Transitions in life can be difficult. The transition from the accumulation years to the distribution years is no exception. A big mistake newly retired individuals make is assuming that the “tools” used during the accumulation years will work during the distribution years. Once you receive your last paycheck, the rules of investing change.
When you consider your investment strategy in retirement, it is important to understand there is no “one-size fits all” investment. Think of a triangle with a different name on each side. On one side, you have growth. On another, you have liquidity. On the last side, you have principal protection. Pick two.
By following the principles that govern proper retirement planning, it is critical to your retirement’s success that you incorporate all three investment types in your retirement plan. Any good advisor would do this. If you are working with a financial professional that is only talking to you about one of the three investment types, you may be working with a salesperson. See below for understanding of each investment type and why they are important to A Safer Retirement™.
Growth/Principal Protection
The first principle of retirement planning is “never draw income from a fluctuating account”. This is critical in order to avoid sequence of return risk. By planning your income for the next 15 – 20 years, you set yourself up to be able to sail through the market crashes and other market turbulence without an issue.
Please note, we strongly want to warn retirees about the toxic investments called Variable Annuities and Income Annuities. Even though they may technically qualify in this category, we believe that it doesn’t make sense to pay an insurance company to get your own money back. If you have at least one of these products, we invite you to come in and do a no-cost review of these investments, what their real performance is, and what your options are.
Growth/Liquidity
When you combine Growth and Liquidity, you are considering securities like Stocks, Mutual Funds, ETFs, and more. These investments have the greatest upside potential, but they also have the most risk as there is no principal protection. Many retirees feel that they want some risk in their plan. This is determined by each person’s suitability and comfort level, but when we consider the principles that govern proper retirement planning, there is no problem in having some risk in your plan.
In considering your options to have risk exposure, many individuals turn to the famous “Buy-and-Hold”. With the markets having a historical pattern of crashing every 7-8 years, most retirees may not have enough time to “ride it out”. As we lay out the risk investment strategies that are available, we have found that two-sided models seem to be the most appropriate for a retiree.
Two-sided investment models are built to keep up with the markets in the up years and help protect your assets in the down years. Driven by computer algorithms, they can look at the market internals, and help tell you what to buy, when to buy, and when to sell. Can you imagine if someone told you to sell your assets before 2008 and then to buy in 2009 when the markets started to recover? These models are designed to do just that.
Decker Retirement Planning has gone out and scanned the largest databases to find the best managers and make them available to all retirees that want to invest in a mathematical approach. Third party verified, all those who come in to visit are shown the incredible returns these two-sided models can offer.
Principal Protection/Liquidity
Life happens. It is important to set some funds aside that have the sole purpose of being readily available for when the unexpected knocks.
Having set aside emergency cash and any discretionary cash for near-term purchases is critical to your plan progressing each year without interruption. Planning to replace your roof? Need to replace your car? Don’t let your income hurt with payments and interest. Plan ahead and set aside the funds that can help you enjoy your retirement income without compromise.
In Summary
All three classes of investments make up essential parts to a proper retirement plan. Each one has a deliberate purpose in helping you enjoy A Safer Retirement. As fiduciaries, we feel it is our duty to do the due diligence, run the numbers, and show you the best options out there. We can show you, mathematically, what an appropriate balance of all three looks like for your unique situation.
You could pick growth and liquidity, and invest in stocks, mutual funds, and other securities, but that would leave you all at risk. You could invest in products that have growth with principal protection, but that gives up liquidity. You could have principal protection and liquidity, but that gives up growth. At this point, you may be wondering, which is right for a proper retirement plan. The answer… all of them.