Monthly Newsletter Sep. 2023

Each month, I'll share the latest news, tax tips, and resources to help you stay on top of your finances, with a special focus on retirement planning for young people. In this newsletter, I'll explain what retirement planning is and why it's so important today and not only tomorrow, and I'll share tips on how to get started. So whether you're just starting out in your career or you're already saving for retirement, I encourage you to read on and learn more.

KEY POINTS

• What Kind of Retiree do You Want to be?
• How to Retire Early
• Determine Where You Stand
• On the Markets
• What's Next

What kind of retiree do you want to be?

Everyone has a different idea of their dream retirement. But no matter what you envision, it's essential to plan ahead so that your retirement looks like what you want it to.

When I meet with clients, they often ask me questions like: "How much money do I need to retire?" "Can I retire early?" "Can I leave my job in retirement?"

To answer these questions, I need to know how much you plan to spend today, tomorrow, and in retirement. This is not an easy question, especially when we're talking about future spending. Who knows what life will bring? But by understanding your spending habits and goals, we can develop a plan to help you achieve your retirement dreams.

Based on data from Morgan Stanley, Charles Schwab, and Vanguard, retirement spending typically varies over three distinct phases:

• Early retirement (65-74):?Spending is highest during this time, as retirees may travel, entertain, and pursue new hobbies.
• Mid-retirement (75-85):?Spending tends to decline during this time, as retirees may slow down their activities and focus on other priorities.
• Late retirement (85+):?Spending tends to increase again due to health care costs and long-term care needs.

Different retiree profiles have different spending habits. Financial advisors have identified six common profiles:

• Remodel Rebels:?Spend heavily on home remodeling and other pastimes.
• Party Animals:?Spend more on food and beverages to entertain friends and family at home.
• World Travelers:?Spend a large fraction of their budget on travel.
• Early Birds:?Retire early and have higher spending rates, especially on travel and entertainment.
• Medicare Experts:?Use a significant share of their disposable income on health care costs.
• Average Retirees:?Have spending habits that most closely resemble the spending phases I described above.

So how much money do you need to retire? Let's say we start retirement with a $2 million tax-exempt portfolio, 60% in stocks and 40% in bonds. Based on the spending habits of different retiree profiles, experts have calculated the probability of success in covering essential expenses and cost of living.

• Essential Expenses:?All six retiree types had a very high likelihood (88% -100%) of being able to cover their essential expenses, such as food and housing, throughout retirement. However, what we really want to know is how much of our retirement income we can cover for both essential and discretionary expenses, such as travel, entertainment, and hobbies.
• Essential + Discretionary Expenses:Top Performers:?Average Retirees and Party Animals fared best, each with a 66% chance of being able to cover the total cost of their desired lifestyle throughout retirement.Bottom Performers: World Travelers and Early Birds had the lowest probability of covering their essential and discretionary expenses in retirement, with 12% and 2% likelihood, respectively. This is because they have much higher spending in early and middle retirement.

Why do World Travelers and Early Birds have a lower probability of success? The simple answer is that they spent less time saving and investing. Your probability of success in retirement will depend on your spending habits and how well your portfolio has performed over the years. If you've saved diligently and made smart investment decisions, a dream retirement is within reach—but it will likely require careful planning. Now you know why I keep telling all 20-year-olds to start investing yesterday! The earlier they start, the sooner they'll be able to retire.

So, what kind of retiree are you?

How to Retire Early

"Sure, Natalia. You've shown that Early Birds may not save enough to cover both essential and discretionary expenses. So, is it really possible to retire early?"

Fair enough. Let me quickly clarify what I don't assume when talking about early retirement in this newsletter. I don't assume you have a family that will help you financially, that you'll receive a large inheritance, that you'll win the lottery tomorrow, or that you'll work for a successful startup that successfully goes public. We all wish for these things, but most of us don't have them. So, let's focus on reality. Can you still retire early successfully if you don't have any of these advantages? My answer is "Absolutely!"

Retirement planning is important for everyone, but it's especially important to start early. The sooner you start saving and investing, the more time your money has to grow. And the more time your money has to grow, the more likely you are to be able to retire early and comfortably.

Let's say you start saving and investing 20% of your $55,000 salary in your mid-20s, assuming an 8% rate of return. If you keep working until 65, you'll have almost $2.6 million. If you retire earlier, at 50, you'll have $2 million. (See the graph below.) This means if you retire 15 years earlier, you will have $600,000 less in your investment accounts but you also will have 15 years of time!

When you retire, your money will continue to grow. If you look at the table below the graph, you can see that by 50, your income will be $100,000, your annual contribution will be $20,000 and you will have $634,000. This money will continue to grow for you, regardless of whether you continue to work after 50 or not.

However, it's important to understand that your spending will affect these numbers. For example, if you keep working and your spending continues to grow, you may end up with less assets than if you retired earlier and spent less.

What if you're already past 40 and don't have as much time to save? It depends on a number of factors, such as your current portfolio, investment performance, market performance, your income and retirement goals. Can you increase your income? Can you increase your savings rate? Are you willing to work part-time in retirement? If you're strategic and intentional, you can still achieve your retirement goals, even if you start late.

If you're struggling to save money, I understand. But don't give up. Learn new skills, find a better job, and increase your income. No one else is going to take care of your financial future for you. You have to take action.

The bottom line is, the earlier you start optimizing your finances, the earlier you can retire.

The FIRE movement, or Financial Independence, Retire Early, is a movement that encourages people to save and invest aggressively in order to retire early and live a life of financial freedom. FIRE adherents typically aim to save 25-50% of their income and invest it in a diversified portfolio of assets. By doing so, they can generate enough passive income to cover their living expenses in retirement.

Example:

A 30-year-old with a salary of $100,000 could save and invest $50,000 per year. Assuming a 8% annual return on investment, this person could have a nest egg of over $2 million by the time they are 40. This would allow them to retire early and live a comfortable lifestyle on the passive income generated by their investments.

The FIRE movement is not without its challenges. It requires discipline and sacrifice to save and invest such a large portion of one's income. Additionally, there is always the risk that the stock market could decline significantly, which could erode one's savings. However, FIRE adherents believe that the rewards of early retirement are worth the risks.

Determine where you stand

Recent market swings and the risk of a recession mean it's more important than ever to check your retirement plan. Many investors lost money in last year's stock market crash, and even if the market recovers, you need to make sure your investments are on track to reach your retirement goals. Working with a professional is critical in my opinion. If you're feeling overwhelmed after reading below, please know that I'm here to help. As a financial advisor at NewGen Wealth Creation, I can provide you with the information and guidance you need to make sure you're on track for a secure retirement. You're not alone, and I'm here to help you every step of the way.

If you haven't been saving or investing as much as you planned, I can help you see how this is affecting your retirement readiness.

If you have a long time until retirement, even small changes to your savings or investment strategy can make a big difference. If retirement is near, a professional may need to make some changes to your plan, even if the market is tough. If you're ahead of schedule, you may want to reduce your risk exposure to protect your gains and shield yourself from future market swings.

Here's a six-step retirement plan checkup to see if you're on track:

1. Review your cash flow forecast.?I can help you assess your savings and investment progress.
2. Identify any shortfalls.?Are you saving enough? Are your investments performing well? I can help you identify the root cause of any problems and develop a plan to get back on track.
3. Choose a path to reach your goals.?You may need to adjust your retirement date, spending plan, or investment strategy. I can help you develop a personalized plan that fits your needs and risk tolerance.
4. Maximize your returns without taking on too much risk.?I can help you explore strategies such as tax-efficient investing that can help you reach your goals.
5. Assess your income sources.?If you're retiring soon, you need to make sure you have enough income to cover your expenses. I can help you maximize your Social Security benefits, pension payments, and other income streams.
6. Rebalance your risk tolerance.?If you're on track to retire comfortably, I can help you reduce your portfolio risk.

Working with me at NewGen Wealth Creation can help you with every step of your retirement plan checkup, from assessing your readiness to developing a personalized plan to reach your goals. This can help ensure that your hard-earned savings will be there when you need them.

Some of you may want to work with a financial advisor full-time, while others may only need to meet with them once or twice to discuss specific topics. Try not to feel uncomfortable and ask questions. Sometimes, working with a professional is the only way to be honest with yourself about your finances and retirement goals.

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On The Markets

Stocks rose last week on hopes that interest rates may not rise as much as expected. I mentioned in the last newsletter that this was a possibility. Stock prices have risen this year, but this could be a sign of economic weakness. Stocks tend to rise when investors expect good things to happen in the future. However, if the economy weakens, stock prices could fall sharply.

The number of new job openings fell in July, suggesting that high interest rates are slowing hiring. Inflation rose 0.2% in July, in line with expectations, but it remains above the Fed's target of 2.0%. Inflation was 8.5% last summer, but it is now approximately 3.18%.

Even if the US economy avoids a recession, the stock market's big gains in 2023 have not been supported by strong economic fundamentals. S&P 500 companies have reported three straight quarters of declining earnings, and the S&P 500's price-to-earnings ratio is now 10% higher than its average over the past 10 years.

S&P 500 earnings fell 5.2% in the second quarter, the biggest decline since 2020. Technology and energy stocks outperformed, while utilities and consumer staples underperformed. The Energy sector was the biggest drag on earnings, with profits down 51.4%. This is because energy prices have fallen sharply since they peaked in 2022. Analysts are expecting S&P 500 earnings to start growing again in the second half of 2023, with growth of 0.2% in the third quarter and 7.6% in the fourth quarter.

Given the current economic and market conditions, it is prudent to have a mix of growth and defensive stocks in your portfolio. Growth stocks are companies that are expected to grow their earnings quickly, while defensive stocks are companies that are less sensitive to economic downturns.

Stocks did poorly in August, and September and October are historically the worst months of the year for the stock market. The S&P 500 has lost an average of 1.1% in September since 1928, more than any other month. Are you and your investment portfolio ready for the challenges and benefits of Fall?

This information should not be relied upon as research, investment or tax advice, or a recommendation regarding any products, strategies, or any security or digital asset in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.

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What’s Next?

In our October monthly newsletter, we will dive deep into cash flow forecasting, exploring the latest trends and best practices. My goal is to equip you with essential knowledge to make informed decisions. I sincerely hope that this newsletter continues to serve as a valuable resource, keeping you up to date and well-informed.

Natalia Ivanova

Founder and CEO

Financial Planning Specialist

NewGen Wealth Creation LLC | Wealth Management

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My commitment to my clients:

Every day is dedicated to honoring the trust and faith my clients have placed in me.?I?listen to their concerns, understand their needs and continuously work to find solutions and structures that help meet their goals.

NewGen Wealth Creation LLC is an Investment Adviser registered with the Securities & Exchange Commission (SEC), principally located in the state of Puerto Rico. All views, expressions, and opinions included in this communication are subject to change. Please contact us if there is any change in your financial situation, needs, goals or objectives. The information contained in this electronic communication is intended only for the use of the recipient. For your privacy and security, do not include sensitive information using emails that are not secured.

NewGen Wealth Creation LLC is an Investment Adviser offering services in Puerto Rico and in other jurisdictions where it is exempt from registration. All views, expressions, and opinions included in this communication are subject to change. Please contact us if there is any change in your financial situation, needs, goals or objectives. The information contained in this electronic communication is intended only for the use of the recipient. For your privacy and security, do not include sensitive information using emails that are not secured.

Risk Considerations: There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, investors can lose money.