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Created: May 2, 2022
Modified: June 15, 2023

Don’t Lose Money in Retirement

Today, we’re talking about the subject “Don’t lose money in retirement.” Are there guarantees? Well, there are no guarantees on everything. If you spend more money than you have, you’re going to be broke. That’s guaranteed, but you’re not always guaranteed on investments. We’re not just talking about investments here though, but about strategies to help you maximize your retirement.

I’m going to hit a few subjects and then we’re going to go back and delve into each one. One is risk. How much risk are you taking with your money? The next one is market corrections. Let’s learn a little bit about market corrections. How do they come about? How long do they last? What should we do when it comes to anticipating market corrections?

Re-balancing a portfolio is the secret sauce

This is a free strategy that works to de-risk your portfolio to make sure you don’t go too far backward, so we’re going to spend a bit of time on that. Overspending. Hey, it’s easy to overspend, especially when those grand kids come along. You want to do everything for them, but you got to watch the spending. You got to be careful. And we’ve got other videos on budgeting in retirement.

I’ll talk about the two biggest risks in just a minute. Remember, one size does not fit all. And by the way, here’s the problem with a lot of financial advisors. How many times have you heard, don’t take Social Security until you’re age 70? Everybody should wait until they’re age 70, the last possible moment to take Social Security. That’s not correct at all. It depends on your individual situation.

And as a general rule, the more money you’ve saved, maybe the earlier you should take Social Security. So we’ll touch on that in a moment, but one size does not fit all. Okay, so don’t lose money in retirement. Let’s start with the amount of risk you’re taking. You know, if you look at the stock market right now, you look at interest rates in the economy and you go back to 2009, 2010, that period, or even back to 2000. We have been on an unprecedented run.

I mean, if we drew the picture of the market since 2010, it’s like this if you step back far enough. Now, if you get real close, you see all the little ups and downs, those things that make us a little bit nervous. Those things where the news wants to sell you the crisis of the day and get you all freaked out. But if you step back and look at a long-term chart and kind of get back far enough where you can see the long-term trend, it’s been like that since 2010. That is not normal.

The market tripled over 10 years. And even going back before that, the snap-backs from these corrections are not normal, and here’s why it’s important. Most people are taking much more risk than they realize. People in retirement, most of them are taking more risk than they have any business taking. They’re putting their retirement in peril. If you’re watching this and you’re in retirement, chances are very high that you’re good with money. Because most people who aren’t good with money don’t watch videos about money, unfortunately. The people that need it the most don’t pay attention. So if you’re watching this, it’s very possible that you’ve saved enough and you have enough for a comfortable retirement.

How much risk are you taking?

Why take risk when you don’t have to? Why take too much risk when you don’t have to? There’s another saying: Why keep playing a game you’ve already won? Allow yourself to lose that game. Take a look at the risk you’re taking. It is not hard to get a stress test on your portfolio, run it through certain scenarios so that we take the way you’re invested right now, run it through certain scenarios to see when these scenarios come up again, what will happen to your portfolio?

And a good financial advisor can simulate the downturn of 2008, and 2009. The short-term downturn that happened when COVID-19 hit our world. The dot-com bubble of ’01 and ’02. As a financial advisor knowing what I know, even I lost 90% in one of my accounts because I was too exposed to tech. Nobody is immune to this. It’s easy to take too much risk. We forget the pain of losing money. And so watch out for the risk that you’re taking.

One of the biggest problems in retirement is not that people haven’t saved for retirement. Because, again, if you’re watching this, you probably saved enough for retirement. It’s the risk that you’re taking that you don’t realize. Remember what happens emotionally in retirement. You have stopped working. You’ve lost this steady income that you know is coming in every week or every two weeks from your paycheck. Now you’ve got to live on your money and recreate those paychecks. And when you see that portfolio drop by 20 or 30%, everything inside you is screaming to get out. “Let’s just do a reset. I can’t handle this anymore. What if it keeps going down?”

If you’re married, you might have a spouse that’s talking to you about, “What have you done? How could you do this?” And so you shouldn’t take too much risk because if you take a lot of risk or I should say if you take too much risk and the market turns against you, which it will, it absolutely will. Probably in a 30-year retirement, it’ll turn against you four times most likely. You’re going to make a mistake because your emotions will get in the way.

What is a market correction?

A market correction is simply when the market goes down 10% or more. Now the 20%, that’s a bear market, but let’s just talk about sort of that 10, 12% decline that we can see in the market. That happens all the time, a lot. I believe the number is about every 18 months if you look back to the ’30s. Now sometimes it snaps back very quickly and so we easily forget the pain. The most painful stock markets are the ones that go down over a period of time, over maybe 12 or 18 months. And it’s just sort of this grueling down and down and down and down and down. It’s probably like getting in the ring with a boxer that just hits you over and repeatedly.

The things that we forget or like when COVID-19 hit, the market went way down and then it snapped back in a very short period of time. 2018, where we had that big downturn near the end of the year. I think we lost about 10% in December, but it snaps back so quickly we forget. So market corrections, they’re to be expected. They’re part of the game. If you think of long-term investing as a game, that’s just the price you pay. The price you pay to get a long-term rate of return let’s say just in a random mutual fund of 10% per year is occasionally, you’re going to take a step back of 10% in a short period of time.

We’ve got to expect market corrections. They come on average about every eight to months, just expected. It’s part of the deal. Keep an eye on the long-term goal, which is you having a good secure 30-year retirement. Now here’s what I want to spend a moment on, re-balancing and you’re going to get this in it’s really simple. Re-balancing is the secret sauce to make sure you’re not taking too much risk. So should sit down and figure out what the right balance is for you.

What is the right balance for you and your portfolio?

Let’s just keep this really simple and say we’re dealing with stocks and bonds. I know there are other asset classes. You can invest in real estate and commodities and so, but let’s just keep this simple for this illustration, which is re-balancing. Let’s say you decide with a financial planner with a financial advisor based on your risk tolerance, that the proper balance for you is a 50-50 mix between stocks and bonds. This will smooth out the returns of the market. If the stock market drops 30% you have money in bonds, chances are global money is flowing to bonds. So you probably won’t lose 30% because your half and half, you might only lose 15%. You might lose less than 15%.

Again, bonds are probably going up because people are seeking safety, but let’s just pretend the market drops 30% and your bonds don’t drop at all. Well, then what happens is if you had 50 cents here and you had 50 cents here, and these 50 cents dropped by 30%. Now maybe you only have, to keep it simple, now maybe you have 35% in stocks and you have 65% in bonds.

I know the math isn’t perfect. So for those of you who are engineers and actuaries, just relax. Just using this as an example. You have a 50-50 mix, you decided that’s right for your financial plan, the market drops and now you’re at 35-65. If you just re-balance this, if you just move money from here over to here so you get, again, back to a 50-50 mix. What have you done? You’ve sold high and you bought low. That’s the idea. We want to buy and sell high. So you’ve re-balanced back to a 50-50 mix. It forces you to sell your profits and reinvest in what’s not doing well. And that’ll automatically give you a better than average return than if you just had money in a 50-50 mix the whole time.

I know it’s kind of hard to explain here, but re-balancing is the secret sauce. What else does it do? Does it de-risk your portfolio? How does it de-risk your portfolio? Well, let’s draw the exact opposite. Let’s say the stock market goes way, way up. And now suddenly you have 65% in stocks and 35% in bonds. And we decided based on a financial plan and based on your risk that you can’t take that. You can’t tolerate the risk. That will take a big hit sooner or later.

So what do you do? You sell some stocks and you put money over into the bonds, keeping your 50-50 mix. You’ve sold high and bought low. And you want to just keep doing that in retirement. If you can just do that in your portfolio, you’ll have a much higher probability of sticking with an investment plan and being an investment winner.

Overspending in retirement

You got to watch this one. I became a grandfather not too long ago. All we want to do is spend money on a grandchild. It’s ridiculous how many clothes the child has already. One crib isn’t enough. There’s got to be three or four of these pack and plays and all kinds of toys and baby stuff.

Nobody thinks twice about spending money on a grandchild, but you’ve got to watch out. If you overspend, whether it’s on grandchildren or traveling or buying a nice fancy car, you can really blow up your retirement. “Don’t lose money in retirement” really just means “don’t have your account balances go down because you overspend.” This is why it’s important to have a budget for retirement, which is in one of my other videos.

Strategies for asset protection

How can you lose a lot of money in retirement?

  • Nursing home costs
  • Getting in a car accident
  • Somebody sues you
  • Somebody slips and falls on your property
  • You don’t have adequate insurance

These are big things where you can lose a lot of money in retirement. As far as nursing home costs go or any kind of long-term health insurance needs, you can do legal planning. You can do insurance, you can buy long-term care insurance. Maybe a combination of the two, but the statistics or the probabilities are so high that if you’re married, one of you will need nursing home care before you pass away.

I mean, I think it’s like a 40 or 50% chance that one of you will need nursing home care. It’s important to address that concern. Investigate insurance options. Should you buy it or not? There’s a hybrid type of insurance where you always will get your money back even if you don’t have a claim. And then of course there are legal things you can do for asset protection. Asset protection from taxes is extremely important. There are strategies you can do for that.

“Don’t lose money in retirement” really just means “don’t have your account balances go down because you overspend.”

– Joel Johnson

And then of course you want to have plenty of insurance. I recommend that everybody has what’s called an umbrella policy. It picks up where your auto or homeowners leave off so that if you have a problem like for instance, let’s say you have that grandchild take your car out, the car’s in your name and there’s a terrible accident. And maybe the child injures or unfortunately kills somebody who is going to turn around and sue you. And the liability goes way beyond the limits of your homeowners or auto insurance.

Having an umbrella policy, it puts an umbrella, it puts an umbrella over your liability. And so Wendy and I have a $5 million umbrella policy. I would recommend you have at least a $2 million umbrella policy. Nothing can wipe out a retirement faster than having somebody be able to come after all your assets because you didn’t have adequate insurance.

In retirement planning, one size does not fit all

And of course, as I mentioned earlier, one size does not fit all. Way too many financial planners tell you to do certain things. Don’t take Social Security until the latest possible moment. Always defer taxes. This is all generally good advice but certainly doesn’t apply to everybody. And if you’ve done a great job saving for retirement, if you have more than you need, most of those plans will hurt you rather than help you, those one-size-fits-all plans. So don’t lose money in retirement. That’s what we’ve been talking about.

You should consider all these things. I love the re-balancing part and the corrections part. What do I mean by I love it? I love the fact that if you can hang on through corrections because you’ve applied re-balancing to your portfolio, that already gives you a huge advantage over most people that are going to go through retirement reacting.

Please share this video with other friends of yours that are in retirement or getting close to retirement. I know it will be valuable.

Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.

Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.

Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.

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