Another year closes and a new one begins and I hope it is a happy, healthy and prosperous one! I recently read an article about the “15 Things Incredibly Happy People Do”, which seems a timely topic to think about in the new year. Among the tips mentioned were: go offline daily; let go of the little things that you can’t control and focus on what is positive; plan getaways now and then; maintain your friendships; and get your beauty rest. So amidst the busy schedules we have, these seem like great ideas for a happy 2015. I would also add to have a successful plan for financial security!
Looking back at 2014, there were a number of key issues that Americans focused on. Obamacare had its first year and was met with mixed results from its botched rollout and escalating costs to polls that point to a significant decline in uninsured Americans. The 2014 elections resulted in a changing political landscape as Americans expressed their increasing dissatisfaction with the political stalemate between Democrats and Republicans. Unemployment and the economy also were important as more Americans finally started to feel the economic recovery.
Since the end of the Great Recession in 2009, economists have predicted that THIS was the year the recovery would take off. It seems they were finally right in 2014. Employers consistently added new jobs resulting in a healthier job market. Unemployment is down to 5.8%, near its long-term target of 5.5%, and fell at a faster rate than economists predicted. Consumers are spending again, the housing market has improved, the US dollar rose against all other major currencies for the first time since the turn of the century and the economy is on a firm footing. Americans, as a whole, are starting to feel more confident about their economic prospects.
The bull market in equities is nearing its sixth birthday. 2014 was a strong year for stocks, fueled by an improving American economy, despite geopolitical turmoil and global economic concerns. The S&P 500 jumped 11.4%. There is a generally shared worldwide enthusiasm for US equities. The earnings season will be critical to determine if stocks are rising because corporate profits are and future growth is deemed to be healthy.
The Fed is preparing markets and the public for short-term interest rate increases, shifting from its “considerable time” language to allow for more flexibility to raise rates when needed. So we may finally be heading into a rising interest rate environment in 2015. Long-term rates are stubbornly staying put, though and this is the rate that matters most to investors.
2014 also marked the 20 year anniversary of the “4 percent rule”, which after two decades, is still relevant for millions of retirees. The “4 percent rule” was first coined by Bill Bengen, a financial planner and former astrophysicist, as a rule of thumb for a safe withdrawal rate during retirement. His research factored not just average annual returns but also the sequence of returns based on 30-year rolling periods. Over the years, I have read many articles on new research that addressed this topic, all with varying results. Some think this rate is too high and others think it is too low. After all, when the “4 percent rule” originated, pensions were the most important component of retirement. Employees now bear the burden of retirement savings. I still fall back on the “4 percent rule” as the rule of thumb, though. Times have changed and the focus has shifted to quality of life during retirement and a more fulfilling retirement, not just a simply secure one. With increased longevity, early retirement and well-thought and wonderful retirement goals, it is more important than ever to save, invest and plan for a successful and sustainable retirement.
As always, if you have any questions or wish to discuss your portfolio, please contact our office.
Olivia A. Mussett, CFP®