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Retirement on the Horizon? Here's What You Need to Know About the Economy in 2024 Thumbnail

Retirement on the Horizon? Here's What You Need to Know About the Economy in 2024

Interest rates, inflation forecasts, and long-term market trends were just a few of the topics Matt Wilson, CFP® covered in our recent 2024 Q2 Market Update Webinar, "Gain Insights on the Economy & Markets." The follow-up questions we tackle on today’s show are largely geared toward folks who are approaching the retirement transition with some understandable anxiety. I hope that as we provide a little more detail on these important topics and the overall state of the economy, folks will feel more confident in their financial plans and more excited about retirement.

1. "I keep hearing warnings about a big adjustment coming in the stock market. Should we be concerned about the market going down soon? And is this the time to think about getting into safe investments like commodities?"

As I write this, the Dow Jones Industrial Average is hovering around 39,000 and the S&P 500 is above 5,000. It's natural to assume that if the markets are at record highs, a large correction might be coming and that diversifying your holdings might be a good idea. But there are two phrases in this question that we need to unpack.

The first is "big adjustment." The markets have always grown in the long term. So, any drop from an all-time high could look bigger because the total size of the markets and the wealth they're creating are also bigger. We've weathered two significant -- if normal -- market corrections in the last four years: in the spring of 2020 during COVID and in January of 2022 as inflation spiked. So far this year, the markets have regained those losses and continued to climb, mostly because corporate earnings have been strong, which translates into more jobs, and more consumer spending. That doesn't mean we won't experience a correction in the second half of the year, but at the moment we see no red flags.

The second phrase to unpack is "safe investment," which some folks use to describe hard assets like gold, oil, or agricultural products. While there can be places for these types of investments in a diversified and personalized portfolio, their ability to hedge against inflation or market disruptions is often exaggerated. Commodities can also be a hassle to manage because of the complex system of futures contracts and speculation that drive these markets. For example, an investment in an ETF that holds oil futures could go down even as the price of a barrel goes up.

Working with a financial advisor to weather market volatility through diversification and strategic rebalancing is usually the safest path toward securing retirement. In some cases, that plan could involve investments in public companies that operate in commodities spaces. Rather than investing in corn or wheat, you might invest in a company that owns a chain of grocery stores, gaining exposure to the value of those goods in ways that could be more beneficial to your overall plan.

2. "Will interest rates go down or up during the election cycle?"

Interest rates will almost certainly be a big discussion point in the run-up to the election, but the rates themselves respond more to our economic environment than our politics. In his webinar, Matt looked at 10-year treasury bonds during the last five presidential election cycles. He found that rates remained relatively flat for their respective years, with two notable exceptions: the 2008 financial crisis, and COVID in 2020. Absent that type of black swan event, Keen Wealth's projections are that interest rates might be slightly lower at the end of the year, but we do not anticipate a significant change.

Of course, "interest rates" is another phrase that we should clarify. Are we talking about the Fed's overnight lending rate? 5, 10, or 30-year treasuries? Municipal rates? CDs? These are all separate instruments that can have unique effects on an individual's financial plan. It's important that you and your advisor discuss specific interest rates within the context of your specific financial goals, whether you're trying to buy a house in the next three years or shoring up your nest egg before retirement.

3. "How will the continuing U. S. deficit impact the value of the U.S. dollar in the next year?"

Short answer: probably not much.

The U.S. government has run a deficit every year since 2000, but the U.S. dollar is still strong relative to foreign currencies and is still the currency that's used in the majority of global trade. As we discussed about a year ago, all the chatter on social media and cable news about the U.S. dollar ceding its status as the world's reserve currency is mostly hot air. Our government's deficit could be one of those things that doesn't matter ... until, decades from now, it suddenly does. But, in the near term, the size and health of our economy should keep the dollar healthy as well.

4. "How does our current economic situation affect folks who are about to retire? Is there anything we need to do?" 

Generally speaking, if you've been working with a financial advisor and following a comprehensive financial plan toward retirement, there's nothing on the horizon that should trigger a significant shift in your strategy. Hopefully, you and your advisor have arranged and sequenced your investments so that when you stop receiving a paycheck, you'll start making withdrawals that maintain the lifestyle you want and provide some well-earned rewards, like vacations and home upgrades.

But at Keen Wealth, "generally" is never good enough. Our planning process revolves around each person's specific situation and how we can help them achieve their individual goals. With that big picture in sight, it can be much easier to weather short-term challenges and keep progressing toward a successful retirement.

Thanks again to Matt Wilson for putting together another outstanding webinar for the Keen Wealth community. Click here to join our mailing list, and we'll keep you in the loop about all the educational events we host online and in person throughout the year. We’d also love to hear any questions or topics you want us to discuss in a future episode. 

About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

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