Hey guys, Mike Frontera here back with another Retirement Theory video. It’s been about three months since The Coronavirus came here and took over life as we know it. I don’t know that any of us have ever experienced such a dramatic, collective, and sudden shift in our way of life. Life after 9/11 comes to mind, but certainly in a much, much different way. So now that we’re here, how do we not just survive but actually thrive in what comes next? I hate to use such a worn out term as “new normal” but it really fits here.
Both the scope and the duration of the societal changes we’ll come to experience are not yet fully known. Some changes though have already developed which are key for us to adapt to. Let’s take a few moments and go over those together.
The first, most obvious, change is the acceleration toward our dependence on technology. There is phrase it’s quoted in different variations that “The largest natural resource is no longer oil. It’s data.” And boy how true has this played out during this pandemic! The price of crude oil actually dropped below zero, literally below free, in April. At the same time, many of us have gone to ordering our dinner, groceries, clothing, furniture, and even cars as a regular course of business online. We are rapidly entering a phase in society where being comfortable with technology is no longer a bonus. It’s quickly becoming critical for the most basic of tasks, possibly to the point of survival.
One of the things that we must prepare for, especially as we go through retirement, is basic technological competency. If you’re not comfortable with using a computer or an iPad, or a smart phone, you need to make that a priority. You should at least be able to make online purchases, conduct banking transactions, and communicate electronically with other people. If you’re unsure—or maybe you’ve got a relative or friend who isn’t quite up to speed, here are a couple of resources worth checking out:
- Techboomers.com—this is a website with a ton of basic instruction for navigating the internet and computers in general. It’s supported by ad revenue and so it’s free to use.
- GFCLearnfree.org—this site is supported by Goodwill and it also contains a treasure trove of information. You’ve got basic life skills education as well as all you need to use a laptop, smartphone, iPad, whatever.
By the way, you see this video I’ve got going on in the background? I made it with screencast-o-matic for free! You ever want to show someone how to do something on the computer, but you can’t quite put it into words? You can download this app and record a video of yourself actually doing what you want to show. Then just send the file off and they can see it for themselves. It’s really pretty neat.
Now, I have a lot of clients who, either for financial or personal reasons, choose to continue working in some capacity during retirement. I think that’s great, and I’ve always promoted the transition to retirement as more of a dimmer knob than an on / off switch. What Coronavirus has really begun to highlight is the viability of working remotely.
For those of us looking to continue meaningful consulting or part-time work in retirement, doing so remotely means being free to live where you want to, or even moving around from place to place. And employers are starting to recognize that geographical freedom is beneficial to their bottom lines too. A lot of companies forced into a remote work experiment with their employees and it’s been working. And it’s led a lot of those companies to make remote work permanent. Here’s an article from the Wall Street Journal showing several large companies moving thousands of employees to permanent remote work positions. If you’re thinking of working part-time in retirement or you’re already working part-time, you may want to think about what jobs you could do from the comfort of your own home.
This brings up another change that will have to have some additional relevancy in the wake of this pandemic. That is, considering your ability to earn a part-time income or wage as an asset in retirement. As part of the massive stimulus and accommodating policies of our federal reserve banks, interest rates as you may have noticed, have dropped rapidly, from already historically low rates. What this means, assuming rates stay this low for long period of time, is that we are going to be facing additional challenges to have our portfolio work for us.
Take a look at this chart. It shows the historical yield, or interest rates, on 10 year treasury bonds. Why do we care about this? We care because, to one degree or another, that interest that we earn on our lower risk or bond part of our portfolio is related to this graph. For the better part of the last 40 years that rate has been going down. You can see there were times where that rate was well over 10% per year, and a lot of times where is was between 3-7% per year. As of March 9th of this year it was at 0.52%. What we might conclude from this is that our return projections going forward should account for this dramatic drop in rates. If we have a portfolio containing 40, 50 or higher percentage in bonds, we need to plan for that portion of the portfolio potentially producing much lower returns than it had been historically.
That doesn’t mean we need to panic or pull everything out of bonds. But it does mean being open to other asset types as a means for generating returns. And that includes both within the portfolio and outside of it. And one of those asset types is human capital. Which is an investment term that just means working!
Take a look at this hypothetical example of Frank and Joanna Miller. They’re a very successful couple in their early 50’s looking to retire at age 65. They have done a tremendous job of saving but they have a very real risk of running out of their portfolio during retirement. You can see that based on current assumptions their portfolio is expected to last until age 96. But there’s a lot of uncertainty in there. Under these assumptions, Frank and Joanna had been earning about $350k per year during their working years. With all other assumptions the same, if Frank and Joanna can each manage to earn just $15,000 per year during their first 5 years in retirement, you see that they’ve now extended their portfolio projected longevity to age 100 and have increased their total lifetime portfolio by over $500,000.
Now, your situation may of course be quite different, and this is just a hypothetical example. Either way, it’s important to recognize that every dollar you can earn through human capital is a dollar left in your portfolio to grow. And remember that the timeframe from where your human capital is still a viable asset is limited. Once you’re deep into retirement your desire and energy to earn additional income might be reduced. But quite possibly, in this ultra low-interest rate environment that we now find ourselves in, other sources of return, including human capital, could make the difference between having a stressful retirement and a successful one!
So! Do you have questions for me? Come visit me at www.retirementtheory.com or send me an email at firstname.lastname@example.org. Did you subscribe to this video or follow me on Facebook? I think that you should. You’ll continue to see videos like these on everything retirement planning.
Once again, thank you for joining me, take care of yourselves, and we’ll see you next time!