New Retirees: Prepare for the Possibility of a Lost Decade

On this episode of The Long View, we talked to Adam Grossman, the founder of Mayport, a fixed-fee wealth management firm. Grossman discussed asset allocation, inflation risk, and Bill Gates.

Here are a few excerpts from our conversation with Grossman, a regular contributor to the Humble Dollar website.

Why Social Security Solvency Isn’t the Biggest Risk

Christine Benz: What do you see as the biggest risk for new retirees today? It could be something investment-related or maybe an economic risk or a systemic risk like the solvency of Social Security. What is the thing that is front and center in your mind that you worry about with respect to new retirees?

Adam Grossman: I understand the concerns about Social Security. To be honest, I don’t worry about that because fortunately it’s not a red state or a blue state issue. There are Social Security recipients in every state, and so I think that Congress will be very, very hesitant to really negatively impact Social Security recipients or future recipients. And I don’t really worry about the US economy over the long term.

What I do worry about, though, is that I think there could be a lost decade. I think that that’s a very, very real possibility. I don’t think the market is so overvalued. I don’t buy the arguments that this is like 2000, but it could certainly go sideways for a period of years after the string of great returns that we’ve had in recent years. So I think that investors can be reasonable in assuming returns in line with historical averages over the long term, over the entirety of their retirement, but they should be prepared for negative returns or at least a period of flat returns for a period of years. I think that’s a real possibility.

Asset Allocation Rules of Thumb Don’t Work for Everyone

Amy Arnott: Is there any commonly dispensed retirement advice that you disagree with or you think that retirees can misinterpret?

Grossman: I think that there are a lot of rules of thumb out there that can be helpful, but it’s important to take them with a grain of salt and to make sure that they really apply to your own situation. There’s a common one, for example, to set your asset allocation in relation to your age. And so as you get older, your portfolio should become more conservative. And that makes sense in theory, but I think about Bill Gates. He’s about 70 years old. Should he have the same asset allocation as his 70-year-old neighbor? No, of course not. And so I think it’s important to consult rules of thumb but also to make sure that they fit because everybody has factors which are unique to them. It might be that one person could expect an inheritance. Someone else might have a rental property. One person might be married, and someone else isn’t.

And so, I think that it’s important to take rules of thumb with a grain of salt.

How to Approach Claiming Social Security

Benz: I wanted to follow up on your comments about Social Security, Adam, and we often hear that people should delay if they can, especially if they think they have average or longer than average life expectancy. Do your clients receive that advice well, or do you sometimes get pushback from them that they want to claim earlier?

Grossman: One of my little mottos is that there are two answers to every financial question. There’s what the math says, and then there’s how you feel about it. I think Social Security is very much in that category. What the math says is that pretty much everybody should wait until age 70 because if you wait until you maximize your benefit, then you have to live a certain number of years to make back the years that you didn’t claim, but over time, you should exceed that and come out way ahead. So that’s what the math says, but everybody has different considerations. I remember once someone saying to me, she said, “I’ve been paying into the system, sending money to Washington since my first summer job when I was 14 years old. And by golly, I want to see them sending me a check for a change.” And so I think that it’s important to balance what the math says and how you feel about it.

And I think if you have other assets, if you’re married especially, and then there’s a natural hedge there, then I think those are reasons why one spouse might claim earlier.

I don’t think that it’s a rule that people have to wait till 70. I think also another misunderstood aspect of the Social Security claiming decision is that it has to be on your birthday. So a lot of people think in terms of I’ll claim at 67 or I’ll claim at 68, but in reality, you can claim at any month. So if you want to claim at 68, six months, you’re free to do that. So the benefit increases with each month that you wait. And I think that makes the decision easier, and it’s probably easier to split the difference.

Valentina Djeljosevic contributed to this article.