If you fail to plan, plan to fail.
How do you want your future to look? We want you to plan for success. Welcome to Planning Matters Radio.
And welcome into the program. Thank you for tuning in to Planning Matters Radio. Rich on planning. I am Peter Rishon, founder advisor at Rishon Planning. You can find us online, rishonplanning.com.
You can give us a call if you need to be in touch, 919-300-5886. We are going to be talking about the market instability, the panic that's being caused by what is now the pandemic of the COVID-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, their investments, their assets, their retirement accounts. And to provide some perspective, I'm bringing on a very special guest.
He is certified financial planner Tim Stearns, an advisor from the Chicagoland area and a close friend of mine. We communicate and coordinate often and talk about financial and economic matters, as well as planning strategies. And again, if you are at all concerned with market volatility, I encourage you to reach out. We can conduct a portfolio review. If you're concerned about the germs at all, we can even do this virtually.
You can be in the comfort of your own home. But 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 a call, 919-300-5886. And again, featured on this program, we've got an interview with certified financial planner, founder of TJ Stearns, Inc., Tim Stearns. So Tim, we seem to have regular market cycles, and then we seem to have Black Swan events. Where does this coronavirus, COVID-19, and all of the economic news that we're seeing in the market turbulence play into either of those? So how prepared are you for a market downturn? We know that the economy has regular cycles. There'll be downturns from time to time.
We know that. But still, every time it happens, it feels like this could be the big one. So then there are downturns that aren't related to regular market ebbs, which is what we're seeing 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 really don't have a great answer for that, other than I'm going to ride it out, or I'm going to panic somewhere on the way down and sell out of my investments, hoping not to lose too much.
Well, exactly. And that's why we've been trying to talk to people for years now about how you need to have some fail safes, some stop losses, some protection, a parachute, whatever the analogy you want to use that is going to be active. And you might go to cash and get out while the getting's good before you hemorrhage all this money. We were with a couple the other day, and we were explaining to her, 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 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've seen the last couple weeks. We need some downside 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 ask people. I ask them, ask your current advisor, when was the last time he took you to cash? And the one woman said, well, never. And I said, well, isn't that a problem? I mean, how'd you do in 2008? Oh, we lost like everyone else. I said, that's not true.
You know, there's other people who got out of the market at a due time, or like you just said, they had 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 know, you should be wary because I said to this woman, she was 65, you know, that was 12 years ago, you know, and you've had an 11-year bull market. Now what? You know, what are you going to do to kind of right the ship? And you know, well, maybe I'll wait a little bit longer. I said, well, what if you have another 2008? And that got her to give pause and say, you know what, we need to move.
This guy isn't cutting it for me. You know, the buy and hold isn't working for our family, especially when now I'm winding down my career and I'm not selling our assets. Absolutely.
And Tim, great point. When market downturns happen, a lot of people do suffer losses. There are alternatives there, 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 to your point, you know, if I said, let's say that the safe withdrawal rate, according to Dr. Wayne Fow, who we've had on our radio show, that the safe rate is 2%. Well, if my portfolio has gone down 30%, I'm certainly taking more than 2%. And as we know, the old adage of, oh, I can take 4% out fails 57% of the time.
So that doesn't work. So what do we do to stop the madness is do something different, you know, and 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, then we can go to the fixed income portion and take some money out of there, while maybe that other one, you know, heals up and gets back some of those losses. These are all things that we do when we do a written income plan, which again, 95% of America has never done. And that, you know, they've been in accumulation their whole lives.
And now they're 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? Well, a couple things. Number one, have a principal protected income coming in, so that if the market does do a downturn, who cares?
Maybe have some money in cash, so you don't have to take from that portfolio that just went down 13% in a couple of weeks' time. So these are all things that we plan out with people, and we make sure that we're doing it correctly. The old example that I like to use is, where do most people die going to the top of Mount Everest? Is it on the way down or on the way up? And the correct answer is on the way down, because they haven't planned, you know, and they're exhausted and they are in a totally different mindset than they were, in our example, when they were working. You know, they're adding to the pot of money. Oh, it's okay, I'm going to put money in next year in my 401k. Well, what if I have 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've reached 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 complimentary review of your portfolio, your investments, your accounts, your allocation, and your risk, and we'll help make sure that everything is in alignment and that you do have that written plan for retirement income, durable and dependable. You can reach Rashawn Planning by calling 919-300-5886, 919-300-5886.
Visit online, richonplanning.com. So, Tim, we have heard in Market Declines that it's just a paper loss. Well, if this is true, that also means that what we had before was simply a paper gain.
That paper matters. Whether we have it or we don't is something that we tend to count and depend on. It's interesting that you say that, and I couldn't agree more because basically if my portfolio is down and I'm forced to take withdrawals out of it, guess what? I just locked in that 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 market's gone down 30%. I just locked in all that loss. And Tim, losses tend to count more than gains, don't they?
A bear market goes down with the elevator and a bull market goes up using the stairs, right? When the market goes down and you suffer a loss, you never get those dollars back. Those dollars are gone.
The dollars that you have left have to work that much harder and grow that much more to bring your account balance back. We always ask people, if you lost 10% in the market, what do you need to gain to get it back? And they'll say 10%.
And I'll say, no, not at all. It's 12%. Another example is 20%. And they'll say, well, 20%. And it's actually 25%. Think about it. So we always make sure that people understand a loss, it hurts, especially when you're going into retirement.
We call it the red zone, if you will. Those couple of years leading up to your retirement and those early years into retirement, that's where sequence of returns risk goes. And we can show people with our reports what they will do to a portfolio.
Decimate it. 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 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 an expected rate of failure.
So why do we continue to follow a rule that accepts failure? Besides, is the 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 a market downturn is especially dangerous. Those dollars are depreciated already and you liquidate them at lower prices.
Then they are gone forever and you have removed your ability to recover. We have seen this before in 2000 and 2001 and 2002, in 2007 and 2008, where declines in the market paired with retirement and beginning to make withdrawals have been disastrous for individuals. It's a phenomenon known as sequence risk or sequence of returns risk. If you would like to see this illustrated, we've got a great one-page illustration that shows how that works and what the danger of sequence risk or sequence of returns risk is. Taking income, pulling money from your accounts during downtimes in the market.
If you'd like to see that, give us a 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. We're talking about dollar cost average averaging. As long as you are working and you had a paycheck, you're not experiencing sequence of returns risk because you're still putting money into the plan. The transition to retirement and what was beneficial when you were putting money in, which was dollar cost averaging, is dangerous when the money reverses direction. It's reverse dollar cost averaging out of the plan. Tim, how can we overcome sequence risk? What we do there is we do a retirement income plan. 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 we're taking out too much. That's what we do when we're writing out an income plan for somebody.
The other thing I will brag about is that it's dynamic. Things change all the time. We have a client who came in to see us the other day. We did a plan for him six months ago, and he was going to work till he's 70.
He just called us the other day, and the major company that he works for in the Chicagoland area is letting him go. Everything turned on a dime, and we had to make sure that we allocated correctly so that he doesn't have to pull money from when the market's 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.
That's what we do each and every day at Rashaan 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 be for the money that you are taking risk with, give us a call, 919-300-5886. Tim you actually wrote the foreword 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. Peter, and this book could not be more timely for people that are worried about what happened to my money. Our book, Income Allocation, by my good friend David Gayler, it's an excellent book. My siblings, who are every one of them is a baby boomer, read the book and they totally understand now what we're trying to accomplish here, and they're not worried about the market going down a little bit for the time being, because we've set them up with a written income plan, and most people do not have that.
Well 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 market's 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 are 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, pick up the phone, give Rashan Planning a call, we'd be happy to hear from you, talk to you, sit down with you for a complimentary 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 edition of Planning Matters Radio, Rich on Planning.
Peter, thanks again for having me. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal.
Advisory services offered through Brookstone Capital Management, a registered investment advisor. Annuity guarantees are based solely on the financial strength and claims paying ability of the issuing company. Withdrawals of growth from annuities may be taxable as ordinary income in the year it is taken. Individuals should review contracts for specific details of the product's features and costs. Early withdrawals may subject the owner to penalties, fees or taxes. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker-dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2023-12-07 01:44:34 / 2023-12-07 01:51:40 / 7