5 Retirement Planning Lessons from New OrleansSubmitted by Concierge Financial Planning, LLC on October 11th, 2020
“Don’t worry, Mom,” my daughter Judy chimed as I expressed concern about the wind and rain in New Orleans generated by Hurricane Laura. “Tulane says we don’t need to evacuate.” I am visiting my college freshman in the Crescent City and this is my first experience with a tropical storm of such magnitude. Having recently watched the Spike Lee series, When the Levees Broke about Hurricane Katrina, I am a little nervous.
Given my professional lens on life as a Financial Planner, I see five valuable retirement lessons in New Orleans’ unique geography and experience:
1. Heed the warning! The City of New Orleans issued a mandatory evacuation prior to category 5 Katrina’s landfall in 2005. While many people headed for higher ground, there were also residents who dug in and stayed. Some of them paid for it with their lives. Many of the survivors were subjected to inhuman conditions in the aftermath. Although residents had experienced false alarms in the past, the cost of remaining in New Orleans this time was obviously too high.
Lately I find myself issuing “evacuation warnings” to retiring clients who are over-allocated to stocks. Given the success of the market over the past decade, many of them hold more equity exposure then their risk tolerance and capacity suggest they should. “But bonds are returning nothing!” they cry. Unfortunately, that is true. Nonetheless, these clients face potential catastrophe by hanging on to their excessive stock positions. If they experience a Katrina-like category 5 financial storm in which the equity market drops precipitously, they could risk their ability to survive retirement without running out of money.
2. Decay is all around us. In New Orleans the signs of decay are everywhere. The heat, rain, and humidity take their toll on even well-maintained gardens and properties. It’s impossible for the City and its residents to keep up with the deteriorating roads and the moldy wood. The rot silently eats away at the beautifully preserved southern mansions. Decay is part of every landscape.
Similarly, inflation mutely erodes our purchasing power. We don’t notice it on a day-to-day basis, but over time our money just buys less. Yes, we are currently experiencing a low rate of inflation, but even a low rate such as 2% will feel like a pay cut down the road. For example, at 2%, in twenty years, $10,000 will only buy $6,700 worth of goods.
3. Don’t count on the government. This is a sad truth. After Hurricane Katrina, the federal government was very slow to respond. People in New Orleans spent weeks without adequate shelter, food, and water. To make matters worse, many of the hardest-hit survivors were the elderly, disabled, and poor--without the physical or financial means to evacuate.
We can expect the government to let us down again with Social Security. As stated in the 2020 Social Security Trustees Report, “Under current law, Social Security cannot guarantee full benefits for current retirees. The Trustees estimate that the theoretical combined trust funds will exhaust their reserves by 2035, when today’s 52-year-olds reach the full retirement age and today’s youngest retirees turn 77. Upon insolvency, all beneficiaries will face a 21 percent across-the-board benefit cut that will ultimately grow to 27 percent.”
4. Mix it up. One of my favorite things about NOLA is its eclectic vibe. Old mixes with new, mid-century modern blends with classic French, and pecans meet with pâté. New Orleans residents like to place objects on their porches that don’t seemingly belong there—we saw a front porch with crystal chandelier.
It all comes together and creates a harmonious balance just like a well-diversified portfolio. The bonds can’t do it without the stocks. It’s vital to include a variety of asset classes in your retirement portfolio to reduce risk and improve returns.
5. Live it up while you can! In NOLA residents and visitors alike delight in the vibrant local art, music, and food scene. This is true in good times and in bad. Their exuberant enjoyment of life, a joie de vivre, is something all of us can learn from.
On that note, the winds have now died down, the rain has stopped and I’m heading off to the Ruby Slipper Café to delight in their seasonal pecan praline stuffed French toast, buttermilk biscuit, and iced coffee!