Diversify for peace of mind in retirement planning

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Lawrence Castillo

Since 2000, the US dollar has lost an incredible 44.2% of its purchasing power. Reports from the government’s Bureau of Labor Statistics (BLS), the official tracker of inflation statistics, indicate that inflation could be worse than we think. Even if interest rates remain at their lowest on record, Federal Reserve policies could drive up inflation.

What does this mean for retirees and pre-retirees?

If you have an advisor or a team of advisors, they have most likely mentioned the idea of ​​“diversification” at least once. Since 2020, however, the concept of diversification has moved from a “good idea” into an absolute necessity. Several asset classes, particularly cash flow assets, seem to be the only remedy for thriving in an increasingly volatile investment landscape. Diversification or the development of so-called “hybrid” retirement strategies is essential to avoid the most dreaded scenario of a retiree: outliving his savings.

Good diversification and risk reduction are part of well-designed and personalized financial plans. Contrary to what some advisors preach, there are no shortcuts, no “one size fits all” templates to shorten the process. Portfolio allocation is unique to each individual. Some financial professionals believe that the only way to ensure a diversified plan is to invest in all types of assets.

How do we manage to diversify?

Many people don’t want to spread their money across multiple assets because they find it too difficult to monitor and maintain. If so, retirees and those approaching retirement should consider several potential sources of income streams. Each of these assets offers different benefits and risks, as well as growth potential.

Social Security

While it’s a reliable source of income, retirees shouldn’t look to Social Security as their only source of money for retirement. In 2020, Social Security paid an average of $1,503, an amount insufficient to meet the needs of most retirees.

Fixed instruments

Debt securities that pay fixed interest, such as bonds, are commonly used to build various retirement plans. Interest on these types of assets is generally paid on a semi-annual basis. The invested capital returns to the investor at maturity.

Sotck exchange

Although the market offers high growth potential, recent volatility makes it clear that such growth often comes with higher risks.

When considering this option, it is essential that you clarify the level of risk you are willing to take and whether you have time to recoup any losses you may incur. The COVID-19 pandemic has made Wall Street earnings even more unpredictable, meaning it could take years for seniors who invest too heavily in the market to recover from a downturn. Retirees may find that they need to withdraw larger amounts of their money when stock prices are falling, leading to faster depletion of retirement savings.

Be sure to consult with a knowledgeable financial planner to determine if you have the right amount of money invested in stocks.

Safe money vehicles

The cornerstone of a healthy retirement is safe money products like permanent life insurance and annuities. Instead of adding these proven products as an afterthought, it makes sense to build your portfolio around them. Owning low-risk, tax-advantaged products, many of which offer guaranteed income streams, will help you in a number of ways.

You’ll be able to plan better, knowing that you have a predictable source of income. Plus, unlike stocks and other assets, your capital is protected. And you have the opportunity to use these products to create a legacy for your loved ones. Safe money products like annuities and life insurance also have unique tax advantages that other cash management tools lack.

Depending on your appetite for growth and your tolerance for risk, there are other opportunities to diversify your retirement portfolio. Before committing to any of these more “exotic” investments, you need to spend some time doing your research and due diligence. Then talk to a trusted advisor who will tell you the TRUTH about money and not just try to sell you something.

Financial mistakes can interfere with your happiness when you are no longer working. The good news is that leveraging viable alternatives to traditional planning and creating a safer, more robust “hybrid” portfolio can help you avoid making these mistakes.

Lawrence Castillo is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.



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