The Perfect Retirement Storm Is Brewing!
If you are an electric cooperative employee and you are 55 or over there is a perfect retirement storm brewing right now until the end of 2022. And the good news is there is a pot of gold at the end of this rainbow! Here are 2 reasons why you should retire in 2022.
The NRECA R&S Lump Sum options are at all time highs
One of the key figures used to calculate your R&S lump sum benefit is what is known as the GATT rate. That stands for the Federal General Agreement On Tariffs And Trade. The GATT rate is directly tied to and essentially the same as the 30-year Treasury Bond rate. Without getting to0 far down this rabbit hole, simply put, the lower the GATT rate the higher your lump sum offer will be.
The rate fluctuates constantly but is calculated as an average for each month of the year. You can see the posted averages here. NRECA uses the December average to calculate your pension and whatever that number is, it's used to calculate your pensions for the entire calendar year following. Again, the lower that rate is, the higher your lump sum will be. The higher that rate is, the lower your lump sum will be.
December 2020 and December 2021 were historic months as it pertains to the GATT rate and your pension. Those two Decembers the rate fell below 2%. I've researched and I can't find any other December in history where the rate has been below 2% ever!
The reason that is important is because the GATT rate as I write this blog is sitting at around 4%. You might be saying to yourself - big deal! The big deal is that for every 1% that rate increases your lump sum pension offer decreases by approximately 10%. That's a ballpark number based on only my own research but if you want to double check me call NRECA and ask for your retirement numbers for December 2022 and December 2023. Most of you will see your lump sum offer has decreased by 20% or more from 2022 to 2023.
That means for those of you interested in the lump sum option and you are open to the thought of retiring, this could be the time to do so. Like I mentioned before, even though the GATT rate was below 2% for December 2020 and 2021 that is extremely uncommon. The historical average for the GATT rate is 4.79%.
What I'm trying to convey, is you could work another 40 years and not ever see this scenario again. From someone who studies and looks at this stuff on a daily basis, it's literally unbelievable. And what's even more unbelievable is the GATT rate jumping from 1.85% in December 2021 to a potential rate of 4% in December 2022. That's an unprecedented increase from a year to date perspective. Again, I can't find one example of an increase that big year-to-date ever.
Enough of the mumbo jumbo. What I want you to realize is these are historic times and your lump sum offers are at historic highs until the end of 2022.
The best companies in the world are temporarily on sale
Here's the second reason. The best companies in the United States and the world are temporarily on sale. The mainstream media loves to paint a picture of doom and gloom daily. However, remember they sell headlines, not history. Nor do they care about your retirement at all.
Even though the mainstream media doesn't want to say the dreaded "R" word about this economy, the fact is that the Gross Domestic Product (GDP) has decreased two quarters in a row. That is the textbook definition of a recession. Always has been and always will be. I find many people scared to retire in what they perceive to be a bad or down economy. I get it. The media constantly tells you how things are bad and this current set of problems is so much worse than previous problems we ever faced and blah, blah, blah, blah. You remember Charlie Brown's teacher in Peanuts? That's what I hear every time these doomsday naysayers speak.
Here's the deal. The economy and markets in general go through cycles. That's always been the case and that will always be the case. We are in a down cycle temporarily and I stress temporarily. When people say the word stock market, they are usually referring to the Dow Jones Industrial Average. The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies. Think Apple, McDonalds, Verizon, Nike, Microsoft, etc. Here's the full list here.
These are literally the best companies in the world. For things to stay permanently bad like the mainstream media would love you to believe, all of these companies would have to never turn a profit again. Do you think that's likely? In every one of these companies' board rooms right this second they are figuring out ways to succeed in this down economy. And history consistently shows that they always figure it out. Want proof?
Here is a 100 year chart of the Dow Jones Industrial Average. I want you to look at every decline closely. What do you see? To the right side of every single decline you see an equal or greater incline every...single...time. That's why as long-term, goal-focused investors we should NOT fear the future but have faith in the future.
Why should this matter to you? Because you have the opportunity to retire while lump sums are at historic highs and the best companies in the world are temporarily on sale. It's literally the perfect storm.
Our planning process
At 80/20 Financial Services our mission is to make sure our clients never run out of money in retirement. And we believe the only sane way to define money is to call it what is. Money is purchasing power. We want to make sure in 30 years from now your purchasing power is equal to or greater than what it is today.
What did a stamp cost 30 years ago? What's a stamp cost today? In 1992 a stamp was 29 cents. Today a stamp is 60 cents. The cost has doubled in 30 years. The exact same thing will happen to your cost of living throughout retirement. If you need $50,000 to live comfortably today then you'll need $100,000 to live comfortably in 30 years. That's inflation and that's what inflation does to your money/purchasing power throughout a 30 year retirement.
Historically speaking, there is only one group of investments that has outpaced inflation consistently throughout the years. That would be the best companies in the United States and the world mentioned above. And what makes this a great time to retire is they are currently able to be purchased at discount prices.
When we set up a retirement income plan, generally speaking, we want to make sure you have 10 years of immediate living expenses on hand. We want that short term money safe and not subject to temporary market fluctuations.
And at the same time, we put the money you'll need in the later years of retirement in a position to receive the permanent market returns necessary to provide an income that increases and outpaces inflation. We do that by buying and owning the best companies in the United States and the world.
If you're interested in "beating the market" or finding the next "hot stock" we can't help you. That's not what we do.
Our mission is to make sure our clients never run out of money in retirement.
The next step
If you would like to see what your personalized retirement income plan would look like, we would love to visit with you. There is no cost and no obligation for the meeting. If we can help you, we will walk you through our process. You can see our process here. If we can't help you, we will tell you that and do our best to point you in the right direction.
Above all else, we want you to make an informed and educated decision before you decide to work with us or any advisor.
You need a plan. We can help.
At 80/20 Financial Services, we are retirement planners and we specialize in working with electric cooperative employees. We can help you answer questions like:
- Should you take your cooperative's monthly pension or lump sum offer?
- Do you have enough money between your R&S and/or 401k to retire?
- Could you possibly retire at age 55?
- Is your cooperative 401k invested correctly for your retirement goals?
- Should you be investing in a Traditional 401k or a Roth 401k?
- Are you contributing too much or too little to your 401k?
- Should you quasi-retire from your cooperative?
- Should you accept an early retirement offer from your cooperative?
- When should you claim Social Security benefits?
- How can you lower your tax bill in retirement?
- How do you invest your retirement money so that you increase your income in retirement?
- How do you create an income stream in retirement that is similar to when you were working?
I started this firm specifically to help electric cooperative employees with retirement planning. I worked for an electric cooperative for 11 years and I know your profession and benefit plans better than any other financial advisor will. You have excellent retirement benefits available to you. I can help you optimize those benefits while creating a retirement income and investing plan that aligns with your retirement goals.
My goal isn't that everyone who visits my site or reads my blog decides to work with me. My goal is to help you make an educated decision as you work through this process.
Contact us to set up a consultation. The consultation is free and without obligation.
Join our Facebook Group "Electric Cooperative Retirement" where you can ask questions and get answers about all things pertaining to retirement.
Schedule your consultation here.
For more articles about retirement planning and investing, click here.
You may also sign up to receive our weekly retirement blog here.
Thanks for reading!
80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We help clients in Missouri and throughout the United States prosper in retirement. Being independent allows us to work exclusively for YOU.
Our specialty is retirement income planning for electric cooperative retirees.