June 2020 Newsletter

The 5 years leading up to retirement through the first 5 years after retirement is the most crucial period that a retiree will go through – in fact, a successful retirement (i.e. not running out of money) may boil down to this 10 year period known as “the Fragile Decade.”

So why do these 10 years need to be handled with such care?

During market volatility, an important and potentially devastating risk a retiree faces is called sequence-of-returns risk; or the risk of combining withdrawals with poor portfolio returns. This combination can simply deplete a retiree’s portfolio too quickly.

Click here to read more of this article by Ben Agron, CFP®, Financial Advisor at Capital Advantage, Inc.

The demand for real estate is unexpectedly high in wealthy regions outside of San Francisco.

Amid the depths of a global pandemic and financial downturn, the demand for real estate is unexpectedly rocketing in wealthy regions outside San Francisco, reports Bloomberg. Agents say that demand is soaring in affluent areas around the Bay Area such as Napa, Marin and further afield in Carmel, as people who have the means look to get away from the city. Meanwhile, the market in San Francisco and Alameda County is still well below where it was last year.

Elsewhere, Lake Tahoe has also seen a surge in real estate interest. The prospect of living out of the city on an alpine lake while maintaining a career is appealing for a new generation of young buyers, as many tech companies have signaled that remote work may be the new norm for a long time.

“I’ve never seen the demand higher for Marin County real estate than when COVID-19 hit,” Sotheby’s Josh Burns told Bloomberg this week, as real estate agents see a surprising uptick in wealthy buyers leaving San Francisco.

Agent Katrina Kehl of Compass warned her sellers not to expect much interest in their recent Mill Valley listing, as the country moves through an economic crisis. To their surprise, the couple received 13 bids and the home went over the $1.7 million asking price by “a lot,” Kehl told Bloomberg. Sotheby’s agent Ginger Martin added that “there’s a mad rush to get out of the city.”

Meanwhile, the rental market in San Francisco has dropped significantly, with rates for one-bedroom apartments in the city dropping by 9.2% since June 2019, and hitting a three-year low.

However, buying a new home in an isolated haven in a nearby bucolic county is not an option for lower-income San Francisco residents, and some believe the trend is only exacerbating the wealth divide.

Whether this change in demand away from San Francisco and into the suburbs is a short-lived reaction to the pandemic, or a more permanent change, remains to be seen.

^{Source: Patrick Carlisle, Chief Market Analyst for the Bay Area, Compass}

^{Article Source: Chamings, A. (June 8. 2020). https://www.sfgate.com/living-in-sf/article/Wealthy-buyers-in-mad-rush-to-leave-SF-15324574.php}

^{Chart Source: Alexander, S. (June 8, 2020). https://www.bloomberg.com/news/articles/2020-06-08/wealthy-havens-lure-homebuyers-in-mad-rush-from-san-francisco?srnd=prognosis}

More than 100 million Americans are covered by defined-contribution plans, but many firms are considering suspending, reducing or deferring matches in the wake of the coronavirus.

The coronavirus pandemic is affecting one of the best perks of workplace retirement-savings plans: company matches to employee 401(k) contributions.

Many firms in the hard-hit hospitality and retail industries have already suspended, reduced or deferred matches, including Expedia, Hilton Grand Vacations and Best Buy. Even with the recent rally in stocks, many more companies are planning or considering such a move.

As of late April, 12% of 816 companies representing 12 million workers had suspended matching contributions, according to a Willis Towers Watson survey. An additional 23% said they will or may halt them this year.

Companies see suspensions as a way to boost cash flow and avoid or limit job cuts — although furloughs and layoffs have been plentiful this year. In some cases, the extent of furloughs obviates the need to act on the match.

“A colleague was working with a company that was thinking of suspending the match, but so many people were off the payroll that they realized they’d in essence frozen it,” said Rob Austin, director of research for benefits administrator Alight Solutions.

More than 100 million Americans are covered by defined-contribution plans, which hold some $8.8 trillion in assets, according to Vanguard. Most of the workers lucky enough to have access to a 401(k) — and to be able to devote a pretax slice of pay into the tax-deferred plans — get some level of company match. The matches were partially designed to encourage greater participation from lower-income workers.

Financial planners urge clients to contribute enough to their 401(k)s to qualify for the maximum company match, which is often 50% of employee contributions up to 6% of salary. The average employer match was 4.3% of pay, according to Vanguard’s 2019 “How America Saves” report.

Companies don’t have to make public announcements about changes to the company match, so getting a full picture of the trend is difficult.

Almost 10% of 302 clients surveyed by Fidelity Investments in early June said they had already suspended or reduced the match, and about 9% were considering it. A survey in early April by the Plan Sponsor Council of America found that among plans with at least 1,000 participants, about 20% expected to halt such contributions. Vanguard, meanwhile, isn’t seeing plan sponsors do so in any great number, according to Dave Stinnett, head of Vanguard Strategic Retirement Consulting.

With millions of people having lost their jobs and scrambling to make ends meet, there are certainly worse things than losing one’s company match. Still, given how little money most people have socked away for retirement, it makes the task of preparing for life after working more difficult, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

“Anything that reduces the amount going into that pot is harmful,” Munnell said. “But on the other side, given all the other horrible things that can happen these days, it’s a relatively small harm.”

An expected second wave of layoffs — this time among white-collar employees rather than front-line workers — could mean 6 million jobs are at risk, according to Bloomberg Economics. That would probably affect higher-paid supervisor positions and jobs in industries such as professional services, finance and real estate.

Soon after the 2008 financial crisis, half of the companies that had cut matches told Fidelity they planned to reinstate them. After several years, most had done so, according to Katie Taylor, vice president of thought leadership at Fidelity.

This time around, more companies seem to be “trying to leave the door open to revisiting the decision and doing something at year-end,” said Amy Reynolds, a partner at Mercer Consulting. “There’s a heightened sensitivity.”

^{Source: Woolley, S. (June 11, 2020). https://www.financial-planning.com/articles/more-companies-weigh-cutting-401k-match-in-pandemic-pinch}