How much money do I need to retire?

Nate Crosby |

How much do I need to accumulate to retire safely?

Everyone’s retirement is different. The money I will need to successfully retire is different from you. People’s retirements differ greatly in location, travel, supplemental income, health, longevity, and dependent needs. Many retirees will be able to draw some sort of income through either Social Security, a pension, or a combination of both. For most of these retirees, that income will not be enough to fully fund retirement, as Social Security or pensions typically make up 40-60% of retirement income for most people, leaving us a gap to bridge. 

That gap between Social Security/pension and our income needs come from our retirement savings. A modern investment portfolio of 40 to 50% stock exposure that contains at least four (4) other asset classes in bonds, commodities, precious metals, and real estate, historically has demonstrated a high probability of supporting a 5% withdrawal for at least 3 decades. By using this rough withdrawal amount as a guide, you can estimate the total retirement assets you may need to accumulate to fill the gap in your retirement income.

Example: Jane is 60 years old and would like to retire by age 65, but she is not sure if she will be able to do it. Jane logged onto www.ssa.govclicked on “my social security,” and discovered her projected Social Security benefit at age 65 would be $24,000 per year. If the average retiree needs about 70% of their working salary to make retirement work, Jane anticipates she will need about $42,000 annually. Since Social Security will provide her with $24,000, this means Jane must be able to produce the additional $18,000 on her own to get to $42,000. Using a 5% withdrawal as a rough guide, this would mean that Jane would want to accumulate $375,000 to produce her $18,000 shortfall. 

Keep in mind the further away you are from your projected retirement, the more you will want to account for inflation in your target retirement income. *Note back-tests use historical data only. 

Managing Risk in a Bear Market

Derek and I took a dive into different strategies for managing risk in an economic downturn. Bonds, which have been traditional hedges against stock loss are now more correlated than ever and have not proven to be adequate hedges against stock loss in recent years. It is our belief that manipulation of both stock and bond markets by the Federal Reserve has led to enhanced correlation between the two asset classes. As investors, we have an arsenal of tools to diversify our investments ranging from gold and commodities to engineered products. You can listen to the discussion here.

Not Your Keys, Not Your Coins by Derek Ballinger

It's an adage that has been uttered by many crypto enthusiasts, there are different layers of owning bitcoin and cryptocurrencies. Actual self-custody of crypto assets involves owning private keys that prove ownership to the wallet address you buy, sell, send, and receive crypto from. If you hold dollars in a bank, you don't technically own those dollars in the same way you own cash in your wallet. Cash in the bank is a liability of the bank, they owe that money back to you and in the meantime, they are lending it out many times over to generate a yield. In return you receive security, and you receive a tiny fraction of a yield, but you give up a tiny bit of that ownership. A bank is not a direct example because the funds in the bank are “owed” but they are also insured by the taxpayer so there is near zero risk of those funds not being there or you not having access to the funds when you need them. In the crypto world, there aren't these layers of protection on lending-based products, we have talked about Blockfi previously on the Dynamic Growth Podcast but have since advised people to take their coins off of exchanges and custodial platforms. A major development that is causing ripples throughout the crypto market is Celcius, a crypto platform that pays a yield to customers for holding their bitcoin on the platform. Celsius is a rather large exchange, and they recently suffered massive losses that have really put a dent in their ability to continue as a business. Their products require investors to lock up funds for a period of time, it is now coming into question if investors will be able to withdraw their money at all. 

Many of these lending platforms have significant stakes in Defi (decentralized finance) protocols. Without going into too much detail, Defi is peer-to-peer lending that is transparent, and all lending/borrowing is recorded for everybody to see. People are paid to lock up money into Defi protocols and in return, they get a yield on their locked-up funds. Platforms like Celsius will take deposits from investors and take that money and obtain larger yields on Defi protocols. The issue with this, Defi is ridden with sketchy projects at best and is known for blowing up in short periods of time.

Since the beginning of the year, cryptocurrencies as a whole have lost Trillions of dollars in value and a lot of the bad projects are collapsing, meaning massive losses for some big players. To add gasoline to the fire, take on massive leverage to bet on these projects and have them collapse before your eyes. When Celcius is using client funds to leverage and gamble on sketchy projects it puts those funds at risk, and there isn't a bailout coming for even the largest of exchanges. Coinbase also recently announced that in the event of bankruptcy, client funds aren't protected in bankruptcy proceedings and debts will be paid before client funds are ensured.

Celsius is a huge domino that has exposure to the broader crypto market, if they are insolvent on their margin debt it will without a doubt cascade into the market as they will be forced to liquidate all of their holdings and anybody who had funds locked up on Celcius will not be paid back. There have also been whispers of large crypto funds dealing with insolvency issues due to overleverage. 3AC (Three Arrow Capital) is a multi-billion dollar fund investing in different projects and is looped into the Celcius situation because they were both over-exposed to the same token that they are both forced to sell at a low point. 

If a multi-billion dollar hedge fund on Wall Street went out of business, it may or may not have broader effects on stocks depending on the situation. If anybody “important” was hurt by a hedge fund collapsing, you would expect a bailout to help the players involved. In crypto, a 3 billion dollar fund will absolutely have implications in the broader crypto market and you can be assured that a bailout is not coming for Bitcoin holders. If you hold Bitcoin or crypto, buckle up as this could potentially be a negative catalyst for the Bitcoin price to drop even lower. My perceived underlying value of Bitcoin is unchanged by these events, irresponsible investing and bad projects must be shaken out to make room for the projects that will actually benefit users. This is how a free market is supposed to operate, bad operators go out of business while responsible investors and projects accumulate more resources and capital.

Disclaimer: This newsletter represents the opinions of Crosby Advisory Group, LLC. This newsletter is not intended to replace individual investment advice. Investing involves risk including the potential loss of principal. Understand all risks before investing. Not all investments are suitable for all investors. Nate Crosby and Crosby Advisory Group, LLC have ownership interest in CAG Marketing and NMD Insurance.

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