PREVAIL Over Uncertainty

For most of us, uncertainty strikes fear in our bones. Let’s face it, very few of us like to feel out of control. In fact, what is our instinct when we perceive an imminent collision? We close our eyes and brace for impact. As I contemplated how this feeling of losing control relates to our net worth, our investment strategies, retirement savings, etc. the following “brace for impact” type of emotions hit me:

• Will tax rates go up? Probably, but I don’t know when.
• Will I need long-term care? Statistically yes, but I don’t know when.
• Will the market have a correction? Yes, we are now in a bear market cycle.
• Am I going to die? 100% yes, but I don’t know when.

Then I quickly transitioned my thought process to historical market cycles and remember that, “when” doesn’t matter. If the world is full of uncertainty, what can be done to make the uncertainty irrelevant? This is a bold initiative and you must ask: Can this be done? Since the last week of February, the Dow has experienced historically low drops, not only erasing the gains of 2019 but falling below anticipated levels. How long will this pullback last? Again, we don’t know.

I believe with proper planning, we can build a strategy with a strong foundation to address multiple items of concern such as: 

Investment Strategy – Investors are being forced to take undue risk to produce yield and consistent income due to this low-interest rate environment. The 10-year treasury yield dropped to a low of .54% on 3-9-2020 and the 30-year to .99%. Think about the delta between a retired individual pulling 4% from their investments for income versus current bond yields. 

Taxes – The reason Prevail places such a strong emphasis on tax rates is because a minor uptick in future tax rates could quickly depreciate a lifetime of savings, investing and planning. How can you properly plan for retirement income when you have no idea what tax rates will be when you retire? It is the single greatest uncertainty that affects most retirement plans.

The SECURE Act is a perfect example of a monumental governmental tax grab. An IRA worth $1,000,000 inherited by a 40-year-old beneficiary would have had a Required Minimum Distribution in year five of $28,955 prior the SECURE Act and $126,247 after the SECURE Act. Think about the impact to one’s marginal tax rate if $126,247 is added to reportable income.

Long Term Care – Statistically, 69% of those turning 65 this year will need some type of long-term care assistance during the remainder of their lifetime. The average length or care needed is one to three years. A concerning statistic is that 15% of those long-term care recipients will spend greater than $250,000.1

Death – There are some that say, “I want to leave nothing behind.” While others feel leaving a legacy to be admirable. Regardless of on which side you fall, do you really want your children to bear your final expenses? Average final expenses range from $15,000 - $20,000. Can your loved ones afford to pay that out of pocket?

So how do we mitigate “when?” Think about the 20/30/50 Rule and invest with the following four points in mind.

1. Liquidity – Access to your investments without penalty is crucial. 
2. Investment Growth – Generally the more liquid your investment, the less rate of return can be expected. This doesn’t have to be the case when properly designed.
3. Tax Awareness – Get as much of your future income into a tax-free instrument.
4. Protection – Leverage your assets for a greater return utilizing financial tools to mitigate large stock market pullbacks.

Establishing a strategy where investments are properly deployed with a non-stock market foundation utilizing the 20/30/50 Rule can be a very effective way to make “when” irrelevant.

Investments accompanied by a properly designed whole life investment plan can address most of the concerns traditional investment clients are feeling when suddenly a bull market turns to a bear market, wiping out 100% of year-to-date gains

It’s never too late to start planning for financial uncertainty. Your Prevail advisor can assist with developing a plan to get you on the right track. Prevail advisors are on a mission to get all Americans to transition their assets to a situation where “when” doesn’t matter.

Footnote

1 https://www.fool.com/retirement/2018/09/02/5-long-term-care-stats-that-will-blow-you-away.aspx