Understanding retirement: Adapting to today’s market realities

Times like the year’s end – and an important election to round it out – tend to bring up questions for investors, especially when it comes to retirement planning. And while planning for retirement involves a lot of sitting tight for the long haul, there are still current events with the potential to impact portfolios that investors should be aware of.

J.P. Morgan Wealth Management recently hosted a webcast which examined retirement planning for investors just starting to plan, those nearing retirement and everyone in between. Brian Blagdon, Head of Investment Specialists at J.P. Morgan Asset Management, spoke with Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management, and Michael Conrath, Chief Retirement Strategist at J.P. Morgan Asset Management. The trio spoke on how to successfully create a retirement plan along with specific factors one ought to consider heading into 2025.

Here are some highlights.

Where do things stand now with the economy and markets?

The trio of specialists covered a range of retirement planning topics throughout the webcast, opting to first tackle a question that’s been top of mind for investors all year: How has the market fared throughout 2024?

“When you look at market performance, 2024 has been a phenomenally strong year,” Ausenbaugh said.

Running the numbers, there’s been an approximately 20% rally in equities so far year-to-date. Magnificent Seven companies led the way for the first half of 2024, bolstered by excitement over artificial intelligence. In the second half of the year, the rally has broadened out with sectors like utilities, real estate, financials and industrials outperforming.

Of course, another big development has been the Federal Reserve’s decision to cut interest rates. This demonstrates not only that inflation has cooled down significantly, but also that the Fed is prepared to stave off labor market and broad economic weakness if needed. 

“All in all, when we pull the pieces together, it appears that the ingredients for the so-called soft landing, no-recession scenario where the Fed is cutting interest rates are here. And investors are embracing that despite uncertainties […] and everything we've been through since the start of 2020,” Ausenbaugh said.

Getting started with a retirement plan

What do these things mean for someone just getting started on their retirement planning journey – and where exactly do you start?

“The typical person spends more time planning a vacation than they do planning for retirement,” Conrath said. “Pretty wild, right? I have been guilty myself. We live in an instant gratification society; there are benefits of thinking about vacation versus other things like planning, retirement and markets.

“But the thing is,” he continued, “[retirement planning] actually can be approachable. It doesn't have to feel so daunting. A great place to start is with something like a wealth plan.”

J.P. Morgan offers wealth planning as a service, which helps you balance retirement with other goals you have for yourself and your family. It looks at where you’re at today and the actionable steps you need to take to reach your goals. Essentially, it’s creating a long-term roadmap for your wealth and retirement while keeping in mind current market conditions.

The three levels of control

“[Control is] one of those key components around retirement that is so unique,” Blagdon said. “In many cases, things that we think we have complete control over we may not. Or things out of our control – maybe we have more than we actually think.”

To this point, Conrath explained that there are three levels of control when it comes to retirement planning:

He gave examples for each.

“[We] don't have the control of the outcomes of markets,” Conrath said. Despite this, investors still plan and manage portfolios around market fluctuations.

Meanwhile, we have some control around things like how long we live and how long we need to work for; and we have complete control over our investing and spending behaviors.

Saving vs. investing

Looking at what investors can control, one important decision is whether to save or invest.

While saving is having the discipline to put money away, investing is more nuanced. Conrath described it as “earmarking dollars for a specific goal in the future and ideally targeting a rate of return that will increase your likelihood of reaching that goal.”

Saving is a good habit to have but in the context of retirement, saving without investing probably won’t cut it. To reach a fully funded retirement that can support you for decades, most will need to focus on investing.

Creating a long-term strategy

When you’re looking at investing for retirement, a key component of that plan will be your time horizon. This is not only how long you have before you retire, but how long you’ll need your retirement funds to last.

“One of the pitfalls I see clients make is they plan around averages. They may plan for average markets and plan for average life expectancy,” Conrath said. “That might be a helpful starting point. But for at least half of the folks, it could undershoot your goal.”

Conrath and advisors and strategists at J.P. Morgan like to take a more individualized approach, which considers a variety of factors including health, gender and marital status.

If you’re in a married couple aged 65 today, “you have a 43% chance that one of you will live to age 90 or beyond,” he said. “[For nonsmokers], there's a 73% chance that one member of that married couple will live to at least age 90.”

These numbers go up as we move into the future and life expectancies increase.

“The takeaway when you're doing planning [is] you need to stress-test different scenarios here and think about what happens if I live 30, 35-plus years without a paycheck,” Conrath said. “Am I taking all the right steps to make sure that my money lasts as long as I do?”

How might the election impact retirement plans?

Another topic that can worry investors is election outcome – particularly with big elections like a presidential race. But our experts say it’s important to stay consistent with investing and retirement planning regardless of who is in office.

“Over the long run, election outcomes don't tend to have a meaningful impact on either the trajectory of the economy or the performance of markets,” Ausenbaugh said. “Regardless of who has controlled the White House over the years, our economy has continued to grow and expand even taking in to account the historical recessions we've been through along the way.”

That said, there are important policy considerations when it comes to the current election, especially as it relates to taxes and government debt – things that investors will need to monitor as we move forward with a new administration.

Taxes and retirement planning

One of the big questions marks here is, of course, the sunset of rates that came with the Tax Cuts and Jobs Act of 2017 and whether those rates may be extended.

In respect to tax planning, Conrath encouraged investors to consider the different vehicles they’re invested in. “Do [you] have too many retirement eggs in one of these baskets?” he asked.

For example, many have the lion’s share of their investments in a 401(k), traditional IRA or both. Some questions you may want to ask yourself include: Am I taking full advantage of my employer match? Am I maxing out my contributions? And, importantly, am I considering my tax burden in retirement, and do I want to diversify with something like a Roth?

“At the end of the day, we don't know where tax rates are headed. We don't know what future policy holds for all of us. But what we do know is there could be opportunities now to diversify across these vehicles, because as it relates to your retirement spending, the most important thing is not just what you earn but what you get to keep,” Conrath said.

Where to focus your attention in the markets

Looking forward, “investors should feel really confident about putting money to work in the market today but also staying invested for the long run in order to enjoy the benefits of allowing those returns to compound over time,” Ausenbaugh noted.

As far as which vehicles one should invest in, she pointed to two major themes she thinks will continue to define markets: national security and artificial intelligence.

National security focuses on elements like traditional defense, supply chains, cybersecurity and energy infrastructure. Some of this also carries over to artificial intelligence, particularly with cybersecurity and energy infrastructure.

“My favorite statistic right now in terms of contextualizing this is to consider that today’s data centers account for about 4.5% of the consumption of U.S. energy supply,” Ausenbaugh said. “By 2030, there are some estimates as high as 21.5% in terms of what that consumption of energy supply is expected to be from these data centers as artificial intelligence proliferates.”

Ausenbaugh advised building exposure across sectors and regions when investing in these themes.

The bottom line

According to Conrath, successful retirement planning can be summed up in one word: alignment. That means aligning your portfolio with your goals. It also means aligning all aspects of your retirement plan, including your income sources, investments, projected expenses and estate or legacy plan.

“Something like a wealth plan can help you think of all of these things interchangeably and cohesively together in one package,” Conrath concluded. Reach out to a J.P. Morgan advisor for help creating a wealth plan.

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