How Are You Managing Downside Risk? Ep. 114

Like a lot of people, I’ve always had a job where I work with people, and it’s always fascinated me to try to figure out why people think the way they do. People are unique, but their themes are similar.

In my role as a financial planner, I primarily assist Baby Boomers who are navigating how to retire. Or that’s often when we were first acquainted. In our initial meeting I always ask, “How are you feeling about the stock market?” You’d be surprised at the responses, but one theme repeats.

I ask this question when the stock market is doing well, and when it’s struggling like it has been recently. Naturally, the answers vary, but in our current prolonged downturn I’ve been getting an interesting response.

People have frequently said something along the lines of, “The market is down, but I believe in the market. It’ll come back, and we’ll (America) get it figured out.” I don’t disagree but think with me about the importance of our order of returns. 

Steve and Bill are brothers. Bill has a few years on Steve. Bill retired in 2000, and Steve retired in 2010. They both entered retirement with $500,000 saved. They both began withdrawing $30,000 to supplement their incomes.

From 2010 to 2019 the worst market return came in 2018, but it wasn’t even a 6.5% decline. Most will recall that 2000 to 2009 was a wildly different situation. The market had four negative years with the worst of which being a drop of 38%.

Who do you think came out better? Clearly, Steve had more favorable circumstances. Steve, retiring in 2010 had over $874,000 in 2019 while taking the $30,000 away each year. Bill on the other hand was left with less than $97,000.

Managing risk in retirement is as important as managing our portfolio for returns. We call it going from an accumulation phase to an income and distribution phase.
 
When we’re younger and have a longer time horizon we should work to accumulate, but when we’re five years out from retirement or in retirement we should be in an income and distribution phase. The later goal being figuring out how to make our funds last as long as possible.

So, this begs the question. What is your strategy for managing your risk in retirement? If you don’t have one, we’d be happy to talk with you to share how we help our clients manage their downside exposure.

Do you have a question? Would you like to learn more? Email
[e-mail] or call 864.641.7955. 

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel. The use of logos and/or trademarks of podcast hosting sites are the property of their respective owners and are not an endorsement by those owners of our firm or our program.

Episode Transcript

SPEAKER_00 (00:00):
Welcome to the Excel in Retirement Show, where
financial planning becomesunderstandable.
Your host, David C.
Treese, is a licensed financialadvisor who specializes in
retirement income planning.

(00:20):
Do you know where your incomewill come from in retirement?
David helps people know wheretheir paychecks will come from
in retirement.
David's desire for each of hisclients is to have financial
confidence, protection, andgrowth.
We believe this is achievablewith the right plan in place.
Together, we'll build a planspecific to your financial

(00:42):
goals.
We work with clients all over,and we'd love to connect with
you.
Go to clientsexcel.com toconnect with us.
If you'd like to speak with us,call our office at 864-641-7955.
Thanks for listening.
Now to the show.

SPEAKER_01 (01:04):
Welcome to the Excel in Retirement show.
This is episode 113, 113.
I appreciate you taking a fewminutes to listen in.
A few years back, Mallory and I,my wife, we were on a long road
trip back from Pennsylvania.
We were coming back to SouthCarolina.
We had gone up there for afriend of mine's wedding and it

(01:25):
was the summertime and Mallorywas pregnant with our first
daughter, Amelia.
And to pass the time as we weredriving back south, we made a
phone call.
Have you ever been on a phonecall or called a friend and been
talking and been so engulfed inthe conversation that you lost
track of time?
Well, we didn't lose track oftime in this situation.

(01:47):
We lost track of the gas gaugesomewhere in the mountains of
West Virginia.
Here I was with no gas, apregnant wife, and it was hot
outside.
It was not my proudest moment.
It's easy to think if we justhad a little more gas to make it
to the next exit, if only.
You may have been in a situationlike that.

(02:10):
Hopefully it wasn't quite soembarrassing.
With inflation at 40-year highs,some senior citizens feel this
year's big cost of livingincrease in Social Security,
that big COLA that we got, thelargest one I believe since 1981
in fact, but many people arefeeling like that's falling
short.
It's not enough.

(02:31):
Yahoo! New Finance had anarticle last week that said,

(02:51):
That is troubling for sure.
And what's even more troublingis the government's rapid
interest rate increases over thelast year have done little to
slow down inflation, asevidenced in this sentiment.
But in government reports also,the latest government reports
reveal that inflation isremaining elevated at 6.4%.

(03:13):
So the government has stated, wealways want to look and see what
the government is stating, andthey are stating that they are
resolved to bring inflationlevels down to the 2% range,
which means we have a long wayto go at our current rate.
It's a juggling act, though.
Let's be honest.

(03:33):
The economy has continued togrow despite the rate increases,
which is a problem for thegovernments or the Federal
Reserve.
It's a problem.
The Federal Reserve isattempting to not break the
economy and to get inflationlowered.
And so that is certainly ajuggling act.
Interestingly, for the firsttime in recent memory, the

(03:54):
government is on the other sideof the table from investors like
you and me.
Generally, the government istrying to keep the economy going
and the stock market going,right?
They want to keep the economygoing and the stock market
growing.
AARP reports that nearly half,48% of households headed by

(04:15):
someone 55% and older lacks someform of retirement savings,
according to the latestestimates by the U.S.
Government AccountabilityOffice.
Wow, that's troubling.
So the government is now on theother side of the table of folks
with little to no savings.
What I mean by this is thegovernment is trying to lower

(04:35):
the cost of things for thoseimpacted the most by price
increases, which are thosepeople with little to no
savings.
We've got a front row seat tosee how this plays out.
It will be certainly interestingto see if the government moves
back around to the side oftables of investors and tries to
keep the economy going or howlong this persists.

(04:59):
So what should you do?
This begs the question, whatshould you do?
When we are preparing forretirement or we are in
retirement, we should have threetypes of money.
And so we color code them in ouroffice.
We have green money, which isour bill paying money or our
budget money.
And then we have blue money,which is our income money.
And then the red money, which isour long term growth stock

(05:22):
market money.
We should either have 10 yearsof income money in the blue
bucket or 40 to 60 percent ofour funds there, depending on
our age and our uniquecircumstance.
What we try to do is we projectout what it's going to take to
pay your bills for the next 10years in retirement and look at
big expenses, whether that'shome maintenance or medical

(05:45):
expenses or taxes or whateverthe case might be.
And some folks find thisexercise very challenging.
And so if that's verychallenging for you, we tend to
go anywhere from 40 to 60percent of a person's money in
that blue bucket that weallocate for expenses over the
next 10 years.
10 years.
But after we have systematicallydecided what we are projected we

(06:09):
will need in income or expensesover the next 10 years or
decade, we then want to allocatethe rest of our money to the red
bucket after we have that six tonine months of bill paying money
in the green bucket.
Most people need money in thestock market throughout their
retirement for one simplereason.
We don't want to run out of gasin retirement.

(06:32):
And what I mean by that is themarket grows with inflation over
time, and it may protect ourpurchasing power.
Let's face it, if we have stowedaway money in the bank, we've
lost 6.4% of it the last year toinflation.
So your money is buying less, sobetween 93% and 94% of what it

(06:53):
could have bought last year.
What we see if we look at chartsof the stock market is that the
market grows over time.
And with this appreciation andgrowth that we experience, we
may be able to increase ourspending amount in retirement if
it's needed or as inflationcontinues to grow.
I'm not an advocate, though, ofhaving all of our money in the

(07:16):
market all the time inretirement.
We should be measured in ourapproach and have our income
money as insulated as possiblefrom market gyrations and
unexpected geopolitical events,whether that be a war or a
terrorist event or some sort ofblack swan event that we can't
predict.

(07:36):
Now, let me say, it's easy inour country to see the division
and turmoil we have going on,but we would be wise to remember
that there is nowhere betterthan America.
And I'm sorry if that offendsyou, but I sincerely believe
that.
There's thousands of people thatare trying to get what we have
as American citizens right now.

(07:57):
If the U.S.
economy and the U.S.
stock market isn't worthinvesting in, I'm not sure what
else is.
I would be happy to talk withyou if you have a question or
would like to share somefeedback on this podcast.
You can call our office at864-641-7955 or you can email us

(08:18):
at connect at clientsexcel.com.
Hope you have a great week.

SPEAKER_00 (08:26):
Take care.
Investment advisory servicesoffered only by duly registered
individuals through AE WealthManagement, LLC.
AE Wealth Management and ClientsExcel are not affiliated
companies.
Investing involves risk,including potential loss of
principal.
Transcription by CastingWordsClients Excel is not permitted

(09:09):
to offer and no statement madeduring this show shall
constitute tax or legal advice.
Our firm is not affiliated withor endorsed by the U.S.
government or any governmentalagency.
The information and opinionscontained herein provided by
third parties have been obtainedfrom sources believed to be
reliable, but accuracy andcompleteness cannot be
guaranteed by Clients Excel.

(09:31):
The use of logos and ortrademarks of podcast hosting
sites are the property of theirrespective owners and are not an
endorsement by those owners ofour firm or our program.