Why You Separate Income and Growth in Your Account

It’s tough times out there and I think a lot of people are concerned about their retirements. One big thing that you need to look out for is volatility. Volatility is a fancy word that makes me look smart, but it just means risk. There’s good risk, and there’s bad risk. Good risk is the way you make money when the market goes up. Nobody has a problem with that, but the opposite of that, bad risk, can get you in trouble.


How do you structure your accounts so that you’re protected? When you’re retired or nearing retirement and you’ve been working hard for the past 30-50 years, you’re not going to be enjoying it if you’re constantly worrying about whether your money is going to last. That fear can destroy everything. There are people out there who are retired and they’re constantly checking their investment accounts. They wake up in the morning and they want to spend time with their grandchildren, but they’re concerned about what the markets are doing. They may not get to fully participate and engage with their grandchildren because they’re thinking about something else.


Maybe they want to go on a cruise, but they’re not sure if they can afford that cruise because their investment accounts are down, and they don’t know what the future holds.


If this stuff is happening to you, your accounts aren’t set up the right way. That is also a signal to you that maybe you need a second opinion. If that’s you, give us a call to get that Retire Right Report and let us help try and set you up the right way.


Earlier, I talked about my brother-in-law Tim and how I was able to help him fix his accounts. I promised that I would tell you how you should be setting up your accounts if you’re retired or nearing retirement. The biggest mistake that people make as they near retirement, is that they continue to hold onto the classic balanced diversified portfolio.


When my parents retired back in 1999 that’s how we did planning for retirement. We’d put them into some stocks and some bonds, and maybe we’d throw in some real estate just to be cool, but it would always be nice and diversified. We’d tell them to just take 4% a year when it came time to take income and we assumed that everything would be swell. It was the late 1990s and we thought we had everything figured out. Did you know it was in the 1990s when we started to have online search options? Google wasn’t born yet, but we had online search with Yahoo and Ask Jeeves. Amazon was just starting, and it was an exciting time in the economy.


Unfortunately, pride goeth before a fall indeed. In 2000, we had the dot-com crash. In 2001, we had 9/11. In 2002, we had a yearlong recession. In three years, the market went down, down, down. Anyone who invested in a balanced portfolio and was taking 4% income found their accounts down roughly 50% three years later. The 4% withdrawals for three years plus market losses caused them to lose roughly half their money in three years.


Everyone learned at the time that if you’re young and you have time, then it’s okay to invest in that portfolio and to buy and hold and wait it out. We also learned that if you’re retired, or close to retirement, then you got crushed. That approach only works when the markets go up. It does not work when the markets go down. Any solution that only works if the markets go up, but doesn’t work when the markets go down, is a horrible solution.


It’s not that complicated to fix it. You take your portfolio and segregate it into two components. One component is going to be protected and put in a safe place to generate income. It needs to be put somewhere where your principal is protected and insured, and where you can get a decent return. One potential way you could do this is through fixed-indexed annuities, but you can’t use just any of the thousands of fixed-indexed annuities. Probably only about 5% are worth using, in my opinion. The other portion of your portfolio is what you put in the markets. When you’re ready to retire, the safe part of the portfolio is going to deliver all the income you need. If you do it right, it should last about 20 years. That leaves your growth accounts 20 years to grow a little more with no problem.


There will be good years and down years, but you have 20 years. You bought yourself time and that’s the key word. If you’re retired, then you should already be set up that way, but so many people who are retired or are nearing retirement are not set up that way. So many people are just like my parents back in 1999 and are being set up to be slaughtered when the markets don’t cooperate.


There’s no excuse for that. The first step is to get a second opinion. That’s how you get better. Maybe you should talk to somebody who lives and breathes retirement planning and someone who truly focuses on helping people at that stage of their lives. That’s what we can do for you if you call us at 512-886-5850. It’s free to get your personalized Retire Right Report. Right is an acronym that stands for Risk, Income, Growth, Healthcare, and Taxes. These are the five areas that I suggest you address to have a successful retirement. We can help you look at each of those areas to try and make sure you’re on the right path and give you suggestions if you’re not.

















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