This is probably the most asked question by our clients and is easily answered by the financial industry with a proliferation of easy-to-use retirement planning programs. The software provides a clear picture of what clients can expect to receive while factoring in things like current savings, ongoing contributions, living expenses, inflation, and rate of return forecasts. Presto! The future awaits, subject to your ability to stick with the contribution numbers.
However, life events and setbacks are inevitable and often difficult to predict, even for the most sophisticated retirement planning software. In the past two decades, we have witnessed a significant economic shift, largely influenced by historically low-interest rates. The intention behind these low rates was to stimulate economic growth and stabilize markets, which they undoubtedly achieved. However, an unintended consequence of this prolonged period of low rates has been a substantial increase in consumer borrowing, fueling a culture of overspending.
Now, as we find ourselves in an environment of increasing interest rates, the situation is changing. Families who have grown accustomed to cheap and readily available credit are starting to feel the pinch. Higher interest rates mean higher monthly payments on existing debt and reduced affordability for new loans. It's a wake-up call for many who have been living beyond their means. In the 80s our family house-building company failed due to high interest rates of 22%. I lost my home along with many others. The housing collapse and a failed marriage later reinforced my need to live frugally. These are hard lessons that life sends your way. While I don’t see 22% interest rates returning any time soon, I do believe the long-term rate for mortgages and bonds of 7% will be here for the foreseeable future.
I grew up in a large family with 6 kids and although we never seemed to want for nothing, we did enjoy a lot of new to us, clothing, sporting goods, and cars. My parents, who both worked full-time throughout their lives had a very practical approach to life and that was to live within their means, and I have always tried to do the same. Our first few houses had basement suites and backyard gardens, our holidays were close to home and often in a tent. Sporting equipment for our kids was used and gifts were things they needed. Their childhood was filled with hiking, biking, fishing, cross-country skiing, sports, and tent camping. I can say that until they were gone, we had virtually no funds available for savings. In my role as a financial advisor, I know many families are in the same boat.
So, what's the solution? Saving for the future is about delayed gratification. It's about understanding that true financial security doesn't come from overspending today but from making sacrifices now to ensure a stable tomorrow. The shift towards saving requires a change in current spending habits.
In conclusion, the era of low-interest rates fueled over-spending, but now is the time for a financial reality check. Saving for the future is about making choices that secure your financial well-being in the long run. It requires discipline, but it's a path to financial freedom and peace of mind. By adjusting our spending habits today, we can build a more financially secure and stable future for our families.
Thank you for your loyal support now and in the past. Happy Holidays to you and your families!
Don Stone