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For Immediate Release
Houston, Texas
The ups and downs of the market make for an uncertain financial future while more stress is added with near-zero interest rates that fail to cover inflation. If retirement looms, what can be done? It is all so complicated, and you’re getting conflicting advice. Is there a common sense guide that can be used to simplify money management in retirement? You’re in luck.
A new book by David Vick, “Bat-Socks, Vegas and Conservative Investing”, is your answer. This nugget of common sense lays out two great approaches to money management for the retirement-minded: The ABC Planning Process and The Rule of 100. Granted, you’ll still need professional help to employ Vick’s methods but at least you’ll know where to start, what to avoid and what makes sense for your circumstances.
The ABC process helps you divide your money into color categories: green, yellow and red just like the stop light at a busy intersection. At the dangerous intersection where working and retirement meet, caution is the watchword: bewildering options, conflicting signs, uncertain outlook and lack of experience managing money. Carelessness can result in a lifetime of doing without, worry and regret. The green money is to be protected for use later in retirement. Nonetheless you’d like safety, growth, some liquidity just in case and deferring taxes on earnings would be nice. The yellow money should be ready for use without loss for everyday living or unexpected emergencies. The red money is for late retirement after the green money is gone and you may be willing to take some risk to get potentially higher returns.
The trick is to know how much of each color is needed because each retiree’s risk tolerance, aspirations, circumstances and lifestyles are different. Determining the yellow money needs is straightforward and can then be kept safe in a bank deposit or other safe place. Unfortunately, many retirees put all their retirement money in low rate, highly liquid bank accounts as if all will be needed tomorrow. This may be a terrible mistake because the loss of earnings means less money will be available for later retirement. With a little objective thinking the yellow money percentage can be determined, but the tough decisions are how much should be green and how much red? The Rule of 100 provides the answer.
The Rule of 100 is a fundamental guide for conservative money management in retirement and says: red money should be the age of the oldest spouse minus 100, expressed as a percent. If this age is 73, then no more than 27% of the retirement money should be red: 100 – 73 = 27(%). The world will not end if the target is missed by a small percentage, but unfortunately most retirees have too much red money because they manage as if they’re still working. Exceeding the red money limit at the intersection of working and retirement is dangerous because a market crash could derail your retirement journey. You have no way to make up losses and if you maintain your lifestyle the smaller nest egg will not last until retirement ends. Granted, if you have more than you need for retirement you might be able to tolerate losses, but the market does not telegraph the time, size or length of downturns. In David Vick’s view, it is better to avoid catastrophic losses in retirement than it is to hope for major gains.
Since determining the amount of yellow money needed is not difficult and the Rule of 100 gives you the right percentage for red money, what’s left has to be green. You’ll still need professional help because there are choices where to keep your green and red money. For example, red money can be in stocks, bonds, options, mutual funds, variable annuities, REITs, ETFs and more. Green money places include fixed annuities, indexed annuities, savings bonds, TIPs, cash value life insurance and more. If these choices are strange to you, this is proof positive you either need professional help or have homework to do. You can find a copy of Vick’s book at www.lulu.com/browse/search.php?fListingClass=0&fSearch=david+vick. I hope you’ll take the time to read this common sense approach to managing your money, and then schedule a meeting with your financial advisor.
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