YOU ARE FULLY RETIRED OR CLOSE TO IT and have retirement savings. It’s enough to last a while, but you’re not sure about it lasting your lifetime. Managing your money to provide current income and not run out too soon is a big challenge. Whether you’re working with a financial advisor, thinking about working with an advisor, or going it alone, this article is for you as you prepare to navigate the rough waters ahead. If I were your advisor, here are some of the issues we would discuss.
Your strategy
Your portfolio requires a balance between the proper mix of savings and investments to create income and growth. Your money will require fairly regular oversight and management. It probably will require multiple savings and investment vehicles. The savings aspect generally will include products that protect principal and provide some return, usually in the form of interest payments. The investment aspect will involve fluctuations in the principal amount as you try to capture some growth to increase the portfolio’s longevity. An insurance aspect also might be in the mix.
Learn what savings, investment, and insurance choices are available, why they are used, how they are used, and when to use them. Monitor the results in your portfolio and the economic environment (public and private sectors) to know when to make necessary changes. Because no one has a crystal ball to look into the future, historical and current knowledge of markets will have to do.
We’ve covered the easy part. Now let’s get into the meat of the matter. What is the proper portfolio balance? How do you determine and achieve your balance?
Portfolio balance
The perfect balance would allow you comfortable current income while simultaneously growing your portfolio so you never run out of money. It’s so much easier said than done. You likely will live on less than you wish or run out of money. As an advisor, I would tell you to be safe (manage to last a lifetime) rather than sorry (go broke).
For illustration, check out “Balancing Your Portfolio,” page 61. One-hundred-percent principal protection is a guaranteed savings vehicle like a certificate of deposit (CD) or a savings account insured by the Federal Deposit Insurance Corp. (FDIC). One hundred-percent principal loss is gambling — literally. Gamble enough, and you’ll lose it all.
Your definition of safe can differ from your advisor’s. Safe for you probably involves a form of principal protection. Safe for an advisor is maximizing the longevity of the portfolio because going broke isn’t an option. At some point, this difference in definition might cause you and your advisor to bump heads.
People who think safe means a form of principal protection tend to prefer the far left side of the line in “Balancing Your Portfolio.” When people aren’t sure whether they have enough money to last in retirement, they want to protect the money, thinking that protection will help it last. But the truth is both the far left and the far right of the line result in the same outcome — going broke.
Safety is somewhere between the dots, and that’s where the challenge lies between you and your advisor. Your advisor will have to coax you out onto the line between the dots, which can be scary. Then your advisor has to determine how far out on the line you need to go — without being too safe or too aggressive. Three significant factors (though by all means not the only ones) in this consideration are how much money you have, how long your advisor has to make it last, and how much income you need now.
60 MILITARY OFFICER APRIL 2013
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