Giving Clients a Safety Net

So pointed out Bill Losey, talking to PLANADVISER.com about his strategy for ensuring that clients can still retire, even in a downmarket. As an adviser, Losey said he makes sure his clients have a reserve of money in a low-earning “safe money” investment, such as money markets funds, a CD account, or an FDIC-protected bank account. The author of Retire In A Weekend and head of advisory firm Bill Losey Retirement Solutions, LLC, calls this strategy the “safe money benchmarking strategy.”

Every time a client’s portfolio reaches a predetermined benchmark, the excess amount is liquidated into a safe money investment, thereby positioning it on standby for times like this so they can withdraw retirement income without dipping into their principal.

“It’s almost like you’re creating your own annuity without having to lock up your money with an insurance company,” Losey said. He rarely if ever uses annuities with his clients (he says about 10% of his client base—which is mostly in the 55 to 65 age range—has 10% of annuities in their portfolio).

The people who should be worried about retirement right now are those close to retirement with 80% invested in equities, Losey said. “Frankly, being that close to retirement and being that aggressive just does not make sense,” he said. “You just don’t have the time to make it up unless you get really lucky.” After this market, some people will likely be working longer for that very reason.

Keeping Cool

In the ups and downs of the stock market of late, Losey said the best thing an adviser can do is remain calm and confident amid the volatility. “First thing I’ve been saying to my clients is actually just to take a breath and to realize that we’ve planned for bad times,’ he said. He said people often make financial decision based on emotions, and an adviser can help by taking the emotion out of the equation.

The media might be blasting with stories of the financial crisis on Wall Street, but “most people on Main Street need to tune out that white noise,” Losey said. He added that as unfortunate as the situation might seem, there is a silver lining. The turmoil has given sleepy-headed investors an impetus to ask about their risk allocation, the safety of their investments, and their financial well-being. “This whole episode last week has actually been the best thing for our entire industry as well as consumers in general—it’s woken consumers up out of their sleep… Now they are starting to ask questions,” Losey said.