Retirees are making three mistakes that could jeopardize their financial future, experts say, with the missteps coming amid a growing awareness that many workers who’ve saved diligently for decades are now struggling to spend their savings.
What’s driving the mistakes? Christine Benz, director of personal finance at Morningstar, points to the uncertainty around the retirement time horizon. Juggling finances is complicated, she says, because forecasting life expectancy—let alone market behavior—is impossible.
The good news is that these mistakes
can be remedied. Here’s how:
And Lowe’s is taking steps to improve pricing and promotional tools in order to recoup lost margins in the new year. Moreover, lower interest rates, stability in the housing sector and advertising efficiencies from the continued shift to digital marketing should give the stock
a boost.
All three stocks are rated buy at UBS, with Hasbro upgraded on Nov. 25. Amazon has a $2,100 price target, Hasbro has a $117 price target and Lowe’s price target is $140.
Home improvement retailer Lowe’s is also a “top global idea” at RBC Capital Markets, where it’s rated outperform with a $134 price target.
“While we have long believed that part of Lowe’s relative underperformance versus Home Depot relates to their respective store bases, as Lowe’s stores tend to be located further out from major metro areas, we have also underestimated how difficult Lowe’s had made it for Pros customers to do business with the company, and improvements on this front should enable it to gain incremental market share,” analyst Scot Ciccarelli wrote in a note.
Young consumers are increasingly concerned about climate change which makes environmental sustainability a top issue for the retail sector.
“We believe brands that promote sustainability will gain wallet share of younger consumers and become more relevant,” wrote Cowen analysts in their “Future of Retail” report. “In our view, there is a strong momentum toward eliminating waste among retailers.”
Cyber Monday mobile transactions in 2019 totaled $3.1 billion, according to Adobe Analytics data. Total Cyber Monday online sales were $9.4 billion, a record.
“The smartphone continues to radically alter the end-to-end customer experience as customers increasingly rely on smartphones to research, transact and engage with brands,” Cowen analysts say.
The rise of smartphone shopping is due to social media platforms and the influencers, brand ambassadors, and communities that have popped up on them. Cowen data shows that more than 63% of millennials ages 18 to 34 spend at least four hours per day on their mobile phones.
“We also believe that the channel has major implications for both in-store traffic and conversion as consumers use devices to inform purchases before or during shopping trips, including the use of smart labels, virtual reality and augmented reality,” Cowen said.
Even as shoppers use mobile devices and other e-commerce platforms to make a purchase, customers are increasingly opting to make the last-mile trek for their
items themselves.
“We expect more shoppers to adopt and appreciate curbside pickup, which we view as an ideal manifestation of combining physical and digital retail,” Cowen said.
Cowen data shows that 21% of the U.S. population has tried curbside pickup or buy-online-pickup-in-store for their groceries.
Walmart Inc. (WMT) and Target Corp. (TGT) are the leaders in curbside pickup, Cowen says. Both are able to leverage their large store fleets to offer the service.
“Given that the same-day options rely on our store assets, team and inventory they are much more profitable than traditional e-commerce fulfillment,” said Target’s Chief Executive Brian Cornell on the third-quarter earnings call.
E-commerce on various devices and convenient fulfillment methods are also erasing the shopping calendar.
“Black Friday will change dramatically in 2020,” said Graham Cooke, chief executive of Qubit, a personalization software provider. “There’s no need to wake up at the crack of dawn just to fight over sale items when shoppers can find great deals from their couch.”
Moody’s analysts think global trade policy disputes, will continue to be a risk factor in 2020, as well as a weight on consumer confidence. President Trump’s U.S. - China trade war has disrupted global manufacturing and retailing supply lines and the import tariffs have raised some prices.
“Although we do not expect a recession in 2020, recession risks are high amid a backdrop of trade policy uncertainty, [and] an unpredictable political and geopolitical environment,” Moody’s says.
“Increased trade friction could trigger spikes of volatility in financial markets and further disrupt trade flows. Many companies have so far been able to lessen the effect of tariffs through a combination of cost reductions, buildup of pre-tariff inventory and price increases within the industry supply chain. But these offsets may not last if these
tensions persist.”
Moody’s forecasts slight operating income growth to a 3% or 4% increase in 2020 for the retails sector, though analysts don’t expect “much improvement” in operating margins as retailers use promotions to increase market share.
Dollar stores like Dollar General Inc. (DG), off-price retailers like TJX Cos. (TJX), and supermarkets like Kroger Co. (KR) are expected to outperform. Department stores like Macy’s Inc. (M) and J.C. Penney Co. Inc. (JCP), and drug stores like Walgreens Boots Alliance Inc. (WBA) are forecast to underperform.
The Amplify Online Retail ETF (IBUY) is up 30% for the past year, the SPDR S&P Retail ETF (XRT) has gained 13.4% for the period, and the Dow Jones Industrial Average (.DJI), and S&P 500 index (.SPX) are up 24.2% and 30.3% respectively.
Secondhand retailers are also in a position to benefit from concern about sustainability. Cowen thinks RealReal Inc. (REAL) and ThredUp, which forecasts that the secondhand market will be valued at $51 billion by 2023, have an advantage.
Nearly half of the total sustainable merchandise is for women, 25% for children, and 24% for men, according to the StyleSage Sustainability Report.
Kiplinger
5 secrets to a happy and healthy retirement
Online lifts holiday shopping sales
Seema Shah of Creditntell.com says the holiday shopping season got a lift from
e-commerce sales, but overall results could have been more robust.
© 2020 Bloomberg L.P.
Sustainability will continue to be top of mind for young consumers
Retail gets increasingly mobile
Recession fears and international trade disputes will continue to impact the
retail sector
Kiplinger
5 secrets to a happy and healthy retirement
1) No written plan
Only 12% of retirees currently have
a written plan, according to a 2018
survey from the Transamerica Center
for Retirement Studies. An additional
42% have a plan, but it’s not written
down, and the rest have no plan.
Catherine Collinson, CEO of the
Transamerica Center, says this is probably the biggest mistake retirees make. A written retirement plan can provide a roadmap to balancing income, investments and expenses—both needs and wants—and can help retirees navigate the finer financial points of this life stage. (The Transamerica Center for Retirement Studies is a division of Transamerica Institute, a nonprofit, private foundation funded by contributions from Transamerica Life Insurance Co.)
As for drafting a comprehensive plan, both Benz and Collinson say working with a financial advisor or wealth manager is worth the cost, even for people who want to manage their own investments in retirement.
“It can be so involved to try to take it on one’s own, when professional advisors work with hundreds if not thousands of clients. They have had the experience to see how things play out in reality and they can be a very valuable source of knowledge,” Collinson says.
Benz says do-it-yourself investors can hire an hourly financial planner for a consultation. Investment firms that are popular with retirees such as Fidelity Investments, Charles Schwab, or Vanguard Group often offer services of certified financial planners for various costs. And in some cases, if the retiree’s assets are substantial enough, the advice may be bundled in free.
In addition to ongoing living expenses, Social Security and Medicare benefits, a comprehensive plan should map out:
• Needed investment portfolio returns to make up any shortfalls from other income sources to maintain expenses
• Overall tax planning and how tap assets tax efficiently
• Inflation assumptions
In a good stock-market environment, retirees trim appreciated positions to bring in cash flow and reduce portfolio risk, Benz says. But tapping equity positions in a down market locks in losses.
This is sequence-of-return risk, and when retirees mismanage the order in which their returns occur, they often have to reduce their withdrawals or lower their standard of living to avoid running out of money.
Benz says the bucket approach of spreading out assets into short-, medium-, and long-term holdings can help mitigate sequencing risk. She gave an example of a sample portfolio of a retiree spending $60,000 annually from a portfolio.
• Bucket one: holds $120,000 in highly liquid assets to fund near-term living expenses for years one and two, such as certificate of deposits or money market accounts/funds.
• Bucket two: holds $480,000 in an intermediate portfolio for years three to 10. Put $100,000 in a short-term bond exchange-traded fund, $150,000 in a short-term U.S. Treasury Inflation-Protected Securities ETF and $230,000 in a core U.S. bond fund.
• Bucket three: holds $900,000 in a growth portfolio for years 11 and beyond. Put $350,000 in a dividend growth ETF, $225,000 in a total U.S. stock market index ETF, $250,000 in international ex-U.S. all-world ETF, and $75,000 in a high-yield corporate ETF.
Not everyone has $1.5 million in retirement savings, but the idea is that a sample portfolio holds 8% is in liquid assets, 32% in bond funds and 60% in stocks. Benz says this sample portfolio builds a bulwark against a bear market in stocks. “If it materializes, then you have those funds to draw upon first before you need to touch your equities,” she says.
2) Not managing sequence-of-return risk
Retirees may be setting themselves up to fail with inappropriate risk—either having too much low-yielding fixed income or having too much in stocks 10 years into the bull market. There’s no one-size-fits-all answer for the appropriate balance as much depends on income needs, but there are some rules of thumb.
Nancy Anderson, head of wealth strategy and trust services for Calamos Wealth Management, says when she formulates an investment plan, she asks retirees how much income they need for the lifestyle they want, the assets they have, and whether they want to leave a financial legacy or spend down their assets. She starts with these goals and backs into the appropriate asset allocation to produce the needed investment return from the portfolio to cover any gaps in income.
For example, she and a client may base the risk allocation on such goals as “I don’t want to sacrifice my principal,” or “I just want $3,000 a month in income.” “Based on that risk goal assessment,” she says, “we would develop an asset allocation that would probably be adjusted at a minimum annually to make sure we have the right type of asset.”
Depending on the retiree’s income needs, if total income needs can’t be covered by Social Security and investments without taking on aggressive risk, a retiree may have to look for an alternative income stream which may include part-time work.
Benz says using desired cash flow as a starting point for positioning usually ends up with a retiree having an asset allocation of 60/40 or 50/50 stocks/bonds, rather than the previous mix of strictly fixed-income.
“There was always this idea that you didn’t want to necessarily be in equities when you’re retired, but it seems to be more like a 60/40 portfolio is still probably a good idea, even in retirement,” she says.
3) Not taking the right risk