Climate change and retirement: Challenging commonly held perceptions
As originally appeared in The Jerusalem Post on May 3, 2024.
“Influential people are never satisfied with the status quo. They’re the ones who constantly ask, ‘What if?’ and ‘Why not?’ They’re not afraid to challenge conventional wisdom, and they don’t disrupt things for the sake of being disruptive; they do it to make things better.” Travis Bradberry
I was speaking to a good friend a few days ago and mentioned that I felt guilty as we really didn’t do much with our kids during Chol Hamoed Pesach. Chalk it up to scorching temperatures, a general feeling of blasé, and the fact I am in the 12 months of mourning. My friend told me not to feel so bad, he didn’t do much either. After speaking with others, that seems to be par for the course. I recently got one of those Google Photos memory alerts of a picture that was taken in the past and it’s funny because it was a family picture from an outing, we did during Chol Hamoed Pesach. We played a navigation game in Old Jaffa. It was both educational and lots of fun, and since then we have done a few more in other cities as well. As part of the navigation challenge, we were asked questions about Israel. One of the questions was “True or false: Israel is the world’s largest hi-tech center?” My kids wrote true and when I asked them why they said because they always hear about Start-Up Nation, and all the cool things going on with Israeli tech, so Israel must lead the world. When their cellphones showed a big red “X” they were shocked. I asked them if they had ever heard of Silicon Valley.
Too often, people just simply accept certain mantras as truth, without questioning the logic behind them. Case in point the hoopla surrounding Earth Day, which was a week and a half ago. A few years ago, USA Today ran an article penned by Doyle Rice and Elizabeth Weise. They wrote, “Climate change is real and increasingly a part of our daily lives.” They continue, “There’s no longer any question that rising temperatures and increasingly chaotic weather are the work of humanity. There’s a 99.9999% chance that humans are the cause of global warming, a February study reported. That means we’ve reached the “gold standard” for certainty, a statistical measure typically used in particle physics.”
99.9999% chance? Ever heard of volcanoes and sunspots?
Then there is an article from Alliance Bernstein written by James T. Tierney, Jr. and David Tsoupros, of the Concentrated US Growth fund, on “Climate proofing an equity portfolio”. They write, “From rising sea levels to catastrophic weather events, investors can’t afford to ignore the risks of climate change. Since many companies would be vulnerable if current climate forecasts materialize, asset managers may want to consider climate change in their equity research process and engage management teams on the subject.” They continue, “By 2100, the planet could be as much as 4.4 degrees Celsius warmer than it is today.”
They are telling us what will happen to the climate 80 years from now, while their same modeling can’t predict the weather forecast for this coming Monday. Yet, no one says anything because this has become the accepted opinion.
It is incumbent upon us to challenge these assumptions, especially when our Talmudic tradition is based upon constant challenging of positions, in order to ascertain the truth.
The financial media pushes its own conventional wisdom, and I would like to challenge a few of their assumptions. Needing 80% of pre-retirement income in order to retire and drawing down 4% of your portfolio annually.
How much income do you need in retirement?
Google it and you will get answers ranging from 75-80% of your pre-retirement income. This is caused by lower tax rates, no more kids at home, no more mortgage payments etc.. Unfortunately for many retirees, especially those retired in Israel, this number has little basis. When a couple retires, they will often find that their expenses are different. It is therefore important to sit down and make a realistic new plan based on these changes. As I have written here many times, I am a bit more cautious with my clients as I apply a basic equation: Leisure = money spent. After retiring, people find themselves with more free time and may want to use it to travel (assuming no war or Covid!), eat out, or for other leisure activities. In fact, the more time that a person has available, the chances that he will spend more money. Then there is the other issue. We all know that ‘making’ it in Israel isn’t so easy. Many retirees that I sit with have an immediate goal of helping their children as well.
Once you have a handle on your income needs, you should create an income stream. Forget about the 4% drawdown rule. In many instances, you can create a portfolio that will be able to generate the income you need without having to draw down principal. Currently, you can get more than 5% on FDIC insured Deposits (CDs), and highly rated corporate bonds. Why draw down principal if you don’t have to?
Don’t rely on conventional wisdom when planning your retirement. Sit down with an adviser and start figuring out your goals and needs. Some solid planning will go a long way toward financial peace of mind.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
