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March 12, 2020 11:26 am
Plan to fail. When planning matters radio program matters radio Rich on planning. I am Peter Rochon, founder advisor at Rochon planning find us online Rochon planning.com you can give us a call. Be in touch. 91930058 style. We are going to be talking about the market instability.
The panic that's being caused by what is now the pandemic of the COBIT 19 coronavirus as well as the additional pressures of the oil wars of Russia and Saudi Arabia. Obviously a lot of people justifiably concerned about what's going on with their money or investments their assets.
The retirement accounts and to provide some perspective I'm bringing on a very special guest.
He is certified financial planner Tim Stearns and advisor from the Chicagoland area and a close friend of mine we we communicate and coordinate often in and talk about financial and economic matters as well as planning strategies.
And again, if you are at all concerned with market volatility and encourage you to reach out. We can conduct a portfolio review-is concerned about the germs that all we can even do this virtually you can be in the comfort of your own home.
We welcome you to be in touch with any questions or concerns that you have about the economy about the effects on your accounts and your financial progress give us call 919-300-5886 and again featured on this program. We got an interview with certified financial planner, founder of TJ Stearns, Inc. Tim Stearns something we seem to have regular market cycles and then we seem to have black swan events. Where does this coronavirus COBIT 19 and all of the economic news that were seeing in the market turbulence play into either of those. So you will help prepare you for market downturn.
You know that the economy has regular cycles will be downturns from time to time.
We know that, but still every time it happens. It feels like this could be the big one sold. Then there are downturns that are related to regular market ups which is what we see in right now and those really feel like they could spell disaster so we have seen both of these many times before.
The question is what are you going to do this time to protect yourself from these times absolutely, Tim, and a lot of people don't have a great answer for that, other than I'm going to ride it out or I'm going to panic someone hit her on the way down and sell out of my investments, hoping not to lose too much. What exactly and that's why we've been trying to talk to people for years now about how you need to have yell some failsafes some stop losses some protection, a parachute, whatever the analogy you want to use the you is going to be active. You might go to cash and get out. While this while the getting's good before you hemorrhaged all this money we were without a couple the other day and we are explain her, you know, this is great and all that you've built this wealth, but now it's taken a hit. Why because you didn't plan ahead and you know these are all things that can be somewhat avoided so that you don't take a loss like people did in 2008 or like we see in the last couple weeks we need some downsides strategies, don't we Tim something to help to offset mitigate those losses. Active tactical institutional management or even some principal protected products are available. This is one of the things that we as people.
I asked them what to ask your current advisor. One is the last time he took you to cash in the moments that will never as simple is that a problem analogy June 2000.
All we lost like everyone else. I said that's not true yell there's other people who got the market at a due time, or like you just said that principal protected products that they didn't care what the market was doing so, these are all things that we talk to people about and you you should be wary because I said this when she was 65 yell those 12 years ago you and you had an 11 year bull market. Now what you know what, you get a due date to, right the ship and in will maybe we'll belong to several what if you have another 2008 and that got her to give pause and say you know what we need to move a disguise and cut it for me. You know the buy-and-hold is and is working for our family, especially when now I'm winding down my career, not seller facets absolutely intended. Great point when market downturns happen. A lot of people do suffer losses. There are alternatives. They are, but if we are taking income from our accounts at the same time those accounts are losing value that compounds on the problem that we have exactly Peter and then took to your point, you know, if I said but say that the safe withdrawal rate.
According to Dr. Wayne file who we had on our radio show that the safe rate is 2% off my portfolios going down 30%. I'm certainly taking more than 2% and as we know the old adage of all, I can take 4% out fails 57% of the time, so that doesn't work.
So what we do to stop the madness is do something different, you know, and in the buy-and-hold again. It does not work, Tim. How does planning having a plan in place help to prevent emotional knee-jerk reactions for investors really easily if we have an income written income plan and our stock portfolio has taken a hit that we can go to the fixed income portion and takes the money there, while maybe that other one no heels up and gets back. Some those losses.
These are all things that we do we do a written income plan, which again 95% of America is never done and that you know they've been in accumulation their whole lives and now there a net seller of assets. What do we do differently. So what steps can we take Tim to better prepare for volatility or to help us out when we are even in the midst of market volatility like we are today. While a couple things number one would have a principal protected income coming in so that if the market does do a downturn who cares maybe have some some money in cash so you don't have to take from the portfolio that just went down 13% in in a couple weeks time. So these are all things that we plan out with people and we make sure were doing it correctly the old example that I like the uses were to most people die going to the top of Mount Everest is on the way down on the way up the chip than the good correct answer is on the way down because they have a plant you know in their exhausted in the air in a totally different mindset than they were when they're in our example, when they were working you know they're adding to the pot of money. Oh it's okay on the put money in an extra my 401(k). What if a finite amount of money and I'm retired, you know that 30%. I just lost like in 2008, that hurts. Absolutely. And that's why ladies and gentlemen, you do need to have a plan, both for on the way up the accumulation years and once you reach that peak in the summit and you have achieved your goal of retirement.
How do you maintain your safety and financial success on the way back. And as you are creating income from your accounts that is exceedingly difficult, especially without a plan as Tim Stearns has stated the majority of Americans are lacking that written retirement income plan, pick up the phone for a complementary review of your portfolio, your investments, your accounts, your allocation and your risk and will help to make sure that everything is in alignment and that you do have that written plan for retirement income, durable and dependable. You can reach Rochon planning by calling 919-300-5886 919-300-5886 visit online rich on planning.com so Tim, we have heard in market declines that it's just a paper loss will if this is true. That also means that what we had before was simply a paper getting that paper matters whether we have it or we don't is something that we tend to count and depend on. It's interesting he said and I couldn't agree more. Because basically my portfolios down and I'm forced to take withdrawals out of it. Guess what I just liked in the loss.
So if I'm forced to take out, let's say $30,000 out of my retirement account because I need to eat.
I need to pay my bills, but the markets going down 30%. I just locked in all that loss and Tim losses tend to count more than gain something a bear market goes down with the elevator and you know a bull market goes up using the stairs right yell in the market goes down and you suffer loss you you never get those dollars back those dollars are gone.
The dollars you have left have to work that much harder and grow that much more to bring your account balance back in the year.
We always ask people you know if you lost 10% in the market.
What you need to game to get it back in the say 10% I'll say no, not at all. It's 12%. Another example is 20% will save will 20% and it's actually 25%, you'll think about it so we always make sure people understand the loss if it hurts especially when you're going into retirement know we caught the red zone.
If you will. Those years lead leading up to those couple years leading up to your retirement in those early years into retirement.
That's were sequence of returns risk goes, we can show people with our reports with Bill due to a portfolio would decimate even you've talked about before, over a period of many years with average rates of return. A single down year in there can really throw off what the end results will be that that we can expect. And again, Tim most people lack the plan for how to create a steady secure stream of income.
When we see market losses when we see declines creating that income also becomes exceedingly difficult for more than 20 years the 4% rule had been the accepted model in retirement, but also has left and expected rate of failure. So why do we continue to follow a rule that accepts failure. Besides his income you need really just a percentage of your portfolio value.
You probably need a certain amount of income to live regardless of how much is in your investment accounts so taking income in the market downturn is especially dangerous. Those dollars are depreciated already and you liquidate them at lower prices than they are gone forever and you have removed your ability to recover.
We have seen this before in 2000 and 2001 and two in 2007, and eight where declines in the market paired with retirement and beginning to make withdrawals have been disastrous for individuals and it's a phenomenon known as sequence risk were sequence of returns risk, and if you would like to see this illustrated we got a great one page illustration that shows how that works, and what the danger of sequence risk were sequence of returns risk is taking income pulling money from your accounts during down times in the market. If you'd like to see that give us call 919-300-5886 Tim it does seem like markets have become more volatile in the last say 15 to 20 years. How does volatility amplify the sequence risk. It's important to realize that the same factor that causes sequence risk is a benefit when working with timeout dollar cost averaging, so long as you are working in yet a paycheck you're not experiencing sequence of returns risk is you're still putting money into the plan the transition to retirement and the help and how what was beneficial when you're putting money in, which was dollar cost averaging is dangerous when the money reverses direction is reversed. Dollar cost averaging out of the plan so Tim, how can we overcome sequence risk. What we do. There is wheat to a retirement income plan. So income allocation establishes a steady stream of income that doesn't make us take money from an account that's been hit in the market and has losses and then were taken out too much. So that's what we do and were writing out a income plan for somebody. The other thing I will brag about is its dynamic so things change all the time. We have assert a client who came in to see a Saturday.
We did a plan firm six months ago and he was gonna work totally 70 a just call this the other day and the major company that he works for the Chicagoland area is let him go. So everything turned on a dime and we had to make sure that we allocated correctly so that doesn't have to pull money from when the markets getting hit again. If you don't have that written plan for retirement income. You really deserve to take a second look to get that plan put together to have a review and evaluation, and that's what we do each and every day at Rochon planning if you'd like to get that income plan put together if you'd like to have that in writing. If you'd like to assess your risk exposure.
How much do you stand to lose in market downturns and what should your expectations before the money that you are taking risk with give us a call 919-300-5886 919-300-5886 Tim you actually wrote the forward to a great book which discusses the strategies on how to handle market volatility during retirement how to structure the portfolio to avoid or manage through downturns that appear in this book could not be more timely for people that are worried about what happened my money our book income allocation by my good friend David Gaylor.
It's an excellent book on my siblings were everyone of them as a baby boomer. Read the book and they totally understand now what were trying to accomplish here and they're not worried about the market going down will bid for the time being, because we set them up with a written income plan, and most people do not have that again most people have been pushed toward taking more and more risk higher and higher amounts of risk trying to get rewards and when the markets going well, that pays off, but a rising tide raises all boats and as a result, most people are overexposed to the amount of risk that is appropriate that we should be taking, and therefore probably uncomfortable when we see times of market volatility especially like this where it seems to happen so suddenly. If you would like to avoid that. If you'd like to learn strategies on how to protect your assets and your income, your assets and your income pick up the phone. Give Rochon planning a call would be happy to hear from you. Talk to you.
Sit down with you for a complementary portfolio review and evaluation. A retirement planning strategy session. We do have copies of that book income allocation in our office. If you'd like to learn the structure of the portfolio that's proving to provide a little bit more stability in times of market volatility into and throughout retirement, helping to protect that retirement income removing the doubt and worry and uncertainty, giving you a little bit more confidence. 919-300-5886 919-300-5886 Tim we always appreciate your time. Thank you for your friendship and thank you for joining me here on the program for another addition of planning matters radio, which on planning. Thanks again for having planning matters radio the content of this radio show is provided for is not a solicitation or recommendation of investment strategy, investment, tax or legal advice from a professional advisor and investment investment strategies mentioned involve risk, including the possible loss of principal by three services on some capital management for registered investment advisor is officially on the financial strength and claims paying ability withdrawals of growth from annuities maybe taxable as ordinary income for the year. It is taken for visual should review contracts for specific details of the product features withdrawals may subject you to penalties protected by three advice is not just other activities such as advisory clients are part product may result regarding