dsmWealth: November 16, 2023

For Thanksgiving, consider giving more than thanks
BY STEVE DINNEN

Hope Ministries plans to deliver more than 3,500 turkey dinners free of charge to people in need on Thanksgiving. Chuck’s Restaurant, in Highland Park, will likely feed another 2,800 people that same day. That’s a lot of turkey and trimmings, and they could use some help with cooking, delivery and cleanup. Cash always helps, too.

Hope Ministries will collect donations 9 a.m.-1 p.m. Wednesday, Nov. 22., at Bethel Mission, 1310 Sixth Ave. Their massive grocery list includes:
Ready-to-serve dinner rolls
Cookies (pack two per baggie)
Ground beef, pork loin, bacon, ham
Milk, cheese, eggs, butter
#10 cans of green beans or mixed veggies
Condiments and salad dressing

Another way to help central Iowans in need is through a financial donation. It costs Hope Ministries $2.02 to provide meals they serve on a regular basis. For details, visit hopeiowa.org/donatemeals.

Chuck’s Restaurant, a few blocks north at 3610 Sixth Ave., has started its Thanksgiving tradition 34 years ago. As always, they can use donated food and volunteers to help with prep and cleanup. Call 515-875-5229 to order a meal or offer help.

How the Fosters foster a spirit of generosity
BY STEVE DINNEN

Jerry and Nancy Foster lead a comfortable life these days, thanks to building West Des Moines-based Foster Group into a leading financial advisory and wealth management business. But there were lean times, too, such as the early years of their marriage when Jerry’s first paycheck from a commission-only job netted them about $120. It clearly wasn’t enough to last to the next payday. Luckily, perhaps providentially, friends stopped by and lent a hand.

The Fosters have spent four decades returning the favor to the community — a very large one — which extends clear to Guatemala. On a recent afternoon they sat down with Kent Kramer, Foster Group’s chief investment officer, to talk with guests about their perspective on generosity. They called their talk “More Than One Way to Give, More Than One Way to Get Started.”

The Fosters got into the habit of generosity even as they lifted themselves out of that paycheck cellar. Some of their efforts were financial support, while others were hands-on: taking in foster children, working with at-risk kids in Chicago and mentoring Sudanese refugees who found themselves in a strange new world called “Des Moines.”

“It’s been fun to build friendships with people who want to live the American dream,” Jerry said.

Kramer noted that with 1.8 million non-profits in America, folks who want to help have to make choices. Toward that end, the Fosters have invested in things they want to see in society. They crafted a “generosity matrix,” with one axis that is geographic — from local to state, national and international — and another axis that charts human needs, such as shelter, safety and security, education and health care.

On the international front, Jerry said that he joined with a handful of other wealth management firm owners several years ago to alleviate malnutrition and improve farming and the economy of a small town in Guatemala. They sent agronomists to help boost the nutrition level and a seamstress to teach sewing lessons. The results have been promising, he said.

The matrix isn’t chiseled in stone. In 2010, Jerry contracted an extremely rare form of eye cancer. In gratitude for the care he received at the University of Iowa Hospitals and Clinics, he made a donation to its foundation. His gift prompted others to pitch in additional donations to support research on that type of cancer.

Call it paying it forward. For the Fosters, it all started with those friends who helped them out in the early 1980s.

The 4% rule for retirement is back
BY ANNE TERGESEN FOR THE WALL STREET JOURNAL

For those wondering if now is a good time to retire, here’s some encouraging news: The 4% rule is back.

Thanks to higher interest rates and bond yields, it is likely safe for new retirees to spend 4% of their nest eggs in their first year of retirement and then to adjust that amount for inflation in subsequent years, according to a new analysis from Morningstar released Monday.

Though 4% had long been the gospel of retirement math, retirees in recent years were warned that starting at that spending rate raised the risk of running out of money. The recommended initial withdrawal can rise and fall with projections of future market conditions and inflation.

Two years ago, Morningstar recommended starting retirement by spending 3.3% of savings. The advice proved prescient, since inflation in June 2022 recorded a 12-month increase of 9.1%, while stocks fell nearly 20% that year. Last year, the safe withdrawal rate inched up to 3.8%.

“It is relatively good news,” said John Rekenthaler, director of research at Morningstar and a co-author of the report. “Stock and bond valuations are lower and there is more cushion for investors.”

Morningstar runs 1,000 simulations of future market conditions to find the spending rate that allows retirees to maintain a steady annual income, adjusted for inflation, without running out of money in 90% of those scenarios.

The 4% spending rule emerged as the wealth-management industry’s standard advice for retirees in the 1990s, after research showed that starting at that rate would have protected retirees from running out of money in every 30-year period since 1926, even when economic conditions were at their worst.

Why the 4% rule works

Using the method, someone who retires today with a $1 million portfolio with 40% in stocks and 60% in bonds would spend no more than $40,000 in 2024 from that portfolio. Assuming inflation rises 3% next year, the investor would give himself a raise to $41,200 in 2025, regardless of the market’s performance.

The report examines the outlook for those who retired in 2022 amid simultaneous declines in stocks and bonds and high inflation, a combination that is especially challenging for new retirees.

Someone who retired with $1 million in a balanced portfolio at the end of 2021 and took the recommended 3.3% inflation-adjusted withdrawal in 2022 and this year would have about $825,000, despite the stock market’s rise this year, according to Morningstar.

If the investor continues withdrawing the same inflation-adjusted amount in future years, the odds of running out of money by the end of a 30-year retirement are now above 50%, the report said.

Those already retired should stick with the recommended withdrawal amount they began retirement with and adjust it for inflation, rather than switch to 4%.

The increase to 4% this year relies on both higher bond yields and forecasts for lower long-term inflation, which Morningstar expects to average 2.42% a year over the next 30 years. Today, the 10-year Treasury note yields 4.6%, up from near zero in 2020.

When it is safe to spend more than 4%

Retirees can spend more than 4% if they are willing to be flexible. Those able to delay retirement enough so they need only 20 years of income can use an initial spending rate of 5.4%.

The standard 4% recommendation is for a portfolio with 20% to 40% in stocks and the rest in bonds and cash. With smaller stock allocations than that, the returns could be insufficient to support a 30-year retirement. Someone with a large stock allocation risks losing so much during a bear market the portfolio wouldn’t have enough time to recover.

Those willing to reduce spending in years in which the markets decline can also spend more than 4% to start. One strategy is to forgo inflation adjustments in any year after which your portfolio incurs losses, a strategy that allows for a 4.4% initial spending rate, according to the report.

Other retirement income strategies

Another approach is to build a 30-year ladder of varying maturities of TIPS, or Treasury inflation-protected securities. Investors who hold TIPS to maturity are currently guaranteed a 2.3% return, because the bond’s principal adjusts for inflation.

The principal on the bonds that mature each year plus the income on the portfolio’s longer-term TIPS will provide inflation-adjusted spending of about 4.6% of the amount invested each year, with no risk of running out of money, the report said. That exceeds the 4% spending recommendation for a stock-and-bond portfolio. The downside is that a retiree would deplete a TIPS ladder by the end of year 30.

Fear can help you build wealth, financial expert says
BY JESSICA DICKLER FOR CNBC

Too often, people are encouraged to be fearless, according to personal finance expert Farnoosh Torabi, but fear is a valuable tool, particularly when it comes to building wealth.

“If you are feeling fear at life’s crossroads, pertaining to your finances, your career choices, your relationships, I think it’s important to listen to that,” said Torabi, host of the “So Money” podcast and author of “A Healthy State of Panic.”

Torabi made her comments during CNBC’s Your Money event.

Amid today’s persistent inflation, high interest rates, bank failures, geopolitical uncertainty and the lingering possibility of a recession, “it’s normal to fear these big ‘what ifs,’” she said. But once you distill that fear, you can use it to better your financial standing.

“Fear, here, is an opportunity,” Torabi said. The following two steps can help you harness fear to build wealth.

1. Get informed about what scares you

“People who go and do that thing that presents as scary … they’ll come out of that on the other side of that road potentially more successful,” Torabi said.

For example, “if you are fearing investing in the stock market, maybe it’s because you are afraid to lose money, which is understandable,” Torabi said.

“But the solution is not to not invest,” she added. “The solution is to get educated and understand that the market is volatile — but when you invest for the long run, when you are in a diversified portfolio, there’s a much higher chance of success.”

While market downturns are inevitable, long-term investors have historically earned a nearly 10% average annual return.

“Sometimes fear is a nudge to get more educated,” Torabi added.

2. Play out the worst-case scenario

Often, it’s women who feel financially insecure, according to Northwestern Mutual’s 2023 Planning and Progress Study. Women are also more likely to live paycheck to paycheck and consider themselves financially fragile, a separate report by Varo Bank found.

Torabi, who said she’s wrestled with her own relationship with fear as a young adult, advises playing out the worst-case scenario.

“If you are afraid of a recession, better to think about what might happen if you lost your job,” she said.

In fact, nearly six in 10 women said they don’t have a long-term financial plan that factors for up and down economic cycles, Northwestern Mutual’s study also found. That may mean determining how to lower your expenses and build up a cash cushion so you can maintain your current lifestyle in the event of a temporary income disruption.

“Our brain is prompted to find a lasting cure and usually that cure is to make a plan,” Torabi said. “You’ve taken this fear and you’ve used it as a tool to make a road map.”