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Coasting in Retirement Ep 12: The 5 Biggest Threats to Your Nest Egg Thumbnail

Coasting in Retirement Ep 12: The 5 Biggest Threats to Your Nest Egg

401(k) Coasting in Retirement Financial Planning Investment Management Investments Pre-Retirees Qualified Plans Retirees Retirement Funding Wealth Management

Episode 12: Are REITs in trouble? Real Estate problems and 4 other current threats to your retirement nest egg (and what to do about it)

Good afternoon everyone and welcome to Coasting in Retirement! Josh Null here, along side co-host Michelle Lee Melton, my radio partner in crime, my midnight rider…Michelle, how are you? Well, I’m great, and I’m excited to be back recording here in Coastal College’s podcast studio, located in beautiful downtown Fairhope, and I’m even more excited about the show we have today! 

Listeners: Michelle and I are here today to discuss financial topics relevant to those in or near retirement living their best life along our part of the coast. If you’re just tuning in to our show, welcome, you’ve listening to Mobile’s most dynamic financial radio show. Here’s what we’ve got in store for you today: A deep dive on our main topic in our first segment, followed by fan favorite “Michelle with the News of the Week” at about 15 minutes past the hour, THEN, at about 30 minutes in, we’ll poke a little fun at my big mouth with the “Where Josh Nailed It; Where Josh was a Little Off” segment. We pack a lot in, so buckle up and be ready to be both entertained and enlightened! 

For those new to the show, a quick background on me. Again, my name is Josh Null, and I am a fee-based fiduciary financial advisor, I hold my FINRA Series 65 securities license and I am the owner of Gulf Coast Financial Advisors, an independent investment management and financial planning firm based out of Fairhope, Alabama. You can find more information on me and Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com or feel free to give us a call at 251-327-2124. We will repeat our contact info several times throughout the show!

Let’s get to our main topic. Today we are going to talk about the pressure facing Real Estate Investment Trusts, commonly known as REITs, particularly those in the commercial office space, PARTICULARY those that are not publicly traded. REITs are an important topic because many retirees use them to generate income in retirement, but a show just about REITs would be a little bit of a snooze fest so we are going to discuss 4 other threats to the investment portfolios of those in or near retirement. To make Michelle happy we made the total number of topics 5, REITs plus the additional 4 we are about to list, because heaven help us if we have even numbers on this show! (Michelle feedback). Alright, let’s get to our list, in no particular order, in addition to failing REITs, here are 4 other current threats to your retirement:  

  • Sequence of Return Risk and timing of withdrawal risk. We’re going to lump in market volatility to this, because over the past few years we’ve had historically levels of markets going up and down, often in the same day(!), and even making a withdrawal on the wrong DAY can have long term impacts to the longevity of your portfolio. 
  • On the longevity note, one of the greatest threats to your portfolio is longevity risks. People are living longer than ever, but that doesn’t necessarily mean they are living healthier than ever. Many folks deal with extended healthcare events in retirement, and there is no greater threat to your wealth than an unplanned extended health care event, often referred to as long term care. 
  • Inflation. This is a topic that has certainly reared it’s ugly head the past couple of years, after a decade plus run of such low inflation that many people started to ignore it as a major issue with investing. But just saying inflation is an issue is not enough, we need to discuss why it’s such an issue. It’s a 2 part dance – if you’re spending more on housing, groceries, transportation, medical expenses…if everything is going up, but you don’t have at least a portion of your investment portfolio designed to fight the long term battle of inflation, then you are by mathematical definition, losing the inflation battle, and that can make a significant dent in your quality of life in retirement. 
  • If you have an annuity, having the wrong type of annuity, OR, picking the wrong features and riders for what you are trying to accomplish with your retirement planning.  

So let’s briefly discuss each of these points in more detail: 

The strategies we use are designed in part to help you with income production as well as inflation and longevity risks. Not only are we trying to match your risk tolerance with your investment holdings, we want to help make sure you don’t end up outliving your retirement savings. Again, if you’re interested in having that conversation, give us a call at 251-333-5151, or find us at gulfcoastfa.com. That’s gulfcoastfa.com.

Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance- this past week was certainly an example of big news in finance! Every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the News of the Week” segment. Stay tuned!

 Segment 2 - Michelle with the News of the Week:

Josh: “Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Michelle and I are going to help you all understand and decipher the deeper meaning of those headlines, or at the very least, provide context. So with out further adieu, here’s “Michelle with the news of the week”!:

1. Michelle: Alright Josh, let’s start with a recent article from the Washington Post titled “Office Markets Are the Real Estate Crash We Need to Worry About”. The author makes the point that many analysts are blaming increasing office space vacancies on the lingering affects of Covid, but the reality is, and I quote, “Office buildings are interest-rate and economically sensitive assets with deteriorating fundamentals despite still-booming employment growth”. The author goes on further to mention a couple of relatively well-known REITs that are experiencing challenges. So with all that said, can you explain how office space rentals tie into REITs, and why the investors that hold REITs should be concerned? 

(https://www.washingtonpost.com/business/office-markets-are-the-real-estate-crash-we-need-to-worry-about/2022/09/27/268b53aa-3e50-11ed-8c6e-9386bd7cd826_story.html)

2. Michelle: Let’s pivot to one of our listed threats to retirement, longevity risk, specifically experiencing an extended health care event. CNBC has an article titled, “Inflation drives long-term care costs even higher. Here’s how planning ahead can help families afford it”. This article had a couple of statistics and examples that alarmed me! First, it states that “on average, long-term care costs $50,000 a year at home and $100,000 in a nursing home”. Yikes. Then it gives what appears to be a real-world example of a retiree that had saved over $300,000 for retirement but his savings were totally wiped out in 4 years of nursing home care and he had to go on Medicaid! What the heck! I hope you can make me feel better about getting old! What can retirees do so they don’t end up in this situation? 

(https://www.cnbc.com/2022/08/30/planning-ahead-can-help-families-afford-long-term-care-amid-inflation.html)

3. Michelle: Alright Josh, so I get that this episode is about threats to retiree’s investments, so by definition the articles I researched are going to be a little on the negative side. But hopefully we can lighten it up a little by talking about…sequence of return risk. Or not. Another risk. Should I be discouraged? At least try to make me feel a little better with your feedback. Our next article is from Forbes and simply is titled “How to Understand Sequence of Returns Risk”. I noticed in the article that Forbes quoted one of your favorite guys, Michael Kitces. Kitces talks about something called “Dynamic Spending Rules”. So I’ve got a multi-part request for you. Please explain Sequence of Return risk more, how to handle it in retirement, and if you agree with your fellow financial nerd hero, Kitces, about dynamic spending rules? 

(https://www.forbes.com/advisor/retirement/sequence-of-returns-risk/)

4. Michelle: So Josh, I’m checking my notes, and we’ve now touched on 3 of our 5 threats to retiree’s investments: office spaced based REITs, extended health care events and sequence of return risk. That leaves annuities and inflation. Let’s go to annuities and your claim that buying the wrong type of annuity in retirement can have unintended consequences. And lookee here, it’s our old friends at Kiplinger. Their recent article is titled “7 Common Annuity Mistakes and How to Avoid Them”. First, good job Kiplinger with the odd number, and second, this article describes how the same type of an annuity can have very different types of performance from one insurance company to the next. We’ve often about the different types of annuities on our show, but I guess I didn’t realize that they differed so much even when they are by definition the same type of an annuity. Can you explain further? 

Josh: Discuss whole life vs index life, talk about fees and expenses, mutual vs non-mutual, and the problem with some sales practices getting in trouble because they shovel such a high percentage of people’s cash flow into the policies. 

(https://www.kiplinger.com/slideshow/investing/t003-s003-7-common-annuity-mistakes-and-how-to-avoid-them/index.html)

5. Michelle: Alright Josh, after talking about all of these threats to people trying to retire happily, I am going to call an audible and go with a happy-go-lucky article. I’m sure you’ll find a way to tie it into the one threat we haven’t discussed further – inflation – but that’s on you, I just going to make myself happy and you can handle this hot potato however you want. I found this article while I was on Forbes, it’s nicely titled “The 4 Traits of the Happiest Retirees”. The article states that one of the traits for happy retirees is that “They eat well, sleep soundly and play often” and let me tell you, I am down for all of these things, whether I am retired or not. So this is our last article of the day, and the floor is yours but you better not mess up our happy ending:

(https://www.forbes.com/sites/nextavenue/2015/09/24/the-4-traits-of-the-happiest-retirees/?sh=3bebbf541073)

Josh: Michelle, great job as always with the headlines, these are all important pieces of information that impacts those in or near retirement! Listeners – if you have questions around the topics in our headlines of the week, or questions related to your investment strategy or financial plan, why don’t you give us a call at 251-327-2124 to have a conversation or set up an appointment, or you can reach out to use via our contact page on our website gulfcoastfa.com.

Alright folks, coming up after the break, we get to have a little fun and I’ll probably get picked on a little bit by my co-host, Michelle in our next segment. We call it “Where Josh nailed it, where Josh was a little off”. As someone that has always had strong opinions, and often public opinions, I think it’s important to hold myself accountable for the things I’ve said that didn’t quite stick the landing. But to be fair we also discuss where my often-skeptical viewpoints proved to be pretty accurate. Remember I am originally from the Show Me State of Missouri, so means, don’t tell me, show me! Stay tuned!  

 Segment 3 - Where Josh nailed it, where Josh was a little off: 

Welcome back! Your host Josh Null here, along side co-host Michelle. If you know me in real life then you know that I tend to have strong opinions, and as someone that has had a radio show and a couple of podcasts over the years, I’ve often espoused those opinions publicly. Sometimes I’ve been proven right with time, and sometimes, we’ll, let’s just say I didn’t stick the landing. So each week Michelle and I get to poke a little fun at the thoughts or opinions I’ve put out there that weren’t 100% on point. BUT, to be fair, sometimes I am RIGHT,  so I also get to point at to some of my thoughts and opinions that were pretty accurate. We call this segment “Where Josh nailed it, and where Josh was a little off”. Alright Michelle, what’s first?

1. Michelle: Alright Josh, after all the serious talk in the previous segment about all of these threats to everyone’s retirement, let’s talk about something fun – boats. You and I are active boaters, and while I know you love your boat, I catch you looking at boats – often. You’ve stated that you’ve advised your clients to hold off on buying a boat over the past couple of years because prices where going to fall. So, have they? Did you nail it with this prediction, or were you a little off?   

Josh: Nailed it. Not only do I have my “finger in the air” test of the prices of all of the boats I geek out on, I also have hard data to back up my opinion that boat prices where going to fall, and not just a little, but significantly. According to a recent report from the Boats Group, consumer demand for boats is softening significantly in 2023. Josh – discuss the 2 reasons – rising interest rates and the excess pandemic cash finally getting spent. But that boat buyers should wait until the end of the summer – lots of people realizing they can’t afford their boat – break out another thousand BOAT.  

2. Michelle: Josh you once scoffed at a piece of information I gave you regarding a well known expert stating that people should be very wary about commercial office space backed REITs. If I remember correctly, you told me that the author was probably someone selling residential based REITs. Well well well…it appears that commercial based REIT’s are under tremendous pressure, you even acknowledged this in our opening segment. So you obviously were a little off here, so why don’t you explain why? 

Josh: Yes, off. Commercial REITs are under pressure for 3 basic reasons: work from home changes, rising interest rates and layoffs. Let’s discuss each – I knew rising interest rates would make capital more expensive, hence less expansion, I thought pandemic effect would ease, but I was totally caught off guard with the layoffs b/c of tight labor market. Talk about the Elon Musk / Twitter effect. 

3. Michelle: Alright Josh, let me start with a question. Are you a Dave Ramsey fan? (Josh – explain who Ramsey is and why you like his approach). Ok. So this opinion is related to our longevity threat to retirement. Dave suggests that people wait until they are 60 years old before buying LTC, but you’ve always held that people should starting looking at age 55, if not sooner. So, why is this, and do you think you’ve nailed with your opinion? You are going against Dave Ramsey, you know. 

Josh: This is one of a few areas that I don’t see eye to eye with Dave. Talk about morbidity vs mortality risks, and how simply things such as minor back or joint surgery can knock you out of having coverage for the one area that you might need it the most. How you buy LTC with your health as much as your money. And many people have issues that knock them out of qualifying for LTC by age 60 b/c UW requirements have become much stricter b/c of so many claims. That said, to provide solutions, be sure to mention the new programs for LTC – traditional, life insurance riders, asset based, etc. 

4. Michelle: We discuss annuities often on this show, particularly trying to address some of the mis-conceptions around them, plus explain the different types and why that matters to someone’s financial plan. I think we take a pretty fair approach to discussing annuities, and while you definitely don’t come off as pushing annuity salesman, you hold firm that annuities can sometimes make sense for generating income for retirees. So let me bring up Dave Ramsey again, he states that annuities are not a good fit for most investors, and another well known financial figure, Ken Fisher, outright states that all annuities are bad. Once again you are going against the opinion of two well known figures in investing, so with your opinion that annuities can make sense in retirement, did you nail it or are you a little off? 

Josh: So this a nuanced conversation around a complicated insurance product, so I am going to say that I am both right but that my industry can definitely be a little off on their opinion on annuities. First let’s discuss Dave’s opinion – I actually agree with him. Annuities are NOT a good fit for MOST investors. There is a specific use-case for bringing annuities into the conversation. Explain further. Now as to Ken Fisher, here is what I will say. My opinion is that Ken’s opinion is more related to marketing position than actual true belief, that Ken is so far removed from the average investor that just wants some guaranteed “mail-box” money in retirement, and finally, most financial advisors that tend to poo-poo annuities tend to be younger advisors that have a hard time being able to view life thru the eyes of someone in their 60s, 70s or beyond. 

5. Michelle: I’m going to change it up on the last one Josh, and ask for a prediction vs a look back at one of your previous opinions. I’ll keep it short and sweet: Artificial Intelligence, or AI as it’s common called, and things such as ChatCPT…what affect will that have on your business of investment management and financial advice?  

 Josh: A lot. Talk about how you think it will affect investment mgt more than financial planning b/c of human element. 

Well listeners, once again I didn’t totally nail it with all of my opinions, but I had valid reasons for being a little off. And I’m learning to be more open minded! Impressive maturity, one would say, right Michelle? Now, to our listeners that have more questions bonds, investments, inflation, interest rates, annuities, etc., we invite you to reach out to us. Call us anytime at 251-327-2124 to make an appointment or request more information. 

Folks, that’s it for us this week here at Coasting in Retirement! I want to give a huge thank you to my lovely co-host, Michelle Lee Melton, a thank you to our awesome radio station 106.5, many thanks to the provider of our show music, local band Sloth Racer, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well. Until we talk again next Sunday, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null! 

Disclosure:

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management ("PCWM") and Qualified Plan Advisors (“QPA”). Certain services may be provided by PCIA affiliates. In this format, Josh Null provides general information, not individually targeted personalized advice, and is not liable for the usage of the information provided.  Exposure to ideas and financial vehicles should not be considered investment advice or a recommendation to buy or sell any of these financial vehicles.  This information should also not be considered tax or legal advice. Past performance is not a guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.