It’s The Most Wonderful (And Expensive) Time of Year!

Kristin Curcio

As the holidays are rapidly approaching, the main concern I’m hearing is, “How am I going to pay for everything? Inflation is out of control!” Families are concerned about how they are going to fund everything from Christmas and Hannukah presents to holiday travel to holiday meals. People are reluctant to host the holidays at their homes or throw their annual holiday parties as the costs of food and beverages seem to rise by the day. And that trip to see Aunt June and Uncle Joe? Definitely out of the question with travel prices sky-high.

However, I did a little digging to see what the real impact of inflation could be this holiday season. What can we really expect?

Higher Prices and Lower Sales

According to PWC, American consumers are expected to spend $1,530 this holiday season on gifts, travel, and entertainment. This is 7% more than in 2023, in line with inflation. That’s a hefty price tag for most Americans, and about 40% of consumers are expected to spend more than they did last year. U.S. holiday sales in 2023 are expected to rise at the slowest pace in five years, according to recent data from the National Retail Federation (NRF). Americans are pausing and thinking twice before any purchases they make this holiday shopping season. On a number basis, the NRF said holiday sales, including e-commerce and non-store sales, could rise between 3% and 4% to $957.3 billion and $966.6 billion during November and December. This compares with a 5.4% rise in 2022 and a 12.7% rise in 2021.?

The Holiday Table

When it comes to the holidays, most people dream more about the delectable food on their holiday table than their wrapped gift. Succulent ham and sweet potatoes, latkes, and brisket…take your pick! I looked to Wells Fargo for some ideas on what we can expect to spend on our holiday feasts.

The good news is that turkeys are 16% cheaper than last year. That’s quite some savings! Unfortunately, if you prefer ham, you’ll pay 5% more this year, a whopping $4.56 per pound. The classic canned green bean prices are up 9% and russet potatoes are up to $1.17 compared to $1.08 last year. And if you’re making your favorite pumpkin pie, expect to pay 30% more for canned pumpkin!

Leaving On a Jet Plane…Maybe Not This Year

While we are seeing the impact of inflation across all areas such as food, gifts, and décor, we are seeing the most pain in the travel sector. According to Bankrate:

Inflation is impacting travelers. 77% of people traveling for leisure during the 2023 winter holiday are likely to change their plans due to inflation or rising prices.

Budgeting is the most significant worry for holiday travelers. 30% of 2023 holiday travelers are worried their trip will place a strain on their budget and 25% anticipate feeling pressured to spend more than they’re comfortable with.

People are unpleasantly surprised by travel prices. 55% of Americans traveling for leisure or business in 2023 say they’re worried about higher prices than they’re accustomed to.

Four Tips to Avoid Overspending

While consumers feel frustrated with rising costs, there are a few ways to combat overspending. A couple of these tips do require discipline, but your discipline will be rewarded!

1. Create a budget- and stick to it. It sounds obvious, and yes, most people tend to make a holiday budget year after year. The problem is that a lot of those people don’t stick to it. This year, try to take your budgeting seriously and if you stay within the range, you will prevent wracking up unwanted credit card debt- especially at these high-interest
2. Avoid waiting until the last minute to holiday shop. We’ve all been there, with less than three days to get gifts for everyone, we are empty-handed. This is when we tend to buy anything we can and don’t shop for deals and discounts. We generally spend the most amount of money on gifts when we are frantically trying to buy those last-minute gifts. This year, take your time. Do some research on the items that you want to purchase and see if there are discounts in stores or online. Taking your time and planning ahead will avoid last-minute shopping pitfalls.
3. Focus on experiences rather than gifts. More and more people are leaning towards purchasing experiences that the whole family can enjoy rather than a gift that may sit in the closet for an undisclosed length of time – or re-gifted! The great thing about experiences is that they are invaluable if you are making family memories to last a lifetime. Purchasing and spending money on experiences oftentimes brings much more joy and satisfaction than a material gift.
4. Potluck is OK! We all know hosting a holiday dinner or lunch takes a lot of time, preparation, and resources. Few of us want to give up all of the control over our holiday meals and enjoy doing all of the work. But in a year with exceedingly high costs, it’s okay to let others chip in. Allow your guests to bring their favorite dish and let that take some pressure off of your time and wallet. At the end of the day, most people truly enjoy making contributions.

Bottom Line: Focus On the Magic of the Holidays

Yes, 2023 is going to be an expensive holiday season but the most important parts of the holiday season do not carry a price tag. The holidays are a time to celebrate your beliefs and spend time with friends and family. It’s a time to reflect on your blessings. It’s a time to slow down and take in the magic.

This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations.? This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.? The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions.

Defending the 4% Rule for Retirement

Wes Moss

Anyone in the Retire Sooner family—readers of my books and articles and listeners to my podcast and radio show—knows how passionate I am about the 4 Percent Rule. Discovered in 1994 by an MIT aeronautics and astronautics graduate turned Certified Financial Planner (CFP?) named William Bengen, this rule of thumb calculated actual stock returns and retirement scenarios over the last 75 years. It revealed that retirees who draw down 4 percent of their portfolio in the first year of retirement and then adjust this amount yearly for inflation would likely see their money outlive them, assuming a 50 to 75 percent allocation in stocks. Based on Bengen’s calculations, nest eggs last fifty years 80 percent of the time. In the worst-case scenario, the money still lasted thirty-five years.

Then, in 2021, a miracle appeared: a financial headline that was actually exciting. I kid, of course. I’m as addicted to financial updates as the next guy. But even I can admit that for economic news to make a splash, it has to be reasonably earth-shattering. And when Barron’s reported that Bengen was upping his figure from 4 to 4.5 percent, that certainly qualified.

One-half of a percent may not seem like much, but it gave retirees a hefty increase in purchasing power, opening up the possibility of retiring months or even years ahead of previously expected schedules.

We’re big Bengen fans around here, and the serious truth is that I spend a fair amount of time defending the 4 Percent Plus rule of thumb from its inevitable detractors. Whenever the stock market dips, someone feels the need to put out an Op-Ed claiming that 4 percent is too high and warning of calamitous scenarios in which retirees exhaust their financial resources. When the market rebounds, all of a sudden, it’s once again en vogue. But what happened on a recent episode of Dave Ramsey’s show was completely new territory. He told folks to double the 4 percent rule!

I’ll quickly fill you in if you missed his rant and the resulting fallout. A 30-year-old man with $120,000 saved for retirement called into The Ramsey Show to ask what percentage of his assets he could safely expect to withdraw in retirement over 30 years.

The caller brought up a recent video posted by a Ramsey co-host named George Kamel, in which Kamel told viewers to follow a 3 percent withdrawal rate if they want their nest egg to survive thirty years or longer. This revelation baffled Dave Ramsey, and he didn’t try to hide his disdain. If the caller was correct about George’s video, Ramsey said, it needed to be removed from their content library. He claimed, quite angrily, that he’s perfectly comfortable with folks drawing down 8 percent of their retirement each year.

You read that correctly—8 percent!

According to Ramsey, it’s safe to assume the stock market can generate 12 percent returns, and thus, taking out 4 percent for inflation still leaves 8 percent available for use. “There’s all these goobers out there who have always put this 4 percent number crap in the market, and I’m just irate right now that we have joined the stupidity,” he vented. “I don’t know what the hell George is doing with a 3 percent withdrawal rate because that’s absolutely wrong,” he barked. “It’s ridiculous.”

Look, I want folks to enjoy as much of their own money as they can. I call it “maxing out without running out,” and I think it’s a crucial part of finding happiness in retirement. I agree with Ramsey that 3 percent might be too low, in my opinion. I refer to overly conservative rates as vampirically low because they suck out all the hope and joy of folks using their hard-earned retirement money to live happy lives.

Dave Ramsey is very talented, and I respect his optimism. That said, his words went off like a bomb, flinging financial shrapnel near and far and requiring a response. I ran his numbers against data from Robert Shiller, an economist at the Yale School of Management. I had trouble finding any long-term periods that averaged 12 percent—in fact, many fifty-to-eighty-year periods averaged in the 10 to 11 percent range.

I’m not the only one who disagreed with Dave’s math. If you watched the situation unfold, you heard him, not-so-calmly, opine, “The problem is . . . when you go down these stupid nerd rabbit holes and these Reddit threads with these morons who live in their mother’s basement with a calculator and then you . . . put that out into the dadgum community and then people go, ‘I don’t have enough money. It’s hopeless. I’ll never be able to save enough to retire.’”

Again, I get his frustration. If a financially secure retirement seems out of reach, what motivation do hard-working people have? That said, sometimes the math is the math. And those “nerds” Dave referenced did indeed run some numbers. These safe-withdrawal-rate researchers took a $1 million portfolio and divided it between a handful of stock mutual funds from American Funds, which Dave Ramsey is partial to. This group of funds, to their credit, had averaged a 12.6 percent rate of return since inception—even better than the 12 percent Ramsey suggested.?

Then, they tested the theory. They set up a scenario where you retired in December 1999 and started withdrawing 8 percent per year in 2000. A $1 million nest egg, taking out $80,000 annually, adjusted for inflation. How long could you withdraw??

Well, due to two bear markets, starting in 2000 and 2007, and ratcheting $80,000 up for inflation, which turned into $100,000+ per year after about a decade—the portfolio ran out entirely sometime in 2013. Despite Dave’s anger being en fuego, his advice was no bueno. Although I love his enthusiasm, he is missing something called “sequence of return” risks. It’s what happens if you get a bad run for your investments in the early innings of retirement withdrawals.?

So what’s the answer? In my opinion, three percent seems low, and 8 percent looks dangerously high. But just like the temperature of the Goldilocks’ porridge, the 4 Percent Rule seems just right. Of course, like all guidelines, there is no one size fits all.? Do your own research to determine what fits best for you.?

I believe Bill Bengen’s original 4 percent research was correct. Our analytics team redid his study from 1994 and brought it into the modern day. We’ve updated it through 2017, 2020, and 2023, and guess what? It can still work. Even when Bengen upped his rule to 4.5 percent, in the vast majority of cases, the money lasted for thirty years plus.?

Remember, the 4 Percent Plus Rule is a rule of thumb, not a straight-line mathematical law of the universe. This number, your withdrawal rate between 4 and 4.5 percent, needs to be somewhat flexible and dynamic. Yes, there’s a high likelihood that using 4 percent of your original retirement balance, plus inflation, over time, has a great chance of lasting for thirty to fifty-plus years.?

And guess what? After years of vociferous disapproval, the prominent voices in financial planning have again changed their tune. According to an analysis done by investment research company Morningstar, the 4 percent rule for retirement is back. Just two years ago, they asked if a 3.3 percent withdrawal rate was more appropriate. No wonder everyone’s so confused—and Dave Ramsey’s blood pressure is so high.?

This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations.? Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved.? Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed, and can increase, decrease, or be eliminated without notice.?Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed-income securities falls.? Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. There are many aspects and criteria that must be examined and considered before investing. Investment decisions should not be made solely based on information contained in this article. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. ?The information contained in the article is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions

New On Retire Sooner Podcast?

In today’s episode, Wes points out that the population of mini-millionaires is growing and that society’s perception of them isn’t always very accurate. Producer Mallory Boggs joins to discuss this latest variant of what authors Thomas Stanley and Bill Danko originally coined,?The Millionaire Next Door.?They elaborate on five habits that this cohort tends to follow. And Wes points out that although investing is often a critical step to becoming a millionaire, it’s perhaps even more essential in the pursuit of staying a millionaire.?Click below to listen now!

Last week marked another quarterly meeting for our growing team! We embraced the changes this year has brought and rekindled our commitment to shared goals. We look forward to the adventures the next year holds for us and the families we're privileged to serve. Here's to a year of triumphs and teamwork!

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