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The interplay between politics and economics has never been starker. We have an American President who is doing more to stick his nose into the affairs of those that are supposed to be at arms length than any of his predecessors ever dreamed.
Despite this, people who offer commentary on both the economy and capital markets (they are separate things) act as though what’s going on on Capitol Hill is so unremarkable that they conspicuously fail to work any acknowledgement of the dysfunction into their commentary.
Last week, I sat in on a webinar hosted by Jeff Schulze, CFA, who is managing director, head of economic and market strategy for Clearbridge Investments. In his presentation, Schulze noted that the S&P 500 is currently trading at 23 times forward earnings and that only the late 1990s saw a higher number. He added that there has been recent downward pressure on the federal funds rate and opined that the ‘one big beautiful bill’ will offer further fiscal stimulus down the road.
In a dashboard of 12 indicator variables, only one was flashing red (recession). Four were yellow (neutral) and seven were green (expansion). He went on to opine that corporate profits don’t look recessionary. He concluded that a near-term recession is unlikely. I’m not disputing his economic evidence: I’m simply noticing that there was not a word about political implications or developments. That silence strikes me as conspicuously odd.
There are many smart people who look closely at all manner of economic indicators who also look the other way regarding politics. As if they are not related. Why is that? They don’t talk about what’s going on Capitol Hill at all. The topic is taboo. It’s “polarizing.” Some even allege it’s beyond the purview of their mandate. I disagree.
EMH vs Active Management
The efficient market hypothesis (EMH) posits that capital markets do an excellent job of digesting all available information (from all fields of endeavour) quickly and accurately. By synthesizing information into a consistent worldview, EMH implies that no one can reliably ‘beat the market’ through security selection or timing strategies.
The economic forecast offered by Clearbridge seemed predicated on the assumption that what’s going on in Washington is normal, but it also seemed predicated on market inefficiency since Schulze made multiple references to the need for active management. If the market is efficient, then it is already reliably taking the dysfunction in Washington into account. If, on the other hand, it is inefficient, then the vagaries of an unpredictable President stand out as being meaningful and should be noted. So if the conduct of the President is a meaningful consideration, why wasn’t it mentioned by a guy who implicitly rejects EMH? Continue Reading…
Retirement planning experts suggest current market conditions may present an opportune moment for retirees to consider annuities. With potentially higher yields available in today’s interest rate environment, strategic approaches like partial annuitization and laddered purchases offer ways to enhance retirement security. Financial advisors emphasize the importance of weighing tax implications and long-term income stability before making decisions about annuities in a changing economic landscape.
Ladder Annuity Purchases to Capture Peak Rates
Favorable Market Creates Opportunity for Retirement Security
Strategic Timing for Annuities in High Rates
Consider Tax Implications before Rushing to Annuitize
Tax Strategy matters more than Current Rates
Lock in Higher Yields while Maintaining Diversification
Balance Security and Flexibility with Partial Annuitization
Act Now before Rate Cuts Lower Lifetime Income
Ladder Annuity Purchases to Capture Peak Rates
Through my work with United Advisor Group helping advisors serve elite clients, I’m seeing a critical window right now for partial annuitization that most people are missing. The current 5-6% immediate annuity rates are the highest we’ve seen in over a decade, but here’s what’s different from typical advice.
I’m recommending clients ladder their annuity purchases over 12-18 months rather than going all-in immediately. We’re working with carriers like Lincoln Financial where a Phoenix client recently locked in 5.4% on a $300K immediate annuity in January, then waited until rates hit 5.8% in March for another $200k portion. This staging approach captures rising rates while securing baseline income.
The sweet spot I’m seeing is 30-40% annuitization for near-retirees, not the 20% most advisors suggest. With our four-custodian structure at UAG, we’re tracking how this higher allocation actually reduces overall portfolio risk more than expected. A Scottsdale couple we work with annuitized 35% at current rates and can now be more aggressive with their remaining assets.
What makes this timing unique is the Federal Reserve’s clear signalling about holding higher rates through 2024. Unlike previous cycles where advisors played wait-and-see, the current economic indicators we track suggest these annuity rates have more staying power, making the decision timeline less pressured than typical rate environments. — Ray Gettins, Director, United Advisor Group
Favorable Market creates Opportunity for Retirement Security
Annuities aren’t flashy: but in today’s rate environment, they’re finally getting their moment.” With interest rates at multi-year highs, this is one of the most favorable environments we have seen in a long time for retirees to consider annuitizing or partially annuitizing. Higher rates mean better payout terms, especially for fixed annuities, giving retirees more predictable income in retirement. But timing is still very important. The decision to annuitize should still be in line with your personal retirement goals, risk tolerance & need for guaranteed income. Partial annuitization provides a great balance for retirees, allowing them to create a stable income stream to cover essential expenses and still have portfolios flexible enough for legacy planning and growth. It’s much more than a response to market conditions. It’s a calculated move towards peace of mind.
Now might be the smartest time in 15 years to consider annuitizing.
It’s actually quite a favorable time for retirees to annuitize, partially or fully, considering the interest rates today that are at their highest levels since before the Great Financial Crisis. Higher interest rates essentially mean stronger payouts than what we have seen over the past decades. This makes them a more attractive option for those looking for a guaranteed lifetime income. Having said that, I still recommend retirees to think of annuitization the same way they think about diversification, strategically, not emotionally. While having a steady stream of income for essential expenses can provide peace of mind, I would never recommend anyone to put all their eggs in one basket.
Employing a blended approach — one that combines annuities with passive real estate investing or dividend-generating assets — can be a much smarter way to go. It’s the right time now to explore annuities as part of a broader retirement strategy. Just make sure that it aligns with your lifestyle goals, risk tolerance, and legacy planning. — Lon Welsh, Founder, Ironton Capital
Consider Tax Implications before Rushing to Annuitize
After working with retirees for 19 years through my accounting firm, I see this timing question differently than most financial advisors. The real issue isn’t just interest rates: it’s the massive tax implications that nobody talks about.
I had a client couple from North Carolina who were considering annuitizing $300K of their retirement savings when rates hit 5.8% last year. Before they pulled the trigger, we ran the numbers on their overall tax strategy. That annuity income would have pushed them into a higher bracket and made 85% of their Social Security taxable instead of 50%.
Instead, we structured a business strategy where they started a simple consulting venture based on his 40 years of manufacturing experience. Now they’re deferring some retirement income, writing off business expenses that were previously personal costs, and timing their annuitization for when they can control their tax bracket more effectively.
The current rate environment is tempting, but I’m seeing retirees lock themselves into higher lifetime tax bills. Run the tax projections first: sometimes waiting 2-3 years while implementing proper business structures saves more money than chasing today’s rates. — Courtney Epps, Owner, OTB Tax
Tax Strategy Matters more than Current Rates
I believe the decision to annuitize in today’s higher-rate environment is more complex than most retirees are told. The bigger question isn’t just the interest rate, it’s how the IRS will tax that income stream over time. Continue Reading…
[Editor’s Note: this piece was written shortly before Friday’s meltdown of U.S. stocks following Trump’s announcement of still-higher Tariffs on China.]
One evening at midnight, as September turned to October, various elements of the U.S. government were shut down. This has happened before, most recently in 2018 under the same President, but this time, everything feels more ominous.
In fairness, markets were indifferent to the news and have even reached new highs since the announcement. My view is that this turn of events is yet another canary in the coal mine where authoritarianism is lurking just around the corner. The question for many investors is: “What does this mean for my portfolio”? So far, the answer is, “nothing at all.”
Worrisome that investors don’t seem worried
It has been said that financial markets climb a wall of worry. I have said on multiple occasions that one of my biggest worries is that people don’t seem worried: that optimism bias has led to lazy complacency. Stated differently, my perception is that there’s a degree of casual acceptance of macro-level circumstances that has taken hold among investors throughout the western world.
My concern about valuations has been reiterated on multiple occasions for many quarters, if not years. What I have not said explicitly until now is that there is a considerable political risk that is proceeding apace: concurrent with the valuation risk.
To my mind, this is a double uncertainty. The first question is when the bubble of multiple asset classes hitting all-time highs will burst. The second question is when Donald Trump will drop the mask and all pretense of adherence to democratic principles. He was elected a year ago next month. In the nine and a half months since he has taken office, the destruction of centuries-old political norms has proceeded at a breakneck pace. Continue Reading…
The following is a question-and-answer session conducted via email with advisor John De Goey following his recent talk at the MoneyShow in Toronto, which we reported here. Some of the questions and answers also appeared in my recent MoneySense Retired Money column here.
Jon Chevreau, Findependence Hub: How defensive do you think low-volatility ETFs (i.e., BMO’s, iShares, Harvest) are?
John De Goey: Let’s say the market pulls back by 25%. If you can handle that, then you don’t need a low-volatility ETF. In short, low-volatility products are more defensive than market (cap)-weighted products, but it all depends on how investors react and behave when things go south.
Chevreau Q2.) Most of those are overweight utilities, consumer staples and healthcare stocks. Do you advocate that investors do this themselves with sector ETFs?
De Goey – I generally don’t recommend buying utilities as a stand-alone product/strategy. That said, if you already own cap-weighted products and want to be more conservative, it would likely be more tax effective to simply add utilities rather than sell cap-weighted products in order to buy low-vol products. Same net result, but less tax on the way.
Jon Chevreau, courtesy MoneySense
Chevreau Q3.) If U.S. stocks are so richly priced, do you advocate owning a Value U.S. ETF to compensate, or simply sell down some U.S. or and add more International/Canada? Or other factor funds?
De Goey – I recommend getting out of the U.S. entirely. If you cannot do that then, at the very least, I’m worried that there’s an AI bubble much like what we saw with .com a quarter-century ago.
Chevreau Q4.) What range of asset allocation do you recommend for retirees, especially those who are middle-of-the-road and risk-averse?
De Goey: I think all portfolios should have alternatives. Pension plans like CPP, OMERS and HOOP all have over 33% in alternatives. But for MOR retail investors, I’d opt for something like 20% alternatives, 30% income, and 50% equity.
Chevreau Q5.) Can investors and especially retirees rely on global Asset Allocation ETFs to keep them out of too many over-valued U.S. stocks?
De Goey: I wouldn’t use the word ‘rely.’ Such products will soften the blow, but right now the U.S. represents almost 2/3 of global stock market capitalization. So, if all your stocks were in a single global ETF or mutual fund with a cap-weighted mandate, you’d have massive exposure to a massively over-valued market.
Chevreau Q6.) What about annuitizing a portion of an RRSP/RRIF? Continue Reading…
As you transition into retirement, you deserve to treat yourself to big-ticket items like a new vehicle, an upgraded appliance or a memorable travel experience.
Smart planning ensures you do so without putting your financial security at risk. Below are several strategies to budget, save and make informed purchases while preserving your nest egg for a comfortable retirement.
Anchor your Retirement Plan with Realistic Budgeting
Start by identifying your income and expenses. Track your monthly fixed costs — like housing, insurance and utilities — along with flexible spending, such as dining out, travel and hobbies. Review six months of spending to estimate your monthly average and spot opportunities to trim nonessential costs. This frees up money for purchases that truly matter.
Check your withdrawal rate as well. The classic “4% rule” suggests withdrawing 4% of your portfolio in the first year and then adjusting for inflation. Financial calculators or advisors can help you tailor a sustainable strategy to your lifestyle.
Prioritize Big Purchases within a Savings Plan
Set clear goals and classify purchases as short-term versus long-term. Write down when you want an item, how much it will cost and what you have already saved. Separating priorities helps you stay on track. Here are some examples:
Appliances: Replace older units before they break during retirement years.
Vehicles: Lock in financing while still employed or before fixed income makes borrowing tougher.
Home upgrades or travel: Save gradually, pay in cash or use carefully considered low-interest funding.
Consider the Timing of your Purchase
Some purchases are less costly when made before retirement. Long-term care insurance typically costs less when purchased earlier, such as in your mid-50s rather than your mid-60s. Major home repairs like a roof replacement, heating system or appliance upgrades are easier to fund while employment income is steady, helping you avoid straining retirement cash flow.
Build Resilience against the Unexpected
Health care expenses, emergencies and fraud can quickly drain savings, so planning ahead is vital. Even with Medicare or provincial coverage, out-of-pocket costs for prescriptions, dental work or long-term care often arise. Keeping an emergency fund in a liquid account helps cover major surprises like home repairs or medical procedures without touching investments. Continue Reading…
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