When It Comes to Your Investing Strategy, Are You Playing It Too Safe?


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Wow! The new iPhone has some pretty cool technology. The advanced fingerprint censor, for example, connects the device owner to the product in a truly customized fashion. After all, no two fingerprints are alike.

So, too, with a safe investment strategy: You may be playing it too safe, like the football coach who tries to run out the clock by keeping the ball on the ground, only to find that sitting on the lead allows the other team to get back in the game. While everybody needs to develop their own customized investment approach, how do you know if you’re playing it too safe? And how do you know by playing it too safe you’re not keeping up with inflation?

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It helps to consider answers to these questions:

How much is being kicked off from Social Security and/or pension income?

I have worked with retired teachers who receive enough in these income streams to pay for the basics, like utilities, property taxes, and so on. As such, dependency on these investment funds are not a matter of “do or die” — we can relax and be a little more aggressive.

Have you coordinated and planned spousal benefits?

Married couples need to decide when to begin Social Security payments and plan “what if” scenarios for a spouse’s demise and the loss of one income. If one or both spouses have a fixed pension, is there a survivor benefit? How much income will be needed in each scenario? We are investing to provide a stream of income, based on a client’s footprint. How much we need to earn is a driver of this strategy. If we determine that a client needs to earn 6 percent, on average, factoring in inflation, we can’t just “keep the ball on the ground” and earn 2 percent.

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Have you mapped out and planned how much income is necessary?

For example, I recently met with a retired doctor with substantial assets who was 65 and retired. She had over more than $1 million in bank accounts that were earning very little interest. We discussed ways to utilize these assets to create a stream of income from age 65 until 75, after which we would tap into her investment portfolio. Having a 10-year time horizon allowed us to take a less cautious investing approach because we had more time on our side in case of the inevitable market setbacks.

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Have you created multiple income streams?

Many clients no longer have traditional pension plans. Perhaps a pension has been replaced by a “cash balance” plan, which means the individual is now responsible for investing and managing funds during retirement that in previous times would have been converted into a guaranteed income stream. As a result, much is now riding on the investment decisions. By utilizing a chunk of these funds and converting them back into an income stream, the actuarial chance of outliving your money can be substantially reduced. An example is a relatively new product called “longevity insurance.” For example, a 65-year-old today can invest $50,000 in exchange for a $31,000 lifetime payment beginning at age 85.

Creating an investment plan with appropriate risk levels works best when we can take the fingerprint of a client’s financial profile. Are you playing it too safe, and at risk of outliving your assets? It might just pay to take the time to find out!

Frank Jaffe is a certified financial planner and retirement expert with the wealth management firm of Access Wealth Planning in Roseland, N.J.  He can be reached at fjaffe@awplan.com.

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