Look out BE­LOW

WITH­OUT THE ‘ RE­TIRE­MENT CLIFF’ IN­VEST­ING IS MORE IM­POR­TANT THAN EVER.

National Post (Latest Edition) - - FINANCIAL POST - Jonathan Chevreau Fi­nan­cial Post Jonathan Chevreau is founder of the Fi­nan­cial In­de­pen­dence Hub and co- au­thor of Vic­tory Lap Re­tire­ment. jonathan@find­e­pen­dence­hub.com

It’s ironic that de­spite the huge focus the fi­nan­cial in­dus­try places on re­tire­ment and so- called “re­tire­ment readi­ness,” in ac­tual prac­tice many would- be re­tirees go in and out of re­tire­ment more than once.

Since the U. S. fi­nan­cial cri­sis, the num­ber of peo­ple aged 65 or more who are still work­ing full- time has been on the rise, ac­cord­ing to Drew Car­ring­ton, head of In­sti­tu­tional De­fined Con­tri­bu­tion for Franklin Tem­ple­ton In­vest­ments. Speak­ing at Franklin Tem­ple­ton’s third an­nual Re­tire­ment In­no­va­tion Summit in Toronto Wed­nes­day, Car­ring­ton said, “it turns out that re­tire­ment is messy, with fits and starts over time.”

Of those still work­ing af­ter 65, only one in five did so be­cause they felt they had to be­cause of shaky per­sonal fi­nances. For the other four in five, it’s “be­cause they want to or truth to tell, their spouse wants them out of the house,” Car­ring­ton quipped.

Fur­ther­more, among both full- and part- time work­ers in that age cat­e­gory, 40 per cent re­ported they had re­tired twice al­ready: they had quit the work­ing world, re­turned a few months or years later, then quit again and then re­turned to work again.”

In short, the no­tion of a re­tire­ment “cliff ” and a one­size- fits- all end to the work­ing world doesn’t re­ally res­onate, Car­ring­ton said. As some­one who turns 65 next year my­self, I’m well aware that the baby boomers are un­likely to ex­pe­ri­ence the kind of re­tire­ment their par­ents may have en­joyed. But I’ve also co- au­thored a book (see blurb at au­thor bio be­low) that ar­gues most of us shouldn’t go abruptly from a 100 per cent work mode to 100 per cent play at pre­cisely age 65. A more grad­ual “glide path” makes sense be­tween 65 and 75 in my view, per­haps mov­ing into semire­tire­ment, go­ing to 80 per cent work mode, then 50 per cent work mode etc.

If noth­ing else, this re­duces the risk of out­liv­ing your money: it’s been said more peo­ple fear run­ning out of money more than they do of dy­ing! Apart from ris­ing life ex­pectancy and mi­nus­cule in­ter­est rates, the steady ero­sion of em­ploy­er­spon­sored De­fined Ben­e­fit ( DB) pen­sion plans is one rea­son to take a more grad­ual ap­proach to full re­tire­ment.

Franklin Tem­ple­ton de­voted a ses­sion to the De­fined Con­tri­bu­tion ( DC) pen­sion plans that con­tinue to dis­place DB pen­sions and their worry- free guar­an­teed- for­life pay­outs. As Car­ring­ton said, DC as­sets first ex­ceeded DB as­sets back in 2001 so the golden age of DB pen­sions has long been over.

A panel of Cana­dian pen­sion plan ad­min­is­tra­tors made it clear that DB plans con­tinue to be eclipsed by DC plans in this coun­try too, but there is much pen­sioner anx­i­ety over in­sol­vent plans like ( most re­cently) Sears Canada’s.

One plan man­ager said Cana­dian unions are okay with em­ploy­ers mov­ing from DC plans to tar­get- ben­e­fit plans but they are not okay with mov­ing DB plans to tar­get-ben­e­fit plans.

One thing is clear: while the pre­vi­ous gen­er­a­tion that en­joyed DB plans didn’t have to fret about in­vest­ing, the move to DC means re­tirees or their ad­vis­ers have to pay much more at­ten­tion to fi­nan­cial mar­kets and in­vest­ing.

Franklin Tem­ple­ton made the case for in­vestors to start em­brac­ing value stocks over the hot “growth” FANG and friends stocks ( Face­book, Ama­zon, Net­flix, Google, Ap­ple, Mi­crosoft) that have driven the U.S. mar­ket to out­per­form other global mar­kets. “Since 2009, the U. S. has left the rest of the world be­hind,” said Martin Cobb, vice- pres­i­dent and re­search an­a­lyst for Tem­ple­ton Global Equity Group.

Since mid 2009, the MSCI USA in­dex is up 164 per cent, com­pared to 45 per cent for MSCI Europe, 43 per cent for MSCI Ja­pan NS 33 per cent for MSCI Emerg­ing Mar­kets.

Thus, “non- U. S. stock val­u­a­tions ( are) quite rea­son­able,” said Cobb, who made the case for in­vest­ing more in “ugly” value stocks. He ac­knowl­edged that the last 100 months have been a pain­ful time to be a value in­vestor, even though value has out­per­formed growth 85 per cent of the time his­tor­i­cally.

De­spite the rel­a­tive tran­quil­lity of to­day’s mar­kets, his­tory tells us nasty things of­ten hap­pen when ev­ery­thing ap­pears calm, Cobb said. Value in­vest­ing can pro­vide more down­side pro­tec­tion in the event of a ma­jor down­turn in equity mar­kets, he said, cit­ing Ben­jamin Gra­ham’s “mar­gin of safety.” Cobb is pes­simistic about the U. K.’s fate un­der Brexit, al­though he owns sev­eral U.K. stocks that have less do­mes­tic ex­po­sure. He sees bet­ter op­por­tu­ni­ties in the Asia Pa­cific mar­ket.

In a pre­sen­ta­tion on Global In­vest­ing in Un­cer­tain Times, Ed Perks, chief in­vest­ment of­fi­cer for San Ma­teo, Calif.-based Franklin Ad­vis­ers, said we have been in a Goldilocks story of not be­ing too hot or cold but “the last few months we seem to be fall­ing into more sync glob­ally.” The firm is look­ing closely at the “path and pace” of in­ter­est rate nor­mal­iza­tion as the U. S. fed­eral re­serve un­winds its bal­ance sheet: the firm will soon re­lease a back­ground paper with the Bea­tle- es­que ti­tle The Long and Un­wind­ing Road.

Perks is con­cerned about yield- ori­ented stocks that pay more than U. S. trea­suries: “some­thing we’ve never seen be­fore.” These in­clude high- yield­ing U. S. tele­com and util­ity stocks, REITs and other bond sub­sti­tutes.

In an interview, Perks said Europe, Ja­pan and Emerg­ing Mar­kets are “un­der­owned.” How­ever, de­spite high val­u­a­tions in the U. S. mar­ket, “we’re not ready to throw in the towel on U. S. equities … we think it’s too early for in­vestors to un­der­weight U. S. equities.”

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