Recently I had a business trip to Topeka, Kansas and landed during a 6-inch snowstorm. Given the fact that we recently had a blizzard followed by 9 inches or so shortly thereafter, I didn’t think that 6 inches of snow was much of a big deal. Not so much in Kansas!
I guess they don’t usually get that much snow so the driving was horrendous. It took about 2 hours for a typical one-hour drive. I saw several cars and SUVs off the road and a tractor trailer had jackknifed on the other side of the highway. I guess they just weren’t prepared.
Snowstorm preparation is pretty basic—salt the roads before the storm and get the plows moving once the snow starts to accumulate. I felt that Rhode Island did a great job with the blizzard. Most places were open for business the next day and life went on.
Let’s compare not preparing for your retirement to not preparing for a snowstorm that you know is coming.
Preparing for retirement has similarities to preparing for a snowstorm. You know your retirement is coming, and likely, you know when that will be. Just like a snowstorm is forecast, and we know when that will happen. Once the snow starts to fall, you know that there are certain risks with driving and there is a risk of lost power, etc.
Retirement has certain “known” risks as well, and it is so important to prepare for those risks and mitigate them as best you can, much like preparing for a snowstorm. Preparing for retirement is like buying milk and bread and other staples to ensure that you have adequate food in the house when that storm comes. It’s all about being prepared and having a plan.
When saving for retirement, it is important to diversify your asset types. Most have heard the adage, don’t put all your eggs in one basket. Although true, it is also important to have money in different categories as well. Typically, you should look for three key elements--safety, liquidity and growth. Unfortunately, you cannot get all three elements in one asset category.
Therefore, it is important to have some money in banks or credit unions for your emergency fund and expected short-term expenses such as a new appliance, furniture, a new roof, etc. This will provide safety and liquidity, but not much growth at the current low interest rates.
On the opposite side of safety is investing in the stock market. I know that likely isn’t a great topic given the recent volatility that the market has been experiencing this year. However, for long-term growth the stock market has repeatedly shown that over long periods of time, the market will grow. The S&P 500 has grown 700% since March of 2009. That is not a typo, 700% in 13 years. (S&P Global Market Intelligence, n.d.) That is enormous growth! To help combat inflation, some of your retirement money should be invested in the stock market. I am NOT advocating taking excessive risk. It is important to work with professional advisors that have a bias towards more conservative growth to lessen the likelihood of big losses when the stock market has its next big correction or a long-term bear market. The closer your retirement date, the lower the risk you should have in your portfolio. Part of our proprietary process is to determine the level of risk that you may have in your portfolio and adjust that risk as may be appropriate for your circumstances.
Investments in the stock market will also provide liquidity as your investments can be sold on the open exchange.
Between these two “bookends” are insurance-based contracts that allow you to track an index, such as the S&P 500 (there are many others) yet, not be directly invested in the S&P 500. In these contracts that have been available since 1995, you share in the growth of the index, (you don’t get all the growth) but never experience a loss if the index goes down during your term, which is typically one year.
These are longer term contracts that can be 5, 7 or 10 years in length. They allow penalty-free withdrawals up to 10% of the contract value annually, starting in year two. Much like a long-term CD will have penalties until maturity, these contracts do as well. Properly implemented, these contracts can provide a level of safety and growth potential that is tied to a market index but has guarantees backed by the claims paying ability and financial strength of the insurance company.
As always, I recommend that you work with an experienced team for your retirement planning to learn about these products and other strategies that may be a good fit for your situation. Having a plan to be prepared for your retirement will always be better than having no retirement plan at all!
At Massey And Associates, Inc., our retirement planning process is precise and thorough. Once we get to know our clients’ goals and current situation, we’re able to create a plan to help them make their dream retirement a reality. Reach out to one of our advisors if you have any questions.
Massey & Associates, Inc is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Massey & Associates, Inc are not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. Please note, it is not possible to invest directly into the S&P 500® Index; Past performance is not indicative of future results. 1224122 – 02/22
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