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Yes, You Can Retire On $1M

On Monday, Maryalene LaPonsie asked in US News, “Can You Retire on $1 Million?”

She quoted a New York City advisor, Brent Lipschultz at accounting and advisory firm EisnerAmper, saying $1M would last about 20 years. Drawing on data from the Bureau of Labor Statistics, which shows that people age 65 and older have annual expenses of about $50,000, he “assumed inflation would be 2.9%, investments would earn 4% each year, and a person’s state and federal tax rates would be 30% combined.”

SmartAsset makes plain in an interactive map that location matters. The site tallies average expenses for housing, food, health care, utilities, and transportation to estimate how long a $1M retirement fund will last. Samples, in round numbers:

Number of Years a
$1M Retirement Fund Will Last
–  –  –  –  –  –  –  –  –  –  –  –  –  –  –

32 in McAllen, TX
29 in Statesboro, GA
25 in Orlando, FL
21 in Denver, CO
19 in Chicago, IL
17 in Portland, OR
16 in Los Angeles, CA
14 in Seattle, WA
12 in San Fransisco, CA
10 in New York, NY

Lipschultz estimates that a retiree needs to save an additional $765,000 to fully fund a 35-year retirement.

Two endeavors to improve your odds:

1. Grow your nest egg as much as possible.

2. Derive as much retirement income from it as possible.

With enough income generated and reinvested, your retirement stash could avoid a steady decrease from withdrawals, providing you with peace of mind for the duration.

My core Signal plans—3Sig, 6Sig, and 9Sig—are superb growth systems for pre-retirement investing. They’ve made many millionaires already and are in the process of making more. To complete the Sig journey from cradle to grave, an Income Sig plan is needed to provide income and inflation-beating growth. Although I’m still researching the plan, early signs are promising.

I wrote in last Sunday’s Kelly Letter that investing $800K in Omega Healthcare Investors (OHI $36 -1.4% YTD) at its current yield of 7.5% would produce an annual income of $60K. Upping the $800K to the $1M of LaPonsie’s story would up OHI’s annual income to $75K. That’s 50% more than the $50K the BLS estimates as annual expenses for people age 65 and older. The extra could go back into OHI or other income vehicle(s) to maintain growth. With a Signal plan, it would go in price opportunistically.

While we can do better than simply owning OHI or using it alone in a Sig plan, even considering it solo suggests it’s possible to retire comfortably on $1M. According to Morningstar, OHI averaged a total return of 10.8% annually over the past 10 years. The following are its recent total yields:

OHI Recent Total Yields (%)
–  –  –  –  –  –  –  –  –  –  –  –  –  –  –

9.2 in 2017
7.5 in 2018
6.3 in 2019
7.4 in 2020

This reveals that, even in this era of low yields and interest rates, enough yield exists to provide a comfortable retirement. I hope to devise an Income Sig plan that provides a boost on top of it.

Conclusion: Yes, you can retire on $1M.

Posted in Income Sig, Retirement | Comments closed

How to Access My Comment Feeds

You might like to know where you can read comments by my other readers, and add your own.

Some of the best discussions around my writing happen in the comment feeds at my website. I pay closer attention to these than I do to similar feeds on third-party platforms that redistribute my writing. I eliminate all trolling and spam, edit content-rich contributions for clarity, and add resources to discussion threads, such as links to articles offering depth.

Getting to these comment feeds is easy.

At the bottom of my weekday articles sent by email, you’ll find a link that looks something like this:

Weekday email footer link to comment section.

At the bottom of Kelly Letter notes sent Sundays, you’ll find a link like this:

Kelly Letter note footer link to comment section.

In both cases, the link will take you directly to the comment feed under the article or Kelly Letter note. Just click it and you’ll arrive at a box awaiting your input.

The Kelly Letter subscriber page also offers links to comment sections, and shows how many comments are already there. It’s at the upper right section of the page, and looks like this:

Subscriber site links to comment feeds from Recent Notes section.

Don’t miss these easy ways to get more out of what I send. I hope to see you in the mix.

Try commenting below!

Posted in How-To Kelly Letter | Comments closed

The Oil Trade is No Longer a Slam Dunk

In last year’s Note 17 of The Kelly Letter, sent to subscribers on April 26, 2020, I wrote an article, “Cheap Oil Will Become Expensive,” from which:

“The solution to cheap prices is cheap prices. …

“In the case of oil, last week’s negative price and this era’s persistently low prices will create a production wasteland as small players go out of business and big players shut down infrastructure. This will eventually meet higher demand, be unable to satisfy it, and send prices higher again…”

The Kelly Letter is not a trading advisory. These days, the only plans I actively manage in the letter are my automated quarterly Sig plans. However, in the unique window of opportunity opened by governments pausing their economies, I could not resist mentioning that there was no way oil would stay as cheap as it became at the end of April 2020.

Among other ideas for participating in what looked like a slam-dunk oil trade, I offered ProShares Bloomberg Oil 2x (UCO $65 +79% YTD).

Since then, the price of West Texas Intermediate has risen 300% from $16 per barrel to $64, and UCO has risen 293% from $16.53 to $64.92. People who bought UCO in late April or early May 2020 are now past the 12-month short-term capital gains tax zone. Many wonder if now is a good time to sell.

In my view, the case for a dramatic spike in oil price has greatly diminished from a year ago.

Oil is back to a normal price range, as the world economy reopens slowly, not in a rush that might overwhelm reduced production capabilities. OPEC and other producers look ready for gradually rising demand—such as it will be—if not a surprise demand surge.

The US may well hit the roads this summer, but it’s 4% of the global population. Europe still frets over Covid, along with Brazil and India, and even Japan is implementing selective lockdowns. Australian airline Qantas delayed its international service restart from the end of October to the end of December. I doubt we’ll see a worldwide all-clear that overwhelms supply and production to create an oil-price spike.

On the other hand, it’s hard to imagine what would send the price of oil meaningfully lower in the near term. The global economy will reopen.

Therefore, and as usual in trading, an incremental approach is probably best.

If you own UCO, consider placing limit sell orders to gradually reduce your position. This is my schedule:

My UCO Limit Order Sell Schedule
–  –  –  –  –  –  –  –  –  –  –  –  –  –  –

25% of position $65
25% of position $70
50% of position Later

Many people who benefited from this oil-price speculation plan to move capital from it into 9Sig. This makes sense, as the two ideas exhibit similar risk-reward profiles.

Conclusion: The oil trade is no longer a slam dunk. It’s wise to gradually reduce a UCO position.

Posted in Oil, Trading Tactics | Comments closed

Improved Credit Scores May Not Last

Government assistance in the pandemic has improved credit scores.

Credit scores range from 300 to 850, with higher scores indicating that a borrower is more likely to make payments on time. Credit score developer Fair Isaac Corporation (FICO) reports that the average credit score in the United States is at an all-time high of 711. The following are averages by age group:

Average 2020 FICO Score by Age Group
– – – – – – – – – – – – – – –

758 75 and older
736 56-74
699 40-55
680 24-39
674 18-23

Since the subprime mortgage crash of 2008, the percentage of borrowers categorized as subprime has steadily declined. Despite the pandemic’s pausing of the economy, the disappearance of subprime-rated borrowers accelerated since March 2020.

An obvious explanation is that people spent less while hunkered down at home, and also received stimulus income from the Treasury. However, another key factor was forbearance provisions (loan forgiveness, temporary in this case) in the Cares Act.

Therefore, according to the April 30 FEDS Notes, “Developments in the Credit Score Distribution over 2020,” the recent migration of many borrowers from subprime status to better risk categories “might not reflect an improvement in the overall credit quality of households.”

The main beneficiaries of forbearance were mortgage and student loan borrowers.

Federally backed mortgage payments were paused penalty-free for a year, and Department of Education student loans went into no-interest forbearance through September 2020. All such loans are reported as “current” despite the missing payments, preventing damage to credit scores.

The FEDS note goes so far as to say forbearance deserves most of the credit for better credit: “Analysis of the credit score distribution, payment history, and other main determinants of credit scores point toward forbearance largely driving the increase in scores.”

Given the temporary nature of this credit score improvement, no wonder “lenders do not appear to have made credit substantially more available to borrowers benefitting from forbearance. Borrowing has remained relatively flat among segments of the distribution that saw their scores rise the most and that are usually very responsive to credit availability, suggesting credit supply did not substantially increase.”

Unfortunately, the note concludes that the credit score increases that began in early 2020 “are likely to unwind once forbearance programs and other stimulus measures lapse, absent considerable job recovery, active household deleveraging, or other interventions to keep borrowers current on payments.”

Conclusion: Improved credit scores may not last.

Posted in Debt-Based Economy, US Economy | Comments closed

Redistricting is Bullish

The Census Bureau released its latest population data on Monday.

Results triggered reapportionment for the US House of Representatives. A population surge in Texas rewarded that state with two new seats, while California and New York joined seven states losing one seat apiece. Here’s the rundown:

States Gaining Two Congressional Seats
– – – – – – – – – – – – – – –

Texas

States Gaining One Congressional Seat
– – – – – – – – – – – – – – –

Colorado
Florida
Montana
North Carolina
Oregon

States Losing One Congressional Seat
– – – – – – – – – – – – – – –

California
Illinois
Michigan
New York
Ohio
Pennsylvania
West Virginia

Next comes the redrawing of political districts. According to Politico:

“Beginning with the 2022 midterm elections, House districts—which will be redrawn to hold equal population within each state—will reflect the new apportionment figures. … State legislators have the biggest say over redistricting in many states, but others use different methods for drawing lines, including independent commissions.”

New district maps frequently mean a new electorate for politicians to woo, which generally leads them to avoid controversy. Result: watered-down legislation or outright bill cancellations.

Politico calls redistricting “the most politically uncomfortable and unpredictable year Congress must face each decade, when new maps drawn in redistricting force veteran incumbents into retirement, turn former friends into fierce rivals and pitch safe-seat House members into hotly contested elections.”

Consequently, odds are now higher for dilution of tax hikes and spending bills. This should offset bearish analysis around last week’s talk of a capital gains tax increase.

Conclusion: Redistricting is bullish.

Posted in US politics | Comments closed
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