Many investors are uncomfortable with the idea of losing money, which often causes them to delay investing, or to think that there is a ‘good time’ to get into the markets. We have lots of content on market timing, but the short version is that you can’t time the markets. At Beck Bode, we have the education and experience to help you navigate the markets through proven strategies that will help you meet your long-term financial goals, regardless of current market conditions.
Below, we’ll discuss effective objectives, investing during retirement, and how you can prepare for a successful retirement, despite inflation. Consider the case of Jeanne, which is based on the experience of a real client.
Understanding Jeanne’s Vision for Retirement Planning
Creating an initial relationship with our clients is critical — so it’s always wonderful to get a referral from an existing client. In this particular situation, we received a referral from a relatively new client who wanted us to speak with her mom, a nurse who was looking to retire from a local hospital.
Our client shared that her mom was certain she wanted to take her pension as a lump sum, with the idea that she would have more control over her money that way. Our client was enthusiastic about the work we had done together planning for her family’s future, so she felt her mom could also benefit from some help at this crucial moment in her financial life. We welcomed her mom, Jeanne, to our office to conduct a discovery meeting, where we could each get to know each other and learn more about what she would like to accomplish with her financial future.
When we began discussing financial objectives with Jeanne, she emphasized that this money — close to $900K — was all she had in the world, and she needed it to last through her retirement.
She shared that she would need about four or five thousand dollars a month to live above what she was getting from Social Security. Other than that, she wanted to take the pension to experience life with her grandkids, whose ages ranged from elementary school to young adults. “I want to have fun with them, to travel with the older ones to different places around the world every now and then,” she said.
Why Do You Want To Invest In The First Place?
We always open conversations with these questions so we can understand the vision that people have for their money. In this situation, Jeanne was incredibly certain about what she wanted, which isn’t always the case. Sometimes, depending on the person, what’s going on in the markets, and the news cycle, people might give us answers that have nothing to do with true financial objectives. For example, during a time of significant market volatility, I may ask a client about their objective, and they may say they just want to “protect it,” but that’s not investing for retirement.
Why Protecting Your Money Is Not a Long-Term Investing Objective
Protecting your money is not a long-term objective. Rather, protecting your money is an emotional response to current market or news cycle statuses.
When I hear someone say, “I want to protect my money,” it’s a signal for me to dig deeper. Of course, we understand that you want to protect it — that’s our top priority. However, here at Beck Bode, we approach protection a little differently than others might.
When we approach protection, I let clients know that we are not here to protect a dollar amount. Instead, we are trying to protect your ability to purchase what you need in the future. Our main priority is to protect our clients’ purchasing power, which is constantly (and silently) under attack by the rising cost of living, otherwise known as inflation.
Investing During Inflation
On a recent visit to my hometown of Portland, Maine, I was driving down memory lane as I passed places I had known when I was a kid, now with my own children in the back seat of the car. On the way home, we stopped on Route 1 in Saco, Maine, at a legendary burger joint, Rapid Ray’s.
As I stood in line to order, I looked at the pictures on the wall, dating back to 1975. One of the photos was of the same order window I was standing at now, where you could see a menu with all the prices as they were in 1975. I looked for the hamburger, which cost 55 cents in 1975; that same hamburger costs $3.65 in 2022. As soon as I ate my hamburger, I grabbed my phone to pull up my HP 12C financial calculator app to calculate the rate of the price increase.
Thanks to the HP 12C I discovered the price of the burger had increased around 4.1% annually, which is a full percentage point higher than average annual inflation. Historically, it has been around 3%.
Why Is Inflation Important to Investing?
There are a number of different ways to measure inflation, however, I focus on what I think really matters, which is the cost of regular household items that you need to live, including food. Going out to a cheap burger joint is a weekly type of event for many folks, including my family, so I found this critical.
When planning with Jeanne, the nurse who was looking to retire, I needed to keep in mind that she wanted to maintain her lifestyle and occasionally take her grandkids on trips they otherwise may not get to experience. We began creating a plan for her future that would allow for her long-term goals and objectives to be met and, above all, would allow her money to buy just as much — if not more — in the future.
My mission as a financial advisor is to educate people about the invisible, yet highly destructive, force of inflation. I often refer to inflation as the carbon monoxide of the investing world. Carbon monoxide is tasteless, odorless, and colorless. You can’t see it, hear it, smell it, but it's devastating if it's present in sufficient concentration over a long enough time.
The hidden disaster for anyone looking to retire is not necessarily the state of the markets, but the erosion of their purchasing power over time. If you’re looking to retire at 60 or 62, do you have any idea what your money will need to be worth at 75 without negatively affecting your standard of living — and what can you do about it today?
An Effective Strategy for Investing During Retirement
Many people come to us with concerns about investing, including the fear of losing their money, as this was the case with Jeanne. She took her pension as a lump sum so she could take control of her money, but now she felt she was throwing it into the unknown with investing.
In order to calm her fears, we took the time to educate her, address her concerns, and introduce her to the Beck Bode Income Growth Strategy. A colleague and I were in the meeting with Jeanne that day where we stressed not only the importance of doing something with the money (other than putting it in the bank) but the importance of doing something now versus later.
Many people don’t invest now, because they believe they will feel more comfortable about their financial standing in the future — but many of us never get to that point. I don’t think any of us ever feels a hundred percent comfortable about the future, because tomorrow is an unknown. Luckily, Jeanne said, “You know, my daughter trusts you, and I appreciate what you are teaching me here.” She decided to move forward with Beck Bode, and here’s how it’s played out…
One Woman’s Decision To Invest During Retirement: The Results
Over the past five years, Jeanne has taken out $4000 to 4500 each month, starting in month one. She has also taken a few lump-sum distributions, such as an extra $5,000 or $10,000. She's been through three market corrections, including one almost bear market, a period when the market was down about 19%, and another during the pandemic, where the markets were down almost 40%.
She started with a little over $900,000 and at the time of this writing, she has about $1.1 million. We ended up investing her portfolio not entirely in utilities because she’s still young and it’s important to be diversified with some growth. We recommended she put 25% in our Growth Strategy and 75% in our Income Growth Strategy.
Trusting Your Long-Term Investment Strategy
While there was long-term success, the beginning of investing during retirement was rocky for Jeanne. Right after Jeanne started working with us, the utility investing strategy went down for the first five or six months. It was down close to 10%, which is not how I want anyone to start their journey with us. But, being a veteran of this industry and understanding that the markets are unknown and unknowable, this was to be expected.
Thankfully, we had set the right expectations with her: that you need to have a strong amount of faith and optimism when it comes to the long-term ability of the economy to grow and an equal amount of confidence in our ability to execute on your behalf.
Begin Your Retirement Financial Planning Today
My team and I were reflecting on Jeanne’s story because she stands out as a perfect example of a client who was unfamiliar with investing. She had been working her entire adult life and putting money away to earn a pension. While she didn’t know what to do with it, her instinct was to keep it safe. She put her trust in us and it's worked out well for her. Still, she had the fears that everyone has. She had some preconceptions of what being involved with stocks meant, but she was willing to take that extra step of faith.
If she had followed her fears, she may have ended up at the bank, where a teller may have told her to speak with a financial representative who may have suggested a variable annuity or something similar.
We, at Beck Bode, are champions for people like Jeanne. It’s what we live for: to help hard-working people who ordinarily would not have access to sophisticated advice, use our strategies to accomplish their dearly held goals and dreams.
Explore the Beck Bode Retirement Planning Guide to begin your retirement financial planning today!
Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.