3 Things 4-26
04/26/2021 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One Another Thought On Annuities If running out of money in retirement is a concern (which it usually is for potential annuity buyers), but the high fees leave you cold to the idea, there is another alternative, Retirement Income Funds. RIFs are essentially annuities without the restrictive contracts and excessive fees. Actually, there are no insurance companies involved at all. Companies like Fidelity and Vanguard typically administer them. Usually, there are no up-front fees and there are no surrender fees. So if you ever decide you want out, at any time, you can do so without incurring any financial penalty. But while you’re in, you’ll receive monthly payments that initially come from your beginning balance but will eventually, assuming positive returns, also include money generated from capital gains and dividends. The way the funds pay out is flexible so you can either set them up using the widely adopted 4% rule, which says that on average, retirees should be able to withdraw 4% of their invested assets each year in retirement and reasonably expect to have their money last 30 years, or you could customize your income stream to suit your varying needs. In addition to the above features, most RIFs annual fees range from .4% to around 1% (versus 5% or more for traditional annuities), making them both more flexible and more desirable than annuities. But what you gain in flexibility you give up in guaranteed income because, unlike most annuities, there is downside risk – and the fund owner (you) bears all of it. So, if the market goes down and you’re invested in a RIF that is heavily stock-weighted, you will see your balance shrink as well. The same is true in the opposite direction, of course, and stocks tend to go up over time, but they don’t go up in a straight line. Holding time is definitely a key factor. The more time you can afford to patiently hold your selected fund, the better off you will be – that is, assuming history is a valid indicator. So, to recap and state the obvious, RIFs aren’t for everyone, nor are individual stocks, nor are annuities. You should examine your specific circumstances carefully in determining which, if any, of the options is right for you. If you need help with that, let us know.
Thing Two To College Or Not To College The cost of college has reached ridiculous heights today. The total average annual cost of attendance at an in-state public or private school is either $26,820 (public) or $54,880 (private). A young person and his family should therefore expect to pay either $107,280 or $219,520 over the next four years (according to Forbes magazine). Add in the interest on the student loans and the opportunity costs and they can actually expect to pay much more. That doesn’t mean it’s a bad choice, but going the college route should definitely be weighed against the future income that will be generated versus the alternatives rather than just undertaken as the default next step. The newspapers are filled with stories of college graduates who are drowning in student debt and working jobs that didn’t require degrees at all. Meanwhile, the old stand-by alternatives to going to college as the route to a good job are still there. The trucking industry is chronically short of drivers and there seems to always be highly compensated work in the trades (plumbing, carpentry welding, etc.,). Their average starting wage is around $45,000. In addition to the stand-by occupations, there will always be entrepreneurial opportunities - as long as we are free anyway. There are options out there, in other words. And speaking of options and how to examine them, Thomas Sowell, who was mentioned just last week, was once asked the following, which is instructive for this topic: Interviewer: “What advice would you give a young Thomas Sowell…how do you make something of yourself in America today?” Thomas Sowell: “The way anybody else would. You equip yourself with skills that people are willing to pay for.” The logical add-on to his reply in the context of this subject is that you should be mindful of the price of the equipping process.
Thing Three Just A Thought “Ain’t no man can avoid being born average, but there ain’t no man got to be common.”." - Satchel Paige