How to Use the Barbell

I want to take you further in understanding the barbell concept and how it relates to your portfolio as you prepare for a secure, financially independent retirement. Previously, I went into how to build a barbell. That barbell has risk on one side and safety on the other. The compromise of the bar is your liquidity scale. The risk weights on the left have opportunities for growth and lots of liquidity but carry the risk of loss. The safe weights on the right have opportunities for growth, less liquidity, and take no risk of loss.

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?How do you utilize the barbell concept? How much liquidity do you need to cover your expected needs and unexpected emergencies? You probably don’t need 100% liquidity. You generally need about 40-50% of your portfolio liquid to cover emergencies, extras, luxuries, bucket list items, and giving. We call that side your growing reserve, but it also carries risk.

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The key to becoming financially independent is not having all your money lumped together. You need a pool of liquid money available to you anytime you want. Depending on how it's designed, it may be taxable or tax-free. But when you're ready to access it, you can withdraw anytime without penalties or charges. That's a growing reserve.

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You may be questioning whether you can live on half your portfolio. I find for those who have saved well, the answer is yes. Typically, between 40-60% of your portfolio can be placed on the safe, protected side of the barbell. It will be less liquid, but it's enough to give you a monthly income for the rest of your life. Another critical aspect is making sure you have set aside money outside your barbell in places like safe savings accounts and money markets. You want something that is liquid but still gets you a little bit of return. That’s your short-term emergency reserve and stays outside of the barbell.

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Consider the safe money on the right side of your barbell as lifestyle security.? From there, we can help you construct ways to generate income that covers all your personal expenses on a regular basis. I recently met a couple who had done a great job saving, but the market was beginning to erode their reserves. They were taking money at a very reasonable rate, less than three percent, but were still seeing their principal balance erode faster than they wanted. We determined that rather than designating their entire portfolio as income, we would take just half and generate the income they needed, leaving the other half as a growing reserve.

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?Let me explain how we do that. ?We don’t follow the four percent rule; that doesn't work. Three percent can work but?requires you to tie up a lot of your money. People may say their money isn’t tied up in stocks, bonds, or mutual funds, but I would argue it is tied up in your mind if you're taking all of it and designating it for your?lifestyle.? Take a portion of your money and utilize that for your lifestyle.?

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A fixed annuity can?accomplish that. There are various kinds of annuities, and it can be confusing.?Some have high fees, but not all of them. At Lord and Richards, we don't use annuities with high fees and stick with those with no fees or ones that are very low, typically less than the?cost of managing a portfolio. It’s true that they also tie up your money. The downside is that there is usually a?penalty for withdrawing early, but not as much as many people think. The plus side is that you've got the safety and protection of your principal.? You also have the opportunity to grow your principal while you're waiting to take income or even after you're taking it.

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Here's one remarkable perk that you only see with annuities. You can generate income for the entirety of your life and your spouse’s. Because of high interest rates today, we're seeing some of the highest guaranteed?lifetime income payouts ever. In addition, annuities have a historical track record of being stronger than banks, pound for pound. We have a government-based system that will give you peace of mind, knowing that your money is safe, protected, and guaranteed.

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In the safe part of your barbell, we want you to generate?lifetime income that never runs out. Some of you may be concerned that you’ll lose control and that the annuity?company will keep your money. That can be true with immediate annuities, but?the other kinds allow you to continue growing to offset your withdrawals.

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At Lord and Richards, our team will show you?how to build that portfolio. We'll help you design a barbell where you can?enjoy safety and security on one side and limit risk to the side that functions as a growing reserve. We’ll teach you?how to generate income that you can't outlive from the safe, secure portion of your barbell. We're?having conversations like this daily with people like you, helping them get set free?financially. That’s what it's all about. It simply starts with a phone call to Lord and Richards.

Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.