Record stock markets, booming real-estate, new tax laws and more…

How does it all affect your ability to retire in 2018?

One of the services that we offer our clients is a financial literacy program for their kids. Taught in person and spread over 3 sessions, the goal of this program is simple – convince young adults to put their money to work for them in productive assets. For simplicity, we go on to define productive assets as liquid securities (stocks & bonds) and real estate. These are then contrasted against things like boats, jet-skis, lavish vacations and jewelry. The point here is simple, even a sub-optimal investment in a productive asset will yield more than spending money on unproductive things.

Books on table at the beach representing what to read in retirement

So back to you.   Here’s what clients are asking us most often.

2017 was yet another year where those with productive assets did quite well. East Bay real estate continued to appreciate in value and the stock market reached all-time highs. As a result, the top 3 questions we are receiving from clients and prospective clients are as follows:

  1. Will this continue?
  2. Can I afford to retire in 2018?
  3. How will the new tax laws impact me?

Obviously, everyone’s situation is different, but let’s spend a minute on each of these topics in general, knowing that your specific situation may vary.

Will this continue?

I believe it was Yogi Berra that said, “predictions are hard, especially about the future”. When it comes to local real estate, on one hand, the job market is good and job growth has outpaced housing development. On the other hand, between rising interest rates (which make homes more expensive) and the recent changes to the tax code which make housing costs less tax deductible, it wouldn’t surprise me to see a pullback in housing prices. Nothing like 2008 is on the horizon, but a smaller decline is possible if not probable.  For the stock market, you have a similar story in that lower corporate tax rates and a growing economy are great for stocks, but stock valuations are high and that usually means a correction isn’t too far off. Now is a good time to be balanced in our opinion.

Can I afford to retire in 2018?

Your monthly income in retirement is certainly tied to the size of one’s portfolio and after 6 straight years of robust stock market returns, investors are feeling pretty good about their 401Ks/IRAs and brokerage accounts right now. But whether or not you have enough to retire depends on a whole lot of factors. Former Fed Reserve chairman Alan Greenspan once stated that the most complex calculation most Americans will ever face is in answering this very question. My advice here is simple, hire a professional. Look for a Certified Financial Planner (CFP) that charges a flat fee for retirement planning & advice.

And finally, how will this new tax law impact me?

Those of us in the tax planning world are still trying to figure out who the winners & losers are here. In general, it seems like our ultra-high net worth clients will get some well-deserved tax breaks on estate taxes and real estate income, and our upper-middle-class clients may be worse off due to the loss of certain deductions.

The one thing I would say is that now more than ever, you need a Financial Advisor that handles both investments & taxes because the two worlds are becoming more and more intertwined.