Hello,
Did you know that next year 12,000 people per day will reach their 65th birthday according to U.S. Census projections? This figure is up from the 10,000 per day current statistic. As of August of this year, 17.7% of the population was over 65, which is the highest number on record. In 2010, only 13% of the population was over 65. Ansley below loves her blocks and magnet toys!
|
|
“The elderly aren’t just more numerous: Their finances are relatively healthy and they have less need to borrow, such as to buy a house, and are less at risk of layoffs than other consumers,” from the Wall Street Journal. This may be why the economy has fared better with the current economic conditions. Folks who are over 65 accounted for 22% of spending last year. We can’t forget that post Great Recession era and throughout the 2010s was a prosperous time for many investors.
Then when few people were getting out during the pandemic it created a pent-up demand for travel and aspirational experiences like trips to see family and friends. Maureen Green,, chief economist at Economic Analysis Associates, said, “Our large share of older consumers provides a consumption base in times like today when job growth slows, interest rates rise and student-debt loan repayments begin again.”
|
|
A few weeks ago, I wrote about the struggle many retirees have with spending money once work is complete for them. The positives to spending are stories like Journal spotlighted of 66-year-old Maureen Green: “All my life it was, save for this, save for that. Now there’s money in the bank and I’m spending in ways that bring me closer to friends and family than I did before.” The other positive is that with healthcare advancements and health awareness, people are active for longer. Green is pictured below. Photo from WSJ.
|
|
But it isn’t as peachy for all age demographics. “The average household led by someone age 65 and older spent 2.7% more last year than in 2021, adjusted for inflation, according to the Labor Department, compared with 0.7% for under-65 households. Spending by older households is up 34.5% from 1982, compared with 16.5% for younger households.”
Did you know that 17% of people when faced with unanticipated bills withdraw funds from their 401(k) according to EBRI and JP Morgan? What’s even more startling is that 9 out of 10 households encounter at least one spending spike per year.
Ansley's more into the mums than the scarecrow!
|
|
Normally credit cards are used as a first line of defense, but loaning yourself money out of your 401(k) may be a better route due to a lower interest rate. Plus, the interest you pay with a 401(k) loan is interest to yourself normally over five years. This all depends on how an employer’s plan works. The possible risk is that if you don’t pay the loan back or if you quit your job then you may have to pay the loan back in full. If you don’t, you’ll owe taxes then plus the IRS will assess a 10% penalty if you’re under 59.5 years old.
So, if you run into a struggling family member or friend it may be good advice to tell them to look into a 401(k) withdraw first before using other loans. The article states the current uptick in 401(k) loans is due in part to there not being other lenders to turn to. With interest rates increasing lenders typically pull back on who they’ll loan to.
This goes back to one of our fundamental tenets in our 3 Roles of Money process. In an ideal world we will always have six to nine months of bill-paying money in cash. Then if we have an emergency, we’re not faced with using credit or having a fire sale on our investments. As they say, cash is king when hard times come. I’d add the appropriate amount of cash is king!
Until next week,
David C. Treece,
Financial Planner
864.641.7955
|
|
Did you miss one of our last newsletters?
|
|
Clients Excel, LLC is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through Creative One Wealth. Creative One Wealth and Clients Excel, LLC are not affiliated companies. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified tax professional for guidance before making any purchasing decisions. Clients Excel, LLC is not affiliated with or endorsed by the U.S. Government or any governmental agency. Clients Excel, LLC has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. |
|
|
|
|
|
|
