CHAPTER 1
Guaranteed Money
Running out of money is worse than death.
— Carol Fleck, AARP
If your retirement assets are in equities or variable investments such as stocks, bonds, real estate investment trusts (REITs), mutual funds, variable annuities, and precious metals such as gold, then they are all subject to some unique risks within their asset classes, and may be subject to overall market risk.
This is what we call the maybe money (market risk) portion of your portfolio: maybe you'll make money, maybe you won't, with no guarantees. When you retire, will your money be there when you need it the most?
When talking with your advisor, if you mention that you're concerned about a market correction and losing money, the first thing he's probably going to want to do is set up a meeting to go over your financial situation and recommend reallocating your assets to diversify into more conservative investments that may help preserve your assets from market volatility. The analogy we use is that's no different from walking into a casino and saying, "I'm going to diversify — a little poker, some blackjack, and then on to the slot machines." If your money is in equities or variable investments, then all your money is still at risk from market volatility.
In 2008, if you were a conservative investor invested in equities, it was still possible to lose money. Obviously, it's your money, so you have to feel comfortable in how your hard-earned money is invested, but at least some of it needs to be safe and be able to generate an income in retirement. Prepare yourself for the day you retire. You don't want to outlive your money. That's why it's so important to consider how much money you will need in retirement. What are your plans once you retire? Will you need to pay for medical insurance? Will you need long-term care? How will inflation and taxes affect your retirement?
We believe that taxes aren't going down anytime soon! If you want to see a real eye-opener, visit the US Debt Clock website (www.usdebtclock.org). There you'll see how fast the United States debt is growing in real time. As of September 7, 2016, the official debt of the United States was 19.5 trillion dollars ($19,510,700,350,985).
In a few years, you'll wish taxes were at the level they are today.
The IRS already has a plan for your retirement accounts. They have a good indication based on your tax returns or audits how much money you're going to be taxed on those accounts. There are a couple of things you can do:
1. Have an experienced financial professional help you toward assessing your retirement goals.
2. Use the IRS rules when it's possible to legally reduce your taxation.
Generally, if you have a pension it could be taxed by both the federal and state government, along with your retirement accounts that may be taxed at some point.
Then your Social Security may be subject to taxation under current IRS rules. On top of all that, if you work and collect Social Security between the ages of 62 and up to the year of your FRA you could be penalized and lose 50% of your benefits.
When it's time to start taking a distribution from your nest egg, what's your plan to avoid paying more in taxes than you should?
When you're in or near retirement, you should think seriously about being in preservation mode (protecting what you've acquired). If you have most or all of your money in variable investments, the ones we previously mentioned, where's your safe money? Another analogy is if you were at a poker table in Las Vegas, and a majority of your retirement money was sitting in the pot, and the dealer asks if you are in or out. Would you just say, "Whatever. If I win, that's fine, and if I lose, that's okay too"? You've worked far too long and hard to try to hit a home run in the ninth inning of the baseball game only to strike out with your retirement savings when you're in or near retirement, hoping the stock market is going to cooperate with your retirement goals. Diversify by using a safe money alternative as a way to provide an optional lifetime of income for you and your spouse rather than losing your retirement assets from a market decline.
So you're going to need two things in retirement: safety and income. That's why it's critical to provide a safer income for life for you and your spouse. When you're in or near retirement, you cannot afford to have over half of your money in equities when we're in a declining or bear market. This could devastate your retirement savings, causing you to run out of money. If you're no longer employed with a steady stream of income to replace the losses, it could be difficult to maintain your lifestyle in retirement. If you lose 50% of your investment in a market decline like the one in 2008, you would need a 100% gain just to break even, and this may take you a while to just get back to where you were.
If your advisor has put most of your assets in equities and very little in cash, you should be wondering why. Do you think it may be because they are more concerned about being on your payroll and collecting their fees than on you outliving your money in retirement? Ask yourself, What's their agenda if they keep most of your hard-earned money at risk in the market? Obviously, your advisor gets paid whether you make money or not as long as your money is at risk in the market. If you move any portion of your investments to cash or money market accounts for a safer alternative, they will stop getting paid on that money.
Why wouldn't you consider an income for life, guaranteed and insured? Are you aware that no commission or fees are taken out of a guaranteed money account to pay an advisor? If you were to use the Rule of 100, when you're 60 years old, then 60% of your money should be invested in guaranteed money or safer money alternatives, and only 40% should be in maybe money or variable investments in the market where it's all at risk.
When you're younger and building your career, you may be able to take more risk with your assets because you may have decades to recover from any major losses, and time is thought to be on your side. If you're in or near retirement, you should be preserving your retirement assets with a safer option as a portion of your portfolio because the older you get, the less time you have to recover from a market correction, and time is generally not on your side.
Think seriously...
