Get Foolproof
If you’re someone looking to step away from work someday, or maybe you’re already there, how sure are you that you won’t run out of money before you run out of life? That’s the question I’m exploring in a series of articles: when is enough enough?
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The question is not just about money, although income is a critical consideration. ?Many folks zero in on income, with the idea that that’s all it’s about. Income is vital, but it’s not the only consideration.? There are other factors that affect your financial plan, and that can really hurt. One issue is a potential chronic illness, the number one cause of bankruptcy. Another issue is failing to address tax problems for both your life and your legacy. However, there are tax strategies that you can implement to avoid excessive risk with your portfolio. You can invest in a way that’s intelligent and prudent that will sustain your lifestyle for the long term.
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You don’t want to let emotion rule in your investment choices. That can lead to disaster. Emotions are important, but they should steer us in developing a plan to ensure we don’t fail. As I’ve often said, failing to plan is planning to fail.
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Developing a foolproof plan doesn’t guarantee perfection. But we test our plans to get as close as possible to a 100% success rate. First and foremost, whether in the game of business, investing, or retirement, we never want you to run out of cash.??
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From time to time, I’ve met with folks who, when I’ve suggested they maintain a cash reserve, an emergency reserve, insisted they were fine. They argued that they could borrow against their home; they had credit cards. The problem is that credit can dry up during a financial crisis. You could find your equity gone because of a sudden crash in real estate values. You might suddenly have a lower credit line because credit is tightening.
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Don’t depend on credit; depend on your own cash, even if that means parking it somewhere you’re not super excited about. Cash has two goals: safety and liquidity. You don’t need a huge amount. Some people decide to put everything they have in cash, even hundreds of thousands of dollars. That’s not a wise idea either because of inflation.
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We want to fight inflation with a reasonable rate of return. I’m not referring only to the cash you keep in a bank account. You also never want to find yourself with a cash flow that doesn’t meet your level of expenses. At Lord and Richards, we can help you put in place strategies that will ensure you never run out of income for life. Risk management is a foundational piece of our plan. We want you to have a written plan to ensure you never run out of money and that you manage risk well. You might call this “not betting the farm.”
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I often point out to people that based on back tests we perform, the same investments they have now would have been crashing 20 years ago. Some people might have even needed to go back to work as a result of not having a sufficient risk management plan. Many respond that they did fine, but the reality is they were working during those years and able to replenish during the crashes of 2000, 2008, 2011, 2016, 2020, and so on. You may do fine when you can backfill the hole the market created, but when you’re no longer taking an income, the risk magnifies significantly.
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Another thing we want for you is to get a great return that is more competitive than if you simply dropped your money out there and let it ride. It’s important to balance return with risk. I find that many people have an inflated view of what their current portfolio will or has returned and an overly optimistic view of the amount of risk that they’re carrying.
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We want to erase biases, blind spots, over-confidence, and oversimplification. There are several areas in which we can help you foolproof your retirement. There are creative solutions to every problem in retirement. How do you know you have enough? It starts with a phone call. ?
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Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.