At one point in my planning process I show my clients the Red-Green spectrum of all possible places they can put their money, from bank savings accounts & CDs to credit default swaps & REITs. I ask them if anything on the spectrum is off the table, any options they absolutely would not consider. Most of my clients are my age or older and so are risk averse. Most aren’t interested in “Red” money like oil well leases & options. And a few cross off annuities. They hate and/or fear annuities because of what they’ve “heard” (not because of what they know). I don’t argue. I take everything off the table they don’t like.
Then we drill down into their specific desires, in most cases:
- Protection of their investment principal– they do not want any backsliding in their portfolio
- Inflation protection– a minimum rate of return at least adequate to keep up with inflation so their purchasing power isn’t eroded over time. They want to participate in the upside of the market but not in the downside
- Some tax advantages- it adds insult to injury to earn half a percent on a CD and then have to pay income taxes on it to boot.
- Keeping their Social Security benefits nontaxable.
- Some income guarantees– if they’ve attended one of my retirement classes they’ve learned that outliving one’s income is one of the three greatest retirement risks. They would like an income they cannot outlive.
- Liquidity if a crisis occurs, like having to go into a nursing home or the death of a spouse.