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How Retirement Spending Changes With Time

Once away from work, your cost of living may rise before it falls.

New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money?

This concern is legitimate. Many households “live it up” and spend more than they anticipate as retirement starts to unfold. In ten or twenty years, though, they may not spend nearly as much.1

The initial stage of retirement can be expensive. Looking at mere data, it may not seem that way. The most recent Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by Americans age 55-64 and mean spending of just $45,221 for households headed by people age 65 and older.1,2

Affluent retirees, however, are often “above average” in regard to retirement savings and retirement ambitions. Sixty-five is now late-middle age, and today’s well-to-do 65-year-olds are ready, willing, and able to travel and have adventures. Since they no longer work full time, they may no longer contribute to workplace retirement plans. Their commuting costs are gone, and perhaps they are in a lower tax bracket as well. They may be tempted to direct some of the money they would otherwise spend into leisure and hobby pursuits. It may shock them to find that they have withdrawn 6-7% of their savings in the first year of retirement rather than 3-4%.

When retirees are well into their seventies, spending decreases. In fact, Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s). Sudden medical expenses aside, household spending usually levels out because the cost of living does not significantly increase from year to year. Late-middle age has ended and retirees are often a bit less physically active than they once were. It becomes easier to meet the goal of living on 4% of savings a year (or less), plus Social Security.2

Later in life, spending may decline further. Once many retirees are into their eighties,

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Strong Jobs Report Drives Stocks Higher

FEBRUARY SAW A HIRING SURGE

Payroll growth was truly impressive last month. According to the latest Department of Labor report, employers added 313,000 net new jobs, including 61,000 in the construction industry; economists polled by Reuters projected a total February gain of 200,000. With the labor force participation rate reaching a 6-month high, the headline jobless rate stayed at 4.1% and the broader U-6 rate at 8.2%. Yearly wage growth declined to 2.6%.1

SERVICE BUSINESSES ARE THRIVING

The Institute for Supply Management’s February snapshot of service industry growth was quite positive. ISM’s non-manufacturing purchasing manager index did wane slightly, losing 0.4 points to 59.5, but the reading shows a very healthy service sector. January’s 59.9 mark was the best seen since August 2005.2

WTI CRUDE TOPS $62

As Wall Street’s closing bell sounded Friday, oil settled at $62.04. A 3% Friday gain left the commodity up for the week, even after the Energy Information Agency said that daily U.S. output had increased to nearly 10.4 million barrels, a record.3

FRIDAY RALLY ENDS BULLISH WEEK

A strong jobs report surpassed forecasts, and the dip in annualized wage growth hinted

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Markets Gave Investors a Wake Up Call In February

THE MONTH IN BRIEF
Investors certainly received a wake-up call in February. A correction hit Wall Street for the first time in nearly two years, and benchmarks overseas were also challenged. Two weeks later, though, the S&P 500 had gained back more than half of what it had lost in the dive. Prices of important commodities sank early in the month, but recoveries followed. While the latest readings on fundamental indicators were largely upbeat, reports on retail sales and home sales disappointed. As the Jerome Powell era began at the Federal Reserve, investors wondered if four rate hikes would occur this year rather than the three the central bank had envisioned, given inflation pressure.1

DOMESTIC ECONOMIC HEALTH 
While the rollercoaster ride taken by equities dominated the news stream last month, inflation was also a hot topic. According to the Department of Labor, the Consumer Price Index advanced 0.5% in January, leaving annualized inflation at 2.1%. The monthly number was the concern: the half-percent gain represented the largest single-month inflation jump in a year. The core CPI rose 0.3% in a month, which it had not done in nearly 13 years. Producer prices climbed 0.4% in January, with their year-over-year increase at 2.2%. Did the January numbers amount to an aberration, or was inflation pressure now stronger than it had been in some time? February’s data, due in mid-March, may shed further light on the matter.2,3

 

The Conference Board’s monthly barometer climbed another 6.5 points to a remarkable

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Fed Emphasizes Gradual Policy Firming

FEWER HOMES ARE SELLING

Demand is high, prices are high, and inventory is slim. In view of these factors, the 4.8% year-over-year fall for existing home sales just reported by the National Association of Realtors is not surprising. It represents the largest annual decline seen since August 2014. Other January NAR data showed homebuying down 3.2% from December levels and a median sale price of $240,500, up 5.8% in 12 months.1

FED MINUTES EMPHASIZE THE “GRADUAL”

Minutes from the January Federal Open Market Committee meeting appeared Wednesday, and while FOMC members saw “substantial underlying economic momentum,” they also stated that “gradual policy firming would be appropriate.” To many investors and economists, that hinted at a March rate increase. The CME Group’s FedWatch tool puts the odds of a quarter-point March move at 83.1%.2,3

OIL ADVANCES for a SECOND STRAIGHT WEEK

A 1.2% Friday climb left WTI crude 3.3% higher than it had been seven days earlier on the NYMEX. Oil settled at $63.55 a barrel Friday, still down 1.8% for February.4

STOCKS RISE

Across February 20-23, all three major Wall Street benchmarks advanced. The Nasdaq Composite

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Keeping This Market Correction in Perspective

 

After 20 months of relative calm, this volatility needs to be taken in stride. 

Are you upset by what is happening on Wall Street? It may help to see this pullback within a big-picture context. Corrections have become so rare as of late that when one occurs, emotion threatens to influence investment decisions.

So far, February has been a rough month for equities. At the close on February 8, the Dow Jones Industrial Average was officially in correction territory after a slide occurred, which included two 1,000-point descents within four days. Additionally, nearly every U.S. equity index had lost 7% or more in the past five trading sessions.1,2

This drop is troubling, yes – but not as unsettling as it may first seem. The market has been up for so long that it is easy to dismiss the reality of its occasional downs. Last year’s quiet trading climate could legitimately be characterized as “abnormal.”

Prior to this current retreat, the S&P 500 had not fallen 5% from a peak since June 2016. It went more than 400 trading days without such a slump, setting a record. In this same calm stretch, the index also went through its longest period without a dip of 3% or more.3

During a typical year, there are five trading days when equities descend at least 2%, plus one correction of about 14%. On average, equities take roughly a 30% fall every five years.4

This year, the kind of volatility normally seen in the market has returned. It may feel like a shock after so much smooth sailing, but it is the norm – and while the Dow’s recent daily losses are numerically unprecedented, they are also proportionate with the level of the index.

A few things are worth remembering at this juncture. One, Wall Street has had more good years than bad ones, as any casual glance at its history will reveal. This year may turn out well. Two, something similar happened in the mid-1990s – a long, easygoing bull run was suddenly disrupted by major volatility. That bull market kept going, though – it lasted four more years, and the S&P 500 doubled along the way. Three, this market needed to cool off; in the minds of many analysts, valuations had become too expensive. Four, the economy is in excellent shape. Five, earnings are living up to expectations. Last week, Thomson Reuters noted that 78% of the S&P firms that had reported this earnings season had topped profit forecasts.1,3

Wall Street may be turbulent, but you can stay calm. You could even look at this as a buying opportunity. Assuming this is a correction and

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