. How are you managing risk? Is it a buckets of money approach where you've got some of your short term needs set aside and your long term needs are more okay with the ups and downs? Is it a diversification strategy? Is it about being more active in how you're allocating? What is your risk management strategy? If you manage money for yourself? It's an important question to ask. How am I going to be managing risk? If someone else is managing your money, it's also an important question to ask. What is our strategy for managing risk? And this becomes much more important the older that you get, the closer you get to retirement, and the more that you rely on those investments to provide for income in retirement. The reason that is is because volatility can kill your financial plan. If there's too much volatility early, you can run out of money, and you want to make sure that that doesn't happen. So you want to have a conversation about what is your strategy for managing risk.
Number three, understand what is your investment strategy? How does it fit in your plan? What are those plans strengths? What are those plans weaknesses? Do you have more international? Do you have more in small cap? If you do, the past couple of years have been a little bit bumpy and those two sectors of the market have had challenges. It doesn't necessarily mean you abandon that as a longer term strategy. But you should at least ask the question why? Why do we have those as part of the portfolio? Why is that causing the portfolio to lag? What can we do differently? And what is the market? What are the best opportunities in the market now?
Strategy number four, explore buffered strategies. This is something that's really important. Buffered ETFs, are becoming more and more commonplace, and definitely you should be aware of how they could enhance your portfolio. They're not going to be right for everybody. There's pluses and minuses to every strategy out there. But buffered strategies help buffer you from declines in the market. It could be 10%, could be 20%. They help provide some measure of protection, at least ETFs are liquid and get out in and out of them anytime you want. And there's no free lunch, there's fees associated with them, there's upside that might be capped, but in a market that's sideways, in a market that's range bound, they could be an effective strategy. And if you haven't heard of them before, he gets some education, learn more about them how they might be a part of your plan, in an uncertain market, or in a market that might be giving you conflicting signals of where it's headed in the short term. Also explore longer term buffered strategies. We're going to talk about one of those here today - RILAs, how they fit in your overall plan. Shorter term buffers are very interesting. But longer term buffers are very interesting in this type of environment as well. They also offer a buffer of protection, but because they're longer term, they may offer you more upside potential. Make sure you look at the positives and negatives of any strategy, but the important thing is you've gotta have your eyes open about what strategies are available and how they might fit you.
Strategy number five, evaluate your bond strategy. This is so important. Bonds are having a third negative year in a row - over the past two years down over 18%. It's been a brutal year for the aggregate bond index down again, what is your bond strategy? And if your bond strategies been passive, and you haven't been doing anything over these three years, even though the Fed has told us that they're going to be raising rates along the way that you have not had a very effective fixed income strategy. For us, we've been shifting over the past couple of years have more short term bonds with decent yields. We've been using other instruments like barrier ETFs, there's things that you can do but the question is, what is your level headed, unemotional strategy for dealing with the market as it is, in the environment as it is? Sometimes the strategies that worked for the past 10 years don't work for the decade ahead. What is your strategy? What is your bond strategy?
Number six, why International? And we talked about this for quite some time, International has lagged for over a decade. And the question is, is will it continue to lag in the future? There's been periods of outperformance 2001 to 2008, International did better than US markets. But there's an interesting dynamic today and that is the top seven companies in the US - those companies are making a big portion of the upside of the market year to date. And the question is is can these international companies that are not as tech heavy some of those US companies has that fundamentally shifted were international could lag for the foreseeable future? It's good question ask and in a volatile and a scary market, does it make sense to have international as part of your plan?
Number seven, will you keep up with inflation? We're concerned about volatility, we're concerned about risk. But you also have to be concerned about another one. And that is inflation. We've got a big fat national debt over $33.3 trillion and growing, we're adding to the deficit every year, the value of the dollar has held up pretty well, but will that continue, and will your money keep up? It's one of the reasons why you have to be careful about pulling all of your money out and go into cash. You want to make sure you're earning something, even in those safer instruments, and do the best you can to keep up with inflation. That's the bigger picture, you got to make sure that to manage volatility, you might want to get more conservative, but you have to keep a vision, is my strategy going to help keep up with the rising cost of living in with inflationary pressure?
My final strategy number eight, anyone can get out, but can you get back in? For people that come to me and say, Scot, man, why don't I just pull everything out, I don't want to deal with all this. I don't want to deal with a headache, I want safe money and you can get a good return. You know what, there is some viability to that more than there has been in a long time because of the yields that are out there. You might want to reduce risk across your portfolio. But to eliminate all risks, you might be giving up some upside, you might be giving up your ability to keep up with inflation. And the most challenging thing is not getting out of the market. Anybody can do that, anybody can have a sell discipline. But what's your buying discipline? When do you get back in. And I've had clients that have gotten out at different periods, they pull all their money out when Biden was elected, they pull all their money out when Trump was elected, they pull all their money out when when there was this conflict or that, and they go years, multiple years without getting back in and they missed a big opportunity. So it's important, don't be emotional, have a strategy, and make sure you've really thought through it, and a level headed way. Those are my top strategies for dealing with a scary market? It's been scary. It's been a scary few months, and there's likely going to be more scary things ahead. Do you have the infrastructure the team around you to navigate the financial world? Do you have the time to do it yourself? Do you want an advisor or a team of professionals to help you navigate? Hopefully these strategies will help you on that journey. And that's my Money Monologue.
Now for the Money Rundown. Our Money Rundown segment is where we cover the recent news. There's a lot of media sources out there that are going to give you updated information about the economy and the markets. Our job is to help summarize and synthesize help pick out a few stories that are most important for you as a retiree or an investor.
Joining us today, financial adviser Steven Murphy. Steven, welcome.
STEVEN: Thank you. Thank you glad to be here.
All right, our first headline, war in the Middle East, Israel was viciously attacked, over 1000 people killed by Hamas. Hostages taken, and Israel has responded with airstrikes and is looking prepared for a ground assault in Gaza. World powers are taking sides. What are the consequences of this for the market and for the world?
SCOT: Thanks, Steven. It's been a crazy time, some of the images we've seen are so incredibly heart wrenching, and difficult to look at. It's hard, and hard to pivot to the money side of what's happening and what's going on.
What I will say is that international conflicts, horrible tragedies, whether it's 9/11, bombings of an embassy, there have been very difficult things for the world and for investors to digest as long as investing has been around. One of the things that I think is interesting about when this conflict has erupted is the market did not have a big negative reaction. In fact, the markets have had a decent uptrend since that moment that conflict erupted. I think the biggest takeaway from what's happening right now is will this, can this escalate into something larger? What we've seen in Ukraine, there's a lot of concern - Russia, Ukraine, our involvement - as that issue of Ukraine has stayed more contained, it's been easier for the international world to digest it from a financial standpoint. What's going on in Israel? I think similarly, if that conflict is terrible, as horrible, as bad as it may be, to watch the headlines and watch the news, from a financial standpoint, we're looking at - is it contagious to other big countries? What are the consequences of that happening? I think that's the biggest thing to be looking at. I think we have to continue to look at oil, right? How our oil prices impacted as well. But I do think it's important to keep in mind, if the market was devastatingly concerned about what impact this would have on the economies of the world, you'd see the market in a freefall. You're not seeing that right now. So it's something to continue to be conscious of and aware of. But there are a lot of other concerns in totality to be considering when thinking about where the market goes and how the market would respond.
STEVEN: Our second headline, the bond market is posting another bad year, as interest rates have moved higher. Now the 30 year treasury bond has moved up over 4.8%. The aggregate bond index is posting its third bad year in a row, down over 4% and down over 18%, the past two years. What should a conservative investor do?
SCOT: Thanks, Steven. Yeah, but what's really been crazy over the past couple of months is how big those interest rates have moved. The Fed has not raised rates, but investors in bonds have been commanding a higher price for longer duration bonds of every type. And treasuries specifically, have moved up almost a full percent over the past couple of months, just a massive move. There's a lot of reasons for that. The demand for our bonds, longer term bonds has gone down as you've seen countries - China, decreasing their exposure, Japan decreasing their exposure, the Fed selling instead of buying these types of bonds. There's a lot of reasons why that's been happening. But the question is, is what's the impact going to be the banking sector? What's the impact to investors? Are investors thinking, hey, bonds may be a better place to be than stocks, which maybe gives you less fuel to move the market higher. And the cost of lending has been going up across the board. So all things to think about as an investor, I think you still have to think about, hey, are short term bonds attractive? Does it start to make sense to look to intermediate and longer term as the bond market is posted, really three terrible years in a row. That's something to keep your eye on. But you have to be careful because we don't know how high those intermediate or longer term rates could go, and the aggregate bond index and longer term bond instruments could continue to be negatively impacted. So I think a cautious approach is necessary. And you have to take a more holistic view of of your overall plan.
STEVEN: Our third headline, despite the bad international news, Tom Lee of Fundstrat is still bullish on the fourth quarter of this year, calling for a violent upside stock rally. Is he correct?
SCOT: Oh, man, I hope so. I hope he's right. The Tommy Lee's is the perennial optimist, right. He's the bullish, the most bullish of the bulls out there. And we talked about him quite a bit, because he's definitely on that bull side of the equation. So the market has pulled back, Q3, and Q4. There's a lot of seasonality on why things might be able to go higher, I think earnings season is going to be pretty telling that these companies come in where they're supposed to. There was one big company yesterday that kind of missed one that kind of beat. So it's going to be really interesting to see where these companies come in. And can those earnings be a catalyst for markets going higher. Some of the tech companies that have done well this year pulled back a little bit last quarter, he's arguing that they've got more room to run. So we shall see. I think it's a little too early to tell our signals from a technical basis are a little bit mixed. But we are optimistic that there's a good chance you could have a year end rally because of some of the seasonality, and frankly, because a lot of people are so negative about all the news that's out there. So we'll have to see.
STEVEN: And our final headline, House Republican Speaker, Kevin McCarthy was ousted as speaker this month. And as of this recording, as new speaker has failed to secure the votes to become the new speaker of the house. What does this mean for the November deadline to reach a spending bill agreement for the federal government?
SCOT: Yeah, this is it's really interesting to watch right, though internal politics in Washington and what's happening. It'll be interesting to see if they can come to some sort of agreement, the Republicans because there is work that needs to be done by Republicans, the White House and the Senate to pass a spending bill. They passed a temporary resolution to get them to I think November 17, so we have some time, but spending bills aren't usually things that get solved in a day. It takes some time to work through, and one of the reasons why the speaker was ousted is because House Republicans wanted one off spending with bills, wanted additional spending for the border, there's a lot of things out there, Ukraine, Israel, defense support, spending a lot of things that go into it. And the question is, is if they delayed too long and getting a new speaker, are they going to be able to get the things done that they need to, to come to an agreement? The biggest thing I've been concerned about with government shutdowns. And the number one concern there is does the debt of the US government get downgraded by some of these rating agencies, that's the thing that potentially could impact the markets broadly, and if there's chaos in our political environment, it could be a negative for the market. I just saw this week Fed chairman was speaking about, you know, less of a need to raise rates because some of the quantitative tightening. He also said that our financial - our fiscal spending is unsustainable. You can't have a $1.7 trillion deficit, when there's no war, there's no COVID - Washington is going to have to get their act together. And that is not an easy thing to do. No one wants to cut anything. But it's a little bit concerning to the bond markets a little bit concerning to people that are buying our long term debt is are we going to be able to pay this thing off? Are we going to be able to continue to make good on our debts, and any government shutdown because of a delay in coming to an agreement could be viewed negatively by the ratings agencies. And that's our money rundown for the week.
Money with Murph:
Now, Money with Murph.
STEVEN: On this segment of Money with Murph, we're going to talk all about RILAs. RILAs are something that are becoming very popular, something you may have heard of already. We're gonna dive right in. So let's get started.
RILA stands for registered index linked annuity. It's a variable annuity, but likely not what you think when you hear the word annuity. In fact, there's a discussion going on through congress right now, to make these their own category of investment products. So here's a rundown on what a RILA is, what you need to know, and let me break down some specifics for you.
What is it? A RILA boils down to an investment tied to the performance of a specific index, it will enhance the returns or dampen the losses should you hold through the whole term. This is a growth oriented investment product. What it is not, it is not an income oriented product, there's no monthly check, there's no income riders, and there's no principal protection.
Fees. Some of these products have fees, some have low fees, and some even have no annual fees.
The term, this is how long the product is designed to be held. Typically, we're looking at about three to seven years, the longer the maturity, typically, the higher the rates offered. The big negative is lack of liquidity, and penalties to get out early.
Tied to. These products based their performance off of the performance of a major stock market index, make sure you understand what your product would be tied to.
Buffer. This is one of the most attractive features of a RILA it means that the carrier takes on the first amount of loss up to whatever buffer you select. But keep in mind, it is not a floor. So what do I mean? Here's an example. If your buffer was 10%, and the performance of your chosen index was negative 15%, you would still have a loss of 5%. And the insurance carrier would take on that first 10% of loss.
Participation rate. This is the other main attractive feature of a RILA. This is the amount of performance, the account does relative to your chosen index. For example, if you chose a RILA with 120% participation rate and the chosen index, ends up doing 10%, your account would do 12%.
So there are pluses and minuses to any investment. But hopefully this serves as a good starting point and your understanding of the key terms and concepts around RILAs.
SCOT: Steven, thanks for that background and that education. They have become super popular, we hear more and more advisors that are talking about it with their clients, clients come with more and more questions, clients, potential clients come to us with those types of products they've had for a number of years, they become much more prevalent.
Let's switch gears for a minute. And let's talk about our top things to consider when looking at a RILA as an investment.
Number one, did you evaluate other providers? This is key. There's a whole bunch of different companies that I can name that are providers of these RILA type products, and if you're going to move down the path with one provider, you want to make sure that you yourself or your advisor have evaluated the other options that are out there. They have different fees, they have different surrender schedules, they have different buffers of protection, they have different upsides, they have different insurance carrier ratings, all things that you need to come consider when choosing a strategy, make sure that you got what you think is going to be the right one for you.
Strategy number two, how does it fit in your overall plan. This is important. Any investing you do at all cannot be done in a vacuum. It has to be taken in totality of your overall plan. The negative with RILAs is a lack of liquidity, so when you think about an overall plan, if you had a million dollar portfolio, how much do you want in that RILA? How close are you to retirement? When are you going to need an income stream? These are products that are typically growth oriented, that you're typically not going to tap for six years plus, so keep that in mind. You have to make sure you have enough liquidity in other places, if you're going to use a strategy like this.
Strategy number three, do you have enough liquidity in other places? This is key. This is important, because that is one of the biggest negatives of this type of strategy, make sure you have enough liquidity in the rest of your overall plan.
Number four, how is the advisor getting paid? You could ask that advisor that question. And one of the biggest challenges I see with any annuity, including RILAs, is you get an advisor that took an upfront commission, and no longer services that client, it's almost like they disappeared, client ever hears from them again. You don't want a relationship like that. You want to have an advisor where those incentives are aligned, that they're going to continue to service your account ongoing, and even no matter what type of annuity you might have, there often is an annual servicing component that's needed to make sure that annuity stays on track. For example, with RILAs, some RILAs have what's called a manual lock and feature that needs to be evaluated consistently. As you get closer to maturity, maybe you want to lock that thing in six months out or a year out to lock in some of those gains. It's something you have to look at, and your advisor should be helping you with.
Number five, what are you getting for the fees that you're paying? There's a lot of advisors out there that can recommend a RILA strategy or type of annuity that's out there, but what are you getting for the fees you end up paying that advisor? It's critical. A lot of these products are the same regardless of what advisor you select, but is that advisor providing a more comprehensive approach to planning? Are they providing context of how this investment fits in your plan? Are they providing tax strategy? Are they providing a comprehensive view of where you're going to pull from, and when? Are they providing retirement planning? Are they providing an estate review? What are the things that they provide? You may be getting this raw data from this advisor, and all you're getting is investment advice, but another adviser may be providing you with a comprehensive suite of strategy and financial planning, and I think it's important to know what you're getting for your money.
Strategy number six, did you evaluate other options? Maybe the RILA's not the right thing? Did you look at managed accounts, actively manage? Passively managed? Did you look at conservative investments, higher yielding investments, dividend plays? All kinds of different strategies out there in the investment universe, and no matter what investment you do, you want to make sure it fits into your overall strategy and plan and that you've really gotten into it with your eyes open knowing what other options might be out there.
Those are some of my top tips when looking at a RILA investment. Hope that was helpful.
Steven, was there anything else that you wanted to add about this RILA topic and it's a big one. I know you were working on you're working on publishing an article in the weeks ahead on RILAs specifically, anything to add on the RILA strategy?
STEVEN: I think RILAs have become much more popular recently, because of the higher interest rates. Obviously, 30 year mortgage 8% is not a good thing. Well, for most people, it's not a good thing. But it is really those higher interest rates that have really enhanced the offerings that these RILAs have. So these RILAs have been around for a while, but now they're becoming extremely attractive with some of the buffers or some of the participation rates with some of the fees. They are really good growth products that could be a big piece of your portfolio, or a very well situated piece of your portfolio.
SCOT: Yeah, I agree. I think they've gotten really competitive for what you just said. Rates. I mean, I looked at one, six years ago that had a six year maturity and had a cap on the upside I think about 70%. Now a similar type strategy, you might not have a capital, you've got more upside potential, just as you mentioned, those rates have gotten much more competitive, and so it's become much more relevant to look at. Also if you compare these liquid buffers strategies. These longer term RILAs are similar in a way that they give a buffer, sometimes more of a buffer than the liquid ETFs, and on the upside they they often give a lot more upside potential. You're giving up something with the liquidity, the timeframe, you have to hold it, but they become much more attractive to look at.
STEVEN: Yep, totally agree.
SCOT: Fantastic. And that's Money with Murph. Steven, thank you so much.
Let's jump into our listener questions –
If you want your questions answered during the show. Go to our website retireEWO.com and click on ask a question.
Our first question, Steven, take it away.
STEVEN: Scot, our first question is from Chris in Long Beach. He asks, my advisor and recommended an annuity as part of my plan. Is that a good thing or a terrible thing?
SCOT: It's good question ask my first question back at you is that the only thing they recommended? If it's the only thing that was recommended, you should definitely run away. But an annuity if it's part of an overall plan could make sense. It's something you really want to take your time on, really take your time to understand it and why it was recommended, why, how it would fit as a part of your plan and what benefits it provides. You also want to well know what the negatives are, there is no free lunch. What are the pluses and minuses of the strategy you're looking at, and what are the alternatives? You know, with fixed income rates as high as they are, we've actually seen less activity in older more traditional annuities, because of how high you can get in some of these shorter instrument, interest rates. That being said, there still can be some benefits of tax deferral. There still can be some benefits of increasing income. There are pluses and minuses to any investment strategy. But I think the most important thing, if an advisor recommended it, ask a lot of questions, take your time, evaluate all the documents associated with it, and make sure you have a full understanding of it. Some clients like annuities, some clients hate annuities, they're not going to be for everybody. But just be absolutely sure you take your time. The other question is how much is being recommended to put in it? Is it 10%? Is it 20%? Is it 50%? How big of a percentage, and what is the goal of it? One of the challenges that I've seen is come across someone where they put all of their money into an annuity. Usually, that's challenging, because the negative of these annuities is the lack of liquidity off it. So you really gotta understand how it fits into your overall picture, and that it fits your individual situation.
STEVEN: Our next question is from Paul in Tustin. Paul asks, does a $33 trillion debt make you concerned about the solvency of Social Security? Should someone that's living off of Social Security be concerned?
SCOT: It's a good question, Paul, we get it more and more, I mean, think that debt has been growing, and it's a little bit scary looking at it. What I would say with Social Security is I wouldn't be overly concerned for a couple reasons. One, they can fix the solvency of Social Security by increasing the retirement age for younger people. That would be a big adjustment, they might make changes to how inflation is calculated. There might be some adjustments there, but if you're 60 plus, you're probably going to be grandfathered into any changes that were made. Younger people, it's going to be more of a concern, they're going to probably push that eligibility age up. As far as solvency, one of the interesting things to watch. I hear clients that are concerned about de-dollarization, and people moving away from the dollar. The dollar is held up its value very well. It's about as high as it's been over the past 20 years relative to other currencies. What we've also seen is the dollars usage has also stayed very high. The Euro, on the other hand, has declined. In its broad international usage, so the question about Social Security, should you be concerned? Possibly? I'm not super concerned about it. And it's the reason why you want to think about your overall financial picture. And you should be able to run some scenarios. Hey, what if Social Security was cut by 25%? What would happen? We've got financial planning tools that can run those scenarios to let you look at would your plan still be on track with where you want to go, and that's kind of the planning exercise you want to have with an advisor. What if I retire a year later or a year earlier? What if I live to 90 or 95? What if something happened to one of us younger in retirement? Those kinds of "what if" scenarios, Social Security is just one of them, but those "what if" scenarios are important in a planning process to make sure you're comfortable about what you might be facing in the future.
STEVEN: Our next question comes from Joanne in Phoenix. Joanne asks, I heard about these RILA annuities, how much of your portfolio is too much to have in one, what are the biggest risks, and is it just too complicated for me?
SCOT: Good question, Joanne, how much of the portfolio should you have? That is a function of I think, number one, how much liquidity do you have, and what's your time horizon and where it fits in your overall plan. So someone that needs all of their investments providing income right now, that RILA is not going to be appropriate - likely, unless you're using a buckets of money approach, we're using one bucket for money now, one bucket for money later. On the flip side, someone that it says, Hey, Scot, this is legacy money, I'm not going to touch it, or someone that says, Scot I've got 10 years to retirement, it could be a suitable part of the portfolio. Biggest risk is going to be liquidity, you're going to want to make sure that the insurance carrier backing it has very good ratings. Those are two of the biggest, but what I like about is it takes an a client that might have a slightly lower risk tolerance, that might more naturally be inclined to be in a 70/30 or a 60/40 stock to bond portfolio and allows you more upside potential with some of these indexes, while still giving you a buffer of protection, so I like that. Is it too complicated for me? Oh, that's a tough question. If it's complicated, man, take your time. Number one piece of advice. Take your time, don't rush into anything, have multiple meetings to look at it, Google some stuff online, take some time to evaluate your options. At the end of the day. If it's too complicated. If you don't understand it, I wouldn't do it. Or if you're gonna do it, do it with a smaller portion so that you get more comfortable watching how that investment works over time. Hope that helps join.
Our next question I have actually came in for Steven, this was coming from Cory in Anaheim. I'm a 63 year old teacher, and I was offered extra money to leave next year from the school district. I want to take it, but I still love teaching and don't want to retire for a couple more years. Should I take it?
STEVEN: Cory, That's gonna be a tough question. And that's going to be everybody's favorite answer, it depends. Soit's going to be a close call, I would encourage you to - you're a public school teacher, so you're going to be part of CalSTRS, the California State Teachers Retirement System, I would encourage you to set up a meeting with them, they'll be able to give you an official estimate of what your pension amount should be in a couple of different scenarios. The end of the current school year, one more school year, two more school years, whatever timeframe you have in mind, they should be able to run a pretty accurate estimate. The reason being is that a lot of times you'll notice that these offers from the school district, all they're really doing is just giving you a couple extra years on your service credit to increase your pension. We recently saw one where all this school district was doing was giving two years of service credit up front. So instead of retiring, this person was about 60. It would be as if she was retiring at 62, so it could make sense. Don't just think that, oh, the school district's offering more me more money, I should just take it and run. Really dive into what they're offering. Keep in mind, it's not always gonna be money. In your question, it sounds like it was just a dollar figure, but there's gonna be different types of bonuses and offers that the school districts can make. For instance, my own mother isn't a CalSTRS member. And her school district offered any teachers over age 60, they would give five years of free medical coverage until that teacher reached age 65 and went on to Medicare. So there's different aspects of it, I would encourage you to really look into your own financial plan, your income specifically to see when you need to retire. We have some clients that can can retire today, and we have some clients that need to wait five years before they retire. See where you're at on that spectrum. And then the other aspect is I know teachers really do enjoy what they do. They do it because they love their students. They love their job. It has that rewarding aspect to it, so don't let money only be your motivator. Money is obviously a big component of it. You need to make sure your finances are in order, but really it boils down to if your finances are in check, what do you want to do? Do you want to spend a couple more years in retirement with your family? Do you want to take a substitute teacher role? Do you want to take on an aide in a classroom role? There's other ways you can work part time and stay in the classroom, but retire. So I hope that helps, Cory and if you have any more questions, feel free to reach out out.
SCOT: Steven, great answer, and just as a reminder to our listeners, if you are a CalSTRS, CalPERS, government pension employee, it's one of the areas of specialty on the team, one of Stevens areas of focus, and so if you have questions like that, about CalSTRS, CalPERS, any of those types of benefits, definitely reach out to us and our team, click on our listener questions or set up a one on one to talk more.
STEVEN: Awesome. And our final question comes from Chuck in Los Angeles. Chuck asks, I'm scared and just want to put everything in cash where I can earn four to 5%. Why not just do that and avoid the headaches and worry and risk?
SCOT: Chuck, that is a super legitimate question and we get it more and more with the craziness that's happening in the world. If you want to get more conservative, that is a viable option if it fits in your overall plan. I would caution against emotional reactions and responses, though, right? Are we just are we getting more conservative because of what's going on in Israel is that the reason? Because the market hasn't really negatively responded. There's always going to be a reason to not be investing. And yet the market 75% of the time is going higher. That being said, it is legitimate to say, hey, interest rates are higher, I'm a conservative investor, I'd rather lock in some higher rates. And there may be strategies to do that. CDs may be one of them, longer term bonds may be one of them, fixed annuities, may be one of them, you want to evaluate all your different options, maybe an enhanced yield strategy, all different things to evaluate. But it's important that it doesn't have to be all one or all the other, you don't have to pull everything out and throw it into cash, you could pull a portion, maybe 10%, maybe 25%, maybe 30%, maybe enough to cover your expenses for the next few years for the market to come back. There are other risks to consider, the only risk is not just a declining market. There is other risks to think about. What is the risk of inflation if we stay conservative? What is the risk of inflation? What if I go into a one year CD, and then the economy declines and the rates go back down to 1% again? Now my reinvestment risk is very low. I made 4% or 5% for a year now I'm only making 1%. There's a risk there. So there's all kinds of different risks, what if inflation runs hot, where things gonna go? So it is an option to get more conservative, but it really should be part of an overall picture of where you want to go. Will that conservative strategy still get you what you need from an income perspective? Are there ways that you could reduce your risk, still take on some risk, but maybe squeeze out a better yield? Maybe have something tied to inflation where you could get some increases? It's a bigger question, Chuck, I think you need to evaluate, and where we've seen people get into trouble is they make a knee jerk response, I'm emotional, I'm scared, this person got elected, that person got elected, I'm gonna stay out of the market for the next five years, and they miss a huge opportunity in the market, and they don't keep up with inflation, and their standard of living might be negatively impacted. So as much as I want to say it's an easy answer. It's just not, Chuck. Got to dig in a little bit further. And maybe the right answer is to take a measured approach, right? Maybe put 10 or 20% more conservative have a little extra dry powder so you have that comfortability, but also, you're not sacrificing your long term viability of your financial plan.
That's our show for this week. If you want your questions answered during the show, go to our website, retireEWO.com. That's retireEWO.com and click on "Ask a question". If you want to sit down and talk more about your situation one on one, whether it's myself whether it's Steven, go to our website and click on "Schedule a Consult". We'd be happy to help. Like us on Facebook to get our most up to date content. Subscribe to our podcast. We'll see you next time I'll show you how to retire with your eyes wide open. Don't go to retirement with your eyes closed, go into it with your Eyes Wide Open. I'm Scot Landborg, here with Steven Murphy. We'll see you soon!