If the last few years have taught us anything, it’s that the financial markets are like nothing we’ve ever experienced in our lives. Of course, most investors realize that markets have their ups and downs, ups and downs, ups and downs, and periods of volatility. However, in the face of uncertainty the likes of which we’ve never seen before, it’s more important than ever for those nearing retirement or nearing retirement to strive for a plan that not only includes diversified investments, but, more importantly, is a mix of different types of financial instruments, each with its own unique purpose.
By working to strategically integrate the worlds of Wall Street, insurance, and banking into your plan, you can prepare for a retirement that will stand up to the challenges the marketplace presents today AND in the years to come.
The mistake I think many people make when it comes to managing their wealth at this stage of life is that they only look at “diversification” through the lens of their investments when in fact they have adequate diversification in terms of They should think about their overall investment wealth and all the financial instruments available to them.
Traditionally, the worlds of Wall Street, insurance, and banking have fought for their dollars, operating in silos and even emphasizing the downsides of using financial instruments outside of “their space.” However, trying to find the best in all three worlds and using a variety of financial instruments from each can be the key to a financially successful retirement.
Let’s take a look at these three worlds of finance and some ways they can be considered when designing your financial plan:
1. Wall Street
Investments will most likely continue to be used for a large part of your wealth during retirement, although financial markets have suffered losses of more than 20% at times this year (according to Morningstar data, the S&P ended the second quarter down 20.6% ). Some key reasons for continuing to invest even moderately/conservatively in the markets would be to keep up with (or beat) inflation, protect against longevity, and potentially build additional wealth to inherit.
No one wants to see the purchasing power drop during their golden years, and over long periods of time and through multiple bouts of high volatility, investing in the market has served a purpose, even in retirement.
2. Insurance and Pensions
Both refundable life insurance and various types of annuities can play extremely important roles in a well-designed plan. The challenge for many people is really understanding how best to use each of these tools while navigating through the hundreds of options available in the market.
For example, many people would never guess that they could get life insurance after the age of 60, so cancel using this tool. However, endowment life insurance could be the “Swiss army knife” of old-age provision, as it can serve multiple purposes. Aside from providing tax-free benefits to beneficiaries after the death of the insured, other lesser-known features could include accelerating the death benefit to pay for long-term care, and even using accumulated present value within the policy for tax-free distributions if constructed correctly.
Annuities, which are also insurance products, can also play a very important role in retirement with the right reasons. The two main purposes I would suggest someone use an annuity for would be:
- Preservation of capital … even in falling markets, many annuities will not lose value.
- Lifetime income… they can bridge the gap between your monthly income needs and what your Social Security and pensions provide. This could help you avoid regular distributions from your investment accounts.
If you use any type of insurance product on your lineup, I suggest consulting a trustee to review the best options and explain both the pros and cons of these tools.
3. Banking
Having cash on hand for a variety of purposes is more important now than ever. This can include money for dozens of unexpected expenses, home repairs, or even big purchases you expect to make in the next 12 months. How much cash someone needs to have on hand depends on their upcoming needs. However, having at least six to eight months to cover known fixed expenses is usually a minimum to be comfortable.
The list of cash needs is endless, but it’s something that shouldn’t be overlooked. Whether you’re simply putting money aside in a basic money market account or setting up a home equity line of credit when needed, make cash an important part of your overall plan.
This might not be the “sexy” part of retirement planning, but if done right, it could help you avoid the need to take distributions from your investment accounts during times of down market.
The worlds of Wall Street, insurance and banking don’t always seem to “play well together” as they often compete for the same dollars. However, creating a retirement plan that incorporates the best of all three could provide a foundation for making your golden years amazing.
Investment advisory services provided by Trek Financial LLC, (Trek), an SEC-registered investment adviser. The information presented is for educational purposes only. It should not be construed as specific investment advice, does not take into account your specific situation, and is not intended to constitute an offer or solicitation to sell or buy any security or investment strategy. Investments involve risk and are not guaranteed and past performance is no guarantee of future results. Before implementing any strategy described herein, consult a qualified tax professional for specific tax advice on a strategy. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Financial products and services, where recommended, may include investment advisory fees, commissions and/or other fees. Trek 325
This article was written by and represents our contributing consultant, not the Kiplinger editorial board. You can view advisor filings with the SEC or with FINRA.
Certified Financial Planner & Retirement Planning Specialist, Empowered Financial Management
Nicholas Toman, CFP®, is senior retirement planner and investment advisor at Empowered Financial Management, a firm specializing in retirement planning for individuals who have retired within five to seven years of retirement or who have recently retired and no more than want to act as their own financial advisor. Nicholas is a graduate of the University of Wisconsin-Whitewater with a BBA in Accounting and has been a certified financial planner since 2014.
Investment advisory services provided by Trek Financial, LLC, (Trek), an SEC-registered investment adviser. The information presented is for educational purposes only. It should not be construed as specific investment advice, does not take into account your specific situation, and is not intended to constitute an offer or solicitation to sell or buy any security or investment strategy. Investments involve risk and are not guaranteed and past performance is no guarantee of future results. Before implementing any strategy described herein, consult a qualified tax professional for specific tax advice on a strategy. Hike 21-115.
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