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Setting FIRE to Retirement Planning

Financial planning is a comprehensive evaluation of your financial landscape with the aim of charting a course to achieve both immediate and long-term financial objectives. These goals encompass a wide spectrum, ranging from saving for significant life events such as home purchases, education expenses, and retirement, to ensuring the financial well-being of your loved ones in the event of your incapacitation or demise.

The Financial Independence, Retire Early (FIRE) Movement is Gaining Steam

Financial planning is a comprehensive evaluation of your financial landscape with the aim of charting a course to achieve both immediate and long-term financial objectives. These goals encompass a wide spectrum How much money do you need to retire in your 40s or 50s? That’s a question more people are asking, thanks to a growing movement: Financial Independence, Retire Early (FIRE). FIRE is based on the idea that saving more and spending less will help younger workers retire well before they reach 65. Some of them even want to retire when they’re in their 30s or 40s.

FIRE has gained steam with millennials. The book Your Money or Your Life by Vicki Robin and Joe Dominguez is credited as the inspiration for the movement. Published in 1992, the book popularized many of the ideas that fuel FIRE—especially the idea that people should evaluate every purchase or expense and consider how many hours of work it cost them.

Not All FIRE Strategies Are the Same

Most FIRE followers strive to save and invest 50%–75% of their income. That’s a surprising goal, considering the average percentage of income Americans typically set aside in savings is 3.4%.2 But the main focus of FIRE is establishing enough financial independence to retire early and have the freedom to choose your next steps.

FIRE strategies vary, depending on current finances and retirement goals, but basically boils down to living below your means and aggressively saving money. A FIRE retirement may range from a minimalist lifestyle called “Lean FIRE” to a “Fat FIRE” filled with traveling, shopping, and more. There is also a “Barista FIRE” model which involves a flexible side hustle or part-time work to supplement their savings.

Whatever the strategy, the main focus of FIRE followers is to retire early from full-time work and enjoy their free time—whether that means spending more time with loved ones, traveling, enjoying their hobbies, starting their own business, or something else.

The Math Behind FIRE

The amount of money FIRE followers need to reach financial independence is their FIRE number, and many followers use the 4% rule to determine what that is. The rule is a popular retirement strategy that suggests you need to invest 25 times your annual expenses in order to maintain your current lifestyle for 30 years by withdrawing 4% from your investments each year. Someone whose average yearly expenses are $50,000, for example, needs a portfolio of $1.25 million to withdraw 4% of their portfolio ($50,000) to meet their annual expenses.

Tips for FIRE Success

FIRE may not be a good fit for most people, but everyone wants to achieve financial independence sooner, rather than later. To help you on your path to financial independence, consider these tips:

Speak with a financial professionals specialist for help creating a budget and financial plan to achieve your goals.
Save more money. The more you save, the faster you can achieve your goals.
Make more money.
Eliminate debt—especially high interest debt.

But Don’t Forget—There Are Risks and Expenses to Early Retirement.

While FIRE followers are optimistic about their retirement landscape, AARP points out that early retirement can be tricky for the following reasons:4

Health care is expensive, and Medicare doesn’t start until age 65.
If you withdraw money too early from most tax-deferred accounts, you probably will have to pay a 10% early-withdrawal penalty. You will also owe income taxes on withdrawals from traditional accounts funded with pretax contributions.
You may outlive your investment savings—and health expenses may add up, along with housing expenses.
You lose the benefits of compounding interest.
Extra income may be difficult to come by.
Inflation may spoil your spending plans

For some people, early retirement can also lead to boredom, as their friends may still be working all day and worn out at night. So, if you’re thinking about taking this path, you may need to make new friends, start volunteering, pick up a hobby, join a club—or even consider getting a job to fill the time and put more money in your pocket.

1. Investopedia: Financial Independence, Retire Early (FIRE) Explained: How It Works, updated March 27, 2023 2. MoneyGeek, updated 6/14/2023: Average Personal Savings of Americans 3. Time, Personal Finance, May 29,2023: What is FIRE Movement: Financial Independence, Retire Early? 4. AARP: 10 Things No One Tells You About Early Retirement, updated April 13, 2023

Israel/Hamas War

Key Takeaways

The Israel/Hamas war is a terrible human tragedy and may escalate in the coming weeks.
If the economic impact is expected to remain largely regional, but the war may impact investor sentiment, commodity prices, and monetary policy.
We suggest investors remain disciplined to their long-term investment strategies.

Human Tragedies and Markets

One of the most challenging things about investing (and writing about investing) is that markets are shockingly unemotional when it comes to human tragedy. Markets simply do not care about human suffering – whether caused by an earthquake, a hurricane, or a war. The Israel/Hamas war is no exception. Despite the unspeakable human tragedy, markets typically focus on economics. And the economic impact is likely to be largely confined to the region, with marginal impacts on commodity prices and monetary policy.

Oil Price Volatility

The regional impacts of the war are still uncertain. While Israel and Palestine do not produce substantial amounts of oil, Iran, Saudi Arabia, and other Gulf nations account for almost one-third of the world’s oil production. If the conflict extends to Iran or Saudi Arabia, we could see substantial volatility in oil prices. However, it is too early to tell how the story unfolds and how the regional dynamics may evolve.

Oil prices did increase from $83 to $87 on the day of the attack, but they have settled down over the last three days and have generally traded sideways. The war’s impact on other assets is similarly unclear.

Investor Sentiment

Investor sentiment is fickle and unpredictable. Despite higher volatility in an already volatile region, US equity markets (S&P 500) are up about +2% since the attack. VIX, a measure of US equity market volatility, is -8% lower since the attack. On the surface, this might seem odd. One possible explanation is the impact on monetary policy. The Federal Reserve may be less likely to hike interest rates because of the additional geopolitical risk.

Indeed, the market was implying a 30% probability of a rate hike in November before the attack and a 12% probability after the attack. This is consistent with previous Fed communications, which have repeatedly cited the Russia/Ukraine war as a source of risk to economic growth (and a reason for keeping rates more accommodative). On the other hand, the Fed has also cited the Russia/Ukraine war as a source of inflation (and a reason for keeping rates higher). How the Fed reacts to the war will likely depend on the scope of the countries involved, but at this point, markets are reflecting a marginal impact on the US economic growth and inflation picture.

Key Takeaway

Despite the human tragedy of this war, the investment impact on US markets is likely to be limited to marginal declines in investor sentiment. As such, we recommend that investors remain disciplined in their long-term investment strategies.

Important information

This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation. It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.

Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.

Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P.L and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies.

106586 | C2 3 20496 10/2023 | EXP 10/31/2025

Powell Tries to Calm Markets

KEY TAKEAWAYS

The Federal Open Market Committee (FOMC) is proceeding carefully, something we highlighted here almost a month ago.
Geopolitical tensions post key risks to the outlook, something that could ensure the Federal Reserve (Fed) takes a wait-and-see approach with further tightening.
Additional hikes are in the cards only if there is additional evidence of a strong economy.
The Fed is not yet convinced where inflation will settle over the next few quarters, which means the committee will not pre-commit. Each meeting will be a live meeting.

Bottom Line: As of this morning, markets were pricing in a roughly 20% chance the Fed will increase rates in December, and if not in December, then a higher likelihood of an increase in January. However, we believe the economy is slowing enough that the markets are overpricing the likelihood of more rate hikes.

Did He Calm Markets?

Fed Chairman Jerome Powell addressed the Economic Club of New York yesterday along with a brief—and unscheduled—presentation from a group aptly named Climate Defiance.1 Despite the interruption, the Chair was going to continue with the theme developed earlier in the week from several other members of the FOMC. To wit, the Committee sees risks as roughly balanced between over-tightening and under-tightening. If rates were too low, inflation could resurge and if rates get too high, the economy would most likely feel a hard landing. In an effort to calm markets, Powell reiterated his desire for the FOMC to proceed carefully in the next several months.

But, markets initially did not know how to process his comments. Yields on the 2-year Treasury initially dropped on the news and then reversed course only to dip several basis points again. (One basis point is 0.01%.) Markets eventually were able to process the new information and yields continue to fall this morning.

Is Inflation Easing or Not?

The temporary scare for markets was the confession that the FOMC is unsure where inflation will settle over the next few quarters. In our view, many aspects of inflation are getting less sticky, creating reasonable expectations that inflation will ease further in coming months. Rent prices are off their peak according to industry reports, and investors should also know there is a sizable lag in time between a reported movement in industry rental data and the official government metrics. By the end of the year, the inflation trajectory should be clearer for both policy makers and investors.

Recession or No?

From an investment standpoint, the “recession call” may end up being less relevant. A recession could still emerge as consumers buckle under debt

burdens and use up their excess savings, but a Fed sensitive to risk management might provide the salve necessary for more risk appetite. Investing is a relative game, meaning the U.S. could experience the 3 D’s of an economic contraction—depth,

diffusion, and duration—but at the same time, still outperform other markets and hence, still be an attractive option for investors looking for calculated risk.

A shallow recession would likely provide a boon for the domestic markets, as it would increase the odds of the Fed cutting rates and bring the labor market into better balance. History shows markets tend to rally as the Fed pivots away from a tightening bias.

Recent Asset Allocation Change

The Strategic and Tactical Asset Allocation Committee (STAAC) recently recommended reducing allocations to developed international equities and increasing allocations to the United States. Growth estimates for Q3 will be released October 26 and will likely be better than expected in the U.S. and deteriorating technical analysis trends in Europe are the primary reasons for the change, while currency risk is elevated.

Conclusion:

Markets struggled to process Chairman Powell’s remarks yesterday. However, investors should take yesterday’s speech in the context of what they learned from the latest Beige Book in order to get a clearer picture on future interest rates. Investors learned earlier this week that business is slowing and delinquencies are picking up, indicating the economy is no longer on a strong growth trajectory. By the end of the year, markets will get a clearer view and policymakers will likely have more clarity on growth and inflation trajectories. Patience is a necessary trait for long-term investors.

1. https://www.barrons.com/livecoverage/fed-jerome-powell-speech-today/card/protesters-interrupt-powell-speech-VclauoymYfBimWMxblcn

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. CDs are FDIC Insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.

Tracking # 494454

Pumpkin Pie

INGREDIENTS:

1 pie crust (gluten-free pie crust works well, too)
1 15 oz can of 100% pure pumpkin
1/2 teaspoon fine sea salt
2 teaspoons ground ginger
1 teaspoon ground cinnamon
1/4 teaspoon ground cloves
1/4 teaspoon ground allspice
1 cup canned evaporated milk
1 14 oz can sweetened condensed milk
2 large eggs
2 large egg yolks
Whipped cream, for serving
Freshly ground nutmeg or pumpkin pie spice

INSTRUCTIONS:

Preheat oven to 350ºF. Roll out and fit the pie crust to a 9” pie plate. Trim and crimp the edges of the crust and set aside.
In the basin of a blender, combine the pumpkin, salt, ginger, cinnamon, cloves, allspice, evaporated milk, sweetened condensed milk, eggs, and egg yolks. Blend on medium speed until silky smooth.
Pour the filling into the prepared pie crust. Bake in the preheated oven for about 45-55 minutes, or until a thin knife inserted about 1” from the center of the pie comes out cleanly. To prevent cracking, turn off the oven, crack open the door, and allow the pie to slowly cool as the oven cools over the course of a couple of hours.
When pie is completely cool, slice and serve topped with fresh whipped cream and nutmeg or pumpkin pie spice.

Sources: https://www.foodandwine.com/recipes/pumpkin-pie-recipe; Produceforkids.com

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.