Why advisors are urging many clients to delay their retirement
Ric Edelman: It's Thursday, October 19th. Interest rates are still rising. They're not falling as everyone expected would be occurring by now. What does this mean for the future? Well, first of all, everyone who borrows money is going to start feeling it. If you're buying a house or a car, for example, if you pay rent, if you borrow for anything from student loans to credit cards, and you can expect these higher rates to stay high for years.
So if you've been planning to buy a house but are waiting for rates to drop, you could be waiting a very long time. Better to just get on with it. If rates drop, you'll be able to refinance and the house's value will go up because prices rise as rates fall. The monthly payment for a new car is going to be higher too, but these higher rates are not so horrible. Interest rates have always been around 5%. That's where they are now. It only feels high because rates were unusually low during the 2008 financial crisis and more recently Covid. That wasn't normal. This is normal.
One of the biggest losers with higher interest rates are going to be taxpayers. That's because two thirds of all federal debt matures within the next five years. The average rate on that debt right now is 3.4%, well below current rates. And that means the federal government is going to have to start paying a lot more in interest when it refinances its bonds. And the taxpayers - you and me - we're going to be footing that bill. And it's not just the federal and state governments that are in trouble. So is the Fortune 500. And every other business that borrows money; $600 billion in corporate debt matures this year alone. Another trillion matures over the next five years.
The higher interest rates mean lower corporate profits, lower investor returns, lower stock prices, less spending on corporate growth, and even a bunch of corporate credit rating downgrades, which makes them pay even more in interest and lowers their profits even further. It's ugly, but not everybody's going to be unhappy. If you're retired and you have your money invested in bonds and CDs, you're loving that you're now earning 4 or 5% far better than the zero point nothing that you got over the past five years.
So as a financial advisor, you need to rethink how you're helping your clients manage their cash. They need not only to consider their debt payments, but where they invest their cash and even how much cash to have. And with all of this, you might even need to tell some of your clients not to retire or not to retire when they were planning to retire, or even to leave retirement if they're already retired and go back into the workforce.
These are tough conversations, but if you don't have those conversations now, your clients could be in big trouble in the future. And your clients are thinking about this anyway. In a recent survey. Half said they're thinking about delaying retirement or coming out of retirement altogether.
And get this, 40% of them said money is not the reason they miss the intellectual stimulation that they got from working. And a third say they lack a of sense of purpose. So this isn't just a financial conversation for you to have with your clients. It's a deep, emotional, personal conversation that you need to be having with them.
And if you have a financial advisor who's not talking to you about all this, call them to do so, or call another advisor for sure. The chair of the Financial Stability Board is warning of challenges and shocks in the coming months and years because of high interest rates. The Financial Stability Board is based in Basel. It's the world's financial watchdog and the chair of the Financial Stability Board, Klass Knot, he recently told a meeting of the G7, the seven largest economies in the world that, “the global economic recovery is losing momentum and the effects of the rise in interest rates in major economies are increasingly being felt.”
And JP Morgan’s chief strategist says the stock market is going to end this year with a loss. I'm not telling you to sell. I'm telling you to have conversations with your clients so they don't panic when the economy and the stock market weaken. Bad news is less bad when you know it's coming and you've got time to prepare. Start talking with your clients right now. Otherwise, you're going to be having far more serious conversations with your clients later, mostly focused on your efforts to stop them from firing you for not warning them.
Hey, be sure to listen to my wife Jean's podcast, Self-Care with Jean Edelman. Her new weekly episode comes out today. Jean shares her experience and knowledge with you on self-care, mindfulness and overall wellness. You can listen to Jean everywhere you get your podcasts and you can also subscribe to Self-Care with Jean.com.