Dear Retirement Investor, What If You’re Wrong?

Over the last several weeks, it has been a whirlwind of headlines from the financial media. Despite some very encouraging fundamentals in the economy—GDP growth, corporate earnings strength, positive corporate response to tax reform—we have recently rediscovered market volatility. In February, we saw a 10% drop in some of the indices in only 9 trading days!  Luckily, this swift downward slide was short-lived, and the markets rebounded. Until… they began to slide again. Now, we are hearing rumors of a potential trade war with China, and some of our social media platforms could be targets for increased regulation.

This is the nature of investing. Despite the beautiful oasis that was 2017, where volatility was at or near zero for the entire year, I must remind you that those results are not the norm.

For the last year or two, we are increasingly hearing more people who believe that we are due for another “Big One.” The question I probably should ask, but often fail to do so, is “How do you define a ‘Big One’?” After all, the traditional definition of a Bear Market is a 20% decline, which historically can be fairly common, with one happening on average once out of every 5 years. This type of market cycle is normal—so, if it happened now, would it be too much to handle for you as an investor?

Or, would a “Big One” be more like what investors experienced in 2008—where asset prices dropped between 35% and 50%?

I tend to think that investors are anchored to their 2008 experience, and sadly, the financial media continues to re-open that wound any time we experience volatility. This doesn’t serve investors, but it definitely draws eyeballs, which directly result in ad sales for the media machine. (Hint: this is one reason why I so often encourage clients to not even watch or read financial journalism)

Now…the title of this article I ask “What If You’re Wrong?” because whether you realize it or not, there’s a story you tell yourself about your financial future and the impact of equity markets on that future.

Some people believe that in the long-run, market returns are positive, and you simply have to hang in there when the seas get rough. Other investors believe that the next major financial downturn is all but inevitable, and it’s only a matter of time before the house of cards comes tumbling down. Worse, there are some folks who believe that it’s actually possible to predict the coming of this potential bear market and subsequent recovery.

Let’s look at each of these scenarios, and how they could impact your retirement plan if you are wrong. Note: most of the following information is going to be more relevant for investors who are either retired or very close to their retirement date.

In the Long Run, You Win— unless you don’t. There are many maxims about investing that are consistently thrown out to investors to encourage them to not panic out of the market. While, yes, we do want to encourage good investor behavior, we financial professionals should also make sure that clients have the financial ability to actually do what we are telling them to do. Some investors have the risk tolerance to be invested in growth markets, but they do not have the risk capacity to invest the way they are being coached to invest. For instance, some clients want a lifestyle in retirement that would be considered “constrained” under some retirement income metrics. These investors can be the most vulnerable to a market shock derailing their income plan, and in some cases, this derailment could be a permanent setback. I spoke with someone recently who told me that he “didn’t want to have to go back to work.”  Why leave something that critical to market probability and chance?

Mr. Market, My Hero. Another scenario, which is perhaps a more chronic condition for some investors, is when the market is being relied upon to produce a minimum level of return to make their plan work. I use “plan” lightly here because really this is more of a Hope and Change strategy— one where you hope the market probabilities don’t change in the future! Of course, we all hope to gain meaningful returns by being investors—we wouldn’t risk our hard-earned money otherwise. Yet, it still fascinates me that the old Wall Street retirement advice hasn’t changed with the times. You know the phase: “Past performance is no guarantee of future results.” This is more than just a meaningless disclosure—it’s a real statement that should be heeded by investors headed into retirement. Retirement strategies that are built on a rate of return requirement—either to preserve capital or sustain lifestyle— could be in for a rocky ride.

Are you ready to have an allowance?  Trust me, the institutional firms that still market the systematic withdrawal approach to retirement will be telling you when / how much / how little / go / stop…..and everything in between… in order to keep you invested. I tell attendees at our workshops that I know they aren’t going broke in retirement (barring some unforeseen medical or life event that depletes savings).  No, what will happen is that folks who finally tire of the market uncertainty or feeling like they have no control will simply cash in their chips and put their money in the bank. We think there is a better way to do things.

Did You Miss The Bus? A final consideration—one that flies in the face of conventional thinking—is that some investors are going to mess up their retirement future because they invest too conservatively, not too aggressively.

“How can this be?”  you ask.

It’s often discussed in our industry about the changes that need to be considered when one retires. One of those changes is that people should invest more conservatively in retirement because they cannot afford to lose funds to market volatility…. or should I say have large losses due to market volatility? The idea of “not losing” is a myth when it comes to investing. There’s no free lunch. Retirees need to understand that asset allocation—and constructing a thoughtful retirement income plan—can significantly improve their outcomes. This doesn’t mean that we divorce ourselves from growth assets…actually the opposite. We create a plan that will allow for us to embrace a growth-oriented allocation for part of our portfolio. 

With increasing longevity driving retirement seasons that can last 30-plus years, investors cannot afford to shy away from growth completely. We need to have assets that can give us real returns—net of inflation—so we can maintain purchasing power. A major concern for some retirees should be what their portfolios could look like 10, 15, 20 years from now if they don’t allow for some growth.

Take this example:  Investor Jones, age 62, takes a conservative route with $250,000 in assets that aren’t needed for his current retirement income needs. He invests in a portfolio that gives him a 4.5% return over a 15 year period. His account now stands at $483,820. However, if inflation averaged 2.5% during that same period, his real rate of return would be 1.95%. What this means is that, while his account has a balance of $483,820, the purchasing power of those funds is equal to only $334,000 in today’s dollars. This is a significant shift, as Mr Jones is moving into a phase of life where he may need these assets to supplement his lifestyle and where medical expenses tend to increase.

Note: The example given is hypothetical in nature, for illustrative purposes only and results are not guaranteed.

So, what can YOU do?

The truth is we must plan…and continue to plan as the years go by. Market volatility will make the news media headlines all day…because that is what helps the media drive their profits from advertising. Do you think the media is going to front page stories like Mr. Jones?  Or, will they give primetime interviews to retirees who got cooked in another major downturn?  Sure, they might…but by then it will be too late for those people who were harmed by not having an effective plan.

The challenging part of the retirement equation is that most people have little or no experience with withdrawing money from a portfolio. Thus, when they approach retirement or interview financial professionals, they tend to continue using their experience as accumulators as a guide. The game changes completely—and so many folks don’t realize it. If you want to be successful with your retirement dollars, I cannot stress enough the importance of these 3 action items:

1) You work with someone who is a credentialed financial professional that has a fiduciary responsibility to you as a client. Professionals that carry the CFP®marks are a good litmus test for this requirement. I would also encourage you to go a step further and look for someone who is both independent of any major institutional firm and who specializes in retirement planning. Much like the world of investing, retirement planning is its own specialty, and folks preparing for their retirement years should seek professionals with retirement planning expertise.

2) Have a written plan. This is where a good many financial professionals can fall short. When I say written plan, I’m referring to a document that you—the client— can read and understand. Do you have one of these?  Sure, many people get printouts of charts and graphs w/ monte carlo simulation results. Can you actually read and understand that?  What you should require is that you get a document that you can read and understand. If you can’t, how will you know if your plan is working or on track?

3) Participate in the process.  A good financial professional will make sure that you are engaged in the planning process. The more involved you are in the planning process, the more you should be able to identify and align with your finalized action items. Your plan should reflect your needs / wants / desires on paper— and give you a roadmap on how to make it all happen. If you don’t actively participate—or worse, the planning team doesn’t ask you to be an active participant— you should look for a group that will be proactive in planning with you. Retirement is too important to simply let (insert big firm name here) take the wheel.

Retirement planning doesn’t have to be tedious or stressful. Let our team guide you through our planning process, where we can align your assets with your values. Reach out to us to schedule your free 1-hour consultation!


Investment advisory and financial planning services offered through Planners Alliance, LLC, a SEC Registered Investment Advisor. Subadvisory services are provided by Advisory Alpha, LLC, a SEC Registered Investment Advisor. Insurance, Consulting and Education services offered through Vertex Capital Advisors. Vertex Capital Advisors is a separate and unaffiliated entity from Planners Alliance, LLC and Advisory Alpha, LLC.

We Hold The Line

I hope that by the time you’re reading this, the majority of the stock sell off has occurred. Of course, we may still have a few more storm clouds to weather. And that’s ok. The financial media is already using their platforms to sound the alarms because, for them, this is Christmas in February. Over the last year and a half, the market has move upwards—slow and steady—with little angst or volatility. Now that we have some serious selling action, they all get a chance to preen and tell us how much smarter they are than all of us.


Don’t buy it.

Market corrections, like this one, can be scary. However, they also serve a great purpose— to shake out the weak hands, clear out over hedged players, and (to be honest) keep the rest of us on our toes. If you’ve sat in investment meetings or presentations with our team, one of my favorite statements to make is in reference to how quickly the market can take away our gains. For instance, we had an amazing January—with equity portfolios seeing 5-7% growth in a single month!! Now, those same portfolios have given back those gains in a matter of days.

To quote one of our clients “Ramp Up is nice. Ramp Down is horrid.”

The truth is that corrections are normal—but I feel that some additional explanation may be in order about what’s going on and why. Here’s my list of a few possible reasons—none of them alone would drive this downturn (in my opinion), but when taken together…

  1. We are way overdue. Human emotion and behavioral biases still hold significant sway over market movements. In the last several weeks, I have heard multiple remarks about the market and it’s recent run. The more frequent the remarks—the more diverse the types of investors that make them— this usually a sign that we probably have people taking risks they shouldn’t be taking. These folks are the first to sell once we see volatility pick up.
  2. Technology. With the ever-increasing ability of investing algorithms to run portfolios without a human touch, we are now seeing how quickly the automation can impact investors during volatile trading days. If the algorithms are programmed to sell after a 5% drop, they WILL sell —no matter what is going on. A large percentage of trading these days is done with algorithms, and I think that big swing days in the markets could be a new component of the investing process for years to come.
  3. The Gimmick Portfolio. With technology comes its uses—and its abuses. The investing world is no different. Despite the fact that there is no research that can validate anyone’s claim to being able to sell out of the market at “just the right time” or invest in “just the right” stocks…there are still salespeople out in the marketplace trying to push these types of strategies on investors. These strategies sound so good…so perfect… but it’s been my experience that they are nothing more than a bag of onions being paraded around like a bag of apples. There is no free lunch in the investing world— and these types of strategies can bite you in times of volatility. We are likely seeing some of that play out at the moment.
  4. The Federal Reserve. The new chair, Jerome Powell, was sworn in yesterday. Having the Dow drop over 1100 points on your first day isn’t the greatest first day at the office, huh? What may have started this turn in equities is the idea that the Federal Reserve may decide to deviate from their 3 scheduled rate hikes this year—and possibly add a 4th. While there has been nothing substantial said about this becoming a reality, we always see a little shuffling of the deck if something unexpected arises. If this indeed proves to be the catalyst, we will likely be looking back in a few weeks at this market tantrum wondering “what they heck was that all about?”

These are some of my opinions, and I believe that many other financial professionals share them since I’ve yet to see anything concrete come out about why we are seeing this correction. Considering that the majority of economic news we’ve been getting— unemployment numbers in January were great, corporate tax cuts triggering reinvestments in our country, wages ticking upward, and GDP accelerating— we haven’t seen any data that points to the party being over. So, for now, consider this just par for the course with investing. We have to be able to withstand some downturns. In fact, dare I say that having a correction can be healthy for the bull markets?

Remember, we always work within the context of a plan. We plan for not only the good times—but also the scary times. That way, when we do see volatility rise against us, we can hold the line.


Investment Advisory Services offered through AlphaStar Capital Management, LLC, a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. AlphaStar Capital Management, LLC and Vertex Capital Advisors, LLC are independent entities. Insurance products and services are offered through Vertex Capital Advisors, LLC by individually licensed and appointed agents in various jurisdictions. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by Vertex Capital Advisors, LLC.

The Power of Distraction

We live in an amazing digital age. Today, thanks to technology, I am able to not only connect with friends from all parts of the globe—I can video chat with them, see their life moments in (almost) real time, and participate in their funny jokes and videos they share online. This connectivity is wonderful in that I am able to maintain a relationship with others that would never have been available to me a few years ago.
Like anything in life, moderation is important. Technology has not only enabled us to connect with long lost friends and family, it can also bombard us with hourly with notifications about things that are truly insignificant in our lives. The BREAKING NEWS story… the ever-changing Facebook news feed…Text Messaging, Twitter, Instagram, Snapchat, Reddit, Tumblr, LinkedIn… I could go on and on. The distractions are endless today. What’s worse, is that all of these distractions are likely not serving you in your personal life or in your finances.
For instance, did you know that we now have a word for people who are constantly on their phone instead of being present in the moment or in the conversation? That’s right— it’s now called “phubbing.” This is the world we live in folks.
Now, you may think all of this distraction may seem irrelevant or insignificant; however, the truth is, that it likely impacts you in some way. In our profession, the biggest impact we see from this new age is how these daily distractions can slowly pull someone’s focus away from their financial goals. Here’s a news flash:
The market does not care about your goals. It does not care about your timeline for retirement, nor does it care about how much money you need each month…or your tax rate. Nope, it doesn’t care about the estate planning you haven’t completed, and it doesn’t care about your emergency fund. It doesn’t care about your plans to travel or your dream home.
These are things that you must care about. 
I spent the better part of my 20s living and working in New York and California, and one of my acting coaches said to me once, “Michael, no one is going to care more about your career that you do.” And, while it may be true that we as financial professionals  do our best to advocate for our clients…help them plan and prepare… coach them with investments and monitor their financial plans—one thing we cannot do is care more about their money than they do. It’s simply not possible.
That’s why we must continue to stay diligent and focused amid a world that constantly bombards us with craziness. The loss of focus can turn into procrastination, which can begin a negative compounding effect. We want to avoid that kind of outcome.
So, how does one stay focused?  It’s actually quite simple….it’s just not always that easy. The first thing you must do is find a qualified financial professional that can help you create a comprehensive financial plan. Once you’ve completed this step— all of your future financial decisions should be made in context of that plan. Then, you enjoy life— monitor and adjust your plan as needed. You don’t need the continuous news cycle or online fear mongering to distract you from the things in life that are truly important. The good news is that if you have a financial plan as a guidepost, you always have something to help you re-center if you get distracted by this noisy world.
*Special thanks should go to Ben Carlson at who wrote a killer piece titled “14 Things The Market Does Not Care About”— it’s a wonderful article and part of the inspiration for this post. Check out Ben’s article here.
Investment Advisory Services offered through AlphaStar Capital Management, LLC, a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. AlphaStar Capital Management, LLC and Vertex Capital Advisors, LLC are independent entities. Insurance products and services are offered through Vertex Capital Advisors, LLC by individually licensed and appointed agents in various jurisdictions. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by Vertex Capital Advisors, LLC.

Can A Navy Seal Teach You About Finance?

Is it possible to apply leadership and life lessons from the military to your financial life? The answer is a resounding YES. I’ve been in the financial industry long enough to hear some pretty creative metaphors for financial stewardship, and to be fair, some are fantastic, while others are weak or overused. I mean, if I hear another golf metaphor used for a financial concept, I may develop a headache right on the spot.

The reason we financial professionals use metaphors is because we are attempting to create clarity for our clients and prospective clients. Let’s be honest here—we all prefer ideas and explanations that are simple and easy to understand because the greater our level of understanding, the more empowered we feel to take action. Relating something we understand with something we view as complex is one way to make that type of connection.

So, what can a Navy Seal teach you about personal finance? Before I tell you, I’m not going to paint with broad brush strokes here—the specific man I’m referring to is Jocko Willink, who is developing somewhat of a cult following due to the release of his book Extreme Ownership (co-authored with Leif Babin), his consulting company Echelon Front, and his growing podcast audience.

Full disclosure- I have never heard Jocko discuss specific financial ideas, but the themes of his discussions on leadership and discipline have many real life applications to both business and individuals who want to succeed with their money.

Extreme Ownership.

This is not just the book title—it’s the theme that leaders must take 100% responsibility for their results. It’s described as, “Leaders must own everything in their world; there is no one else to blame.” You may not view yourself as a leader—you many not have a leadership position at your job, but you are 100% responsible for your personal finances. True, you may have some obstacles and outside influences, yet that still doesn’t release you from personal responsibility. It is way to easy to blame someone or something other than yourself, but what good comes of that? If you want to reach your financial goals—first you must actually have goals (crazy, right?). Next, you must be willing to take 100% responsibility for reaching them.

Simplicity > Complexity

One area that our society is failing at is financial literacy. We teach algebra and geometry in high school, yet we don’t sit our kids down and show them the destructive nature of credit card debt or how to balance a checking account. The end result of this is that most of us learn our financial habits from outside influences such as our parents, and habits, unfortunately, are not the same thing as principles. If you want to win with your finances, you must develop a set of simple financial principles that are unwavering. Often times, people fall into the trap that financial matters are too complex and difficult to understand, so they fail to do anything. Or, they begin—but eventually fall right back into their old habits.

Don’t fall for the complexity trap. If you are exploring a strategy or course of action that cannot be explained simply, don’t go for it. This is one of the most common mistakes I see people making with their financial lives—things are too complex. The best financial advisors should be able to explain things so that you understand them— in fact, it’s part of our job to make the complex become simple. Beware those strategies and ideas that can’t be simplified.

Overthinking When It’s Time to Act

This next paragraph is an exact quote from Jocko where he describes the danger of overthinking your tactics when in combat:

“You’re preparing to take a building and you come up with a plan. You set up two elements to cover and move so you can take the target. But as you begin looking at the map and imagery, you notice that there is another outhouse about 150 meters away from the house. And now that you see it, you decide to break apart your team and dedicate some guys to watch that that outhouse just in case. You might think that you’ve covered all of your bases but what you’ve REALLY done is separate your units, increased your communication problems, separated your fields of fire, disaggregated your fire power, diminished your unity of command, broken your SOP…eliminated your tactical advantage for the mere chance that when you hit the house at 2am, the guy is in the outhouse. This is what overthinking can get you.”

Please understand that there is a huge difference between doing your due diligence and overthinking. As an advisor, I want my clients to ask questions and seek understanding. I think any good advisor would welcome that dialogue. However, there comes a point with any plan or strategy when it’s time to execute. Overthinking or analysis paralysis rarely benefits anyone in the long-term. Jocko says,
“When people get super detailed about planning, they often fall into the trap of planning for something that can’t be known. How about instead of making a plan for something that can’t possibly be known, make a plan that’s adaptable!”
There  are some aspects about your finances and your future that simply cannot be known. It doesn’t matter how many thousands of permutations you attempt to analyze, unknowns will remain unknown —until they are known! Plans that are flexible and adaptable are superior to those that aren’t.

Discipline Equals Freedom.

What an amazing phrase. This can be applied to so many areas of our lives—our health, our wealth, our business, etc. When it comes to personal finance, you must take ownership of your decisions and your outcomes—the good, the bad, and the ugly. This begins with developing the discipline it takes to reach your goals (again—do you have financial goals?).

I run into people all the time that believe they’ll “get serious” about retirement in their 50s. I won’t get into the arithmetic of that talking point, rather I’ll say this- “If you haven’t developed the discipline to save a percentage of your earnings in your 30s and 40s, how do you expect to save 2-3 times that much in your 50s?”  The simple truth is that it’s not likely to happen because it’s too painful.

Personal finance is a game of discipline. There’s no other way around it. You must determine your goals and work with the level of discipline required to reach them. Stay focused. Be Adaptable. Take Ownership of the outcome. At least, that’s what I think Jocko would say.


Investment Advisory Services offered through AlphaStar Capital Management, LLC., a SEC Registered Investment Advisor. AlphaStar Capital Management, LLC and Vertex Capital Advisors, LLC are independent entities. Insurance products and services are offered through individually licensed and appointed agents in various jurisdictions. Vertex Capital Advisors, LLC does not offer legal or tax advice.


The Top 5 Things You Should Do With An Inheritance

Receiving an inheritance is nothing short of a blessing. With increased longevity taking hold of both the Baby Boomers and their parents, it’s likely going to stretch many a nest egg just to make it through one’s retirement years. If you consider that healthcare costs also tend to be the highest in the last few years of life, the odds of receiving a considerable inheritance will most likely continue to dwindle for many of us in the years ahead. However, if you are fortunate enough to benefit from an inheritance, here’s my top 5 list of things you should do with those funds.

Note: This is a general list and by no means should it be considered all-inclusive. Each and every person’s financial situation is unique, and it’s quite possible that you may have a better use for the funds than the ones listed below. My reasons are to be used as a general guide, and they are in no particular order.

Pay Off Student Loan Debt.
Student loans continue to be the weight around the necks of those who have them OR those who are obligated to help pay for them (like parents who’ve co-signed a loan). With the increasing cost of going to college outpacing many people’s ability to afford school, the student loan industry is alive and well. Unfortunately, students are carrying these loans for years and years beyond their graduation date, which hinders their ability to save, purchase a home, or invest earnings from employment. If you inherit money that enables you to pay off your student loan debts, do it!

Make a Down Payment on a Home
Interest rates, while beginning to see some upward pressure, are still very favorable for home buyers. If you have been looking for the opportunity to get away from the apartment life and become a homeowner, getting an inheritance may afford you with the opportunity. I have heard some people tell me that renting is so much simpler, and they have the ability to have roommates help with the costs of the apartment. To them I say you can have roommates at your house as well. The difference is they will be helping you create equity in a home. The key, of course, is to make a wise purchase and not attempt to buy more house than you can reasonably afford.
*In some cases, an inheritance may enable you to pay off a mortgage. In my opinion, this financial move is highly dependent on the individual situation, so I would consult with a CERTIFIED FINANCIAL PLANNER™ if this applies to you.

Eliminate Credit Card Debt
This one goes somewhat hand in hand with student loan debt; however, there are many people who continuously carry a credit card balance that have no business doing so. It may seem a bit bittersweet taking inheritance funds, which feel like found money, and putting them into a credit card bill. However, your mental accounting is failing you if you think this way. You see, the credit card money is money you didn’t have that you’ve spent—now you must pay it back. Also, credit card interest rates can be unforgiving, as I have seen rates as high as 19.99% on some cards. With rates like that, it’s almost impossible to get that debt paid down. Go ahead and eat the frog—pay that bill off before you can talk yourself out of it.

Invest The Funds
This one should be obvious, but it must be included because while it seems obvious, few people have the willpower to delay consumption today by investing for tomorrow. However, it is common for many of us to feel like we are behind on saving and investing for our retirement years. Inheritance money can offer an opportunity to add a boost to your investment accounts, or if you don’t have any investments, this can be your opportunity to begin your investing journey.

Fund College
If you have children, paying for college is likely on your parental radar. If you are not yet attending college, having an inheritance that can cover some or all of your college expenses is an incredible advantage! Now—when I say college expenses, I’m not talking about pizza or beer. I’m talking about tuition, room & board, and textbooks. Using inheritance funds to help eliminate the need to take on student loans OR to reduce the amount of loans is not something that should be discounted. For parents with kids, giving them a debt-free education opportunity can be one of the greatest financial advantages you offer your children…just don’t let them study something like Art Philosophy or another program that has little chance of affording them the ability to earn an income after graduation.

I can think of more ideas for how to use inheritance funds—some others that I didn’t put in my top 5 could be:
-create a savings fund
-donate to charity
-fund/payoff wedding expenses
-purchase investment property (real estate)
-pay off a car note

Gaining an inheritance is a gift, and you should leverage that gift for maximum impact. Of course, I’m not an all work, no play type of person; therefore, I do believe you should set aside a portion of the funds to be used for some type of memorable experience or personal enjoyment. However, I cannot stress enough that the “fun” money should not take a priority over the “smart” money. Leverage those inheritance dollars for maximum financial impact!

Investment Advisory Services offered through AlphaStar Capital Management, LLC, a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. AlphaStar Capital Management, LLC and Vertex Capital Advisors, LLC are independent entities. Insurance products and services are offered through Vertex Capital Advisors, LLC by individually licensed and appointed agents in various jurisdictions. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by Vertex Capital Advisors, LLC.

The 1% Solution

According to the 2016 Insurance Barometer Study by Life Happens and LIMRA, 1 out 3 households would have immediate trouble paying living expenses if the primary wage earner died unexpectedly. Note: I added the word “unexpectedly” to that sentence because let’s face it, most of us go through our lives each day with our minds focused on other things. Very little time or energy is usually given to thinking about “What If” scenarios, especially if it involves our own demise. Believe me, I get it—it’s just not something that we enjoy thinking about.

In fact, the same exact study (the 2017 version) just published a nice infographic that shows us what most people spend their time thinking about when it comes to economic and financial matters:

As you can see, healthcare is a primary concern— followed by retirement and college education planning. Down at the bottom, there is a little bit of space left for the elephant in the room:

“What would happen to those I love if I didn’t come home today?”


“What would happen if I couldn’t physically work any longer?”

The solution to questions and concerns like these isn’t complicated…it’s insurance.

Last week, I had lunch with Marv Feldman, who is the CEO of Life Happens, and I asked him what he thought the biggest mistake people were making when it came to life insurance, disability, or long-term care. Without missing a beat, Marv looked at me and said,

“Everyone knows what insurance is, but few people understand what insurance does.”

In my last post, I wrote about the importance of creating a comprehensive financial plan. In fact, I believe this is the most important thing you can do to set yourself on a course to reach your financial goals. A critical part of that plan is to first consider the major risks and how to eliminate or reduce them.

Most insurance premiums require an investment of 1-3% of gross household income to protect the downside risk for things like dying too soon or being impacted by a disability. This “cost” as so many view it, is really the solution. If you want to see just how impactful life insurance can be, watch this video:

Your Portfolio Won’t Save You

In the many years that I have been fortunate to work with couples and families as they plan for their financial future, I have seen, heard, and witnessed just about every type of financial mindset you can imagine. From the “Free Spirits” to the “Doom and Gloom” to the “Fiscal Hawks”— it’s been a colorful journey. One thing that continues to surprise me is the persistence of the idea that all that matters is the allocation of one’s portfolio.

In our retirement workshops, we often discuss several retirement planning issues and concerns that we frequently hear from folks who come to see us. The overwhelming majority of people who attend are coming to learn how they can make their retirement income last longer than they do. However, we still see people who have been trained to believe that the “right” portfolio is all that matters. I say “trained” because I believe that the majority of what some people know comes from the marketing of Wall Street and financial institutions.

Instead on focusing on just portfolio allocations— investors and clients should be focusing on creating an actual PLAN.

“Why is that?”, you ask.

The answer is simple— A portfolio is simply a tool that should be used to achieve your financial goals. The measure of a portfolio’s long-term success should be how well it enables you to meet your goals—NOT how it performed against the S&P 500 last year. The best benchmark for a portfolio is the answer to these questions,

“Am I on track to make sure I know for certain that I’ll never run out of income during retirement?”
“If I get sick or die unexpectedly, how could my family be impacted? (this is big if one spouse handles all of the finances)
“If my spouse gets sick or dies unexpectedly, what’s my plan?”

“If I need to take care of my aging parents, will I need to provide financial assistance?”

“Is there anyone in my family that I want to help with education or financial expenses?”

“If taxes or healthcare costs go up unexpectedly , how will I be impacted?”

Of course, there are more questions…but you get the idea. Retirement planning is much, much more nuanced than making sure your portfolio allocation is appropriate for your age. In fact, fund giants like Vanguard are trying to find ways to add advice to their platform because they realizing how valuable financial expertise can be to clients today.

Right now, stock markets are touching all-time highs, as the DOW, S&P, and NASDAQ have all touched record closes during this current bull market run. More and more, we are seeing the slow grip of inertia and complacency weave their way into the mindset of investors. What an amazing time to put a solid plan in place without the fear of market volatility or unexpected life events hindering your thought process. Don’t let this opportunity to plan for the future pass by—take the time to build your plan today…one that will protect you tomorrow in ways that a portfolio can’t.


Investment Advisory Services offered through AlphaStar Capital Management, LLC, a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. AlphaStar Capital Management, LLC and Vertex Capital Advisors, LLC are independent entities.


Can Your Retirement Survive a Low Return Environment?

Retirement-SurvivalWhat kind of retirement income can you expect if the stock market doesn’t produce the types of returns you’re anticipating? It’s no secret today that retirees are facing many challenges as they move into their retirement years. Longevity, for one, is becoming a real risk multiplier for the Baby Boomer generation since it amplifies the impact of several other risks retirees will face like inflation, cost of healthcare, and market risk. Now, it seems that some Boomers may be building their retirement plan upon flawed market return assumptions as well.

Are you relying on the “The Number”?

One of the most commonly used rules for distribution portfolios, which are portfolios that are now being used to provide income during one’s retirement, is what’s known as the 4% rule. The 4% rule originated from research done by William Bengen, who determined that an individual could safely withdraw 4% of the assets accumulated at retirement, adjust their spending for inflation, and have their portfolio survive a 30 year retirement period. (Bengen used portfolios that adjusted between 50% to 75% stocks, with the remaining percentage in bonds).

Naturally, this rule has helped frame the conversation around how much one needs to retire. For instance, if you’d like to have around $40,000/year in income, adjusted by inflation, the rule of thumb is that you’d need 1 million dollars invested in your retirement portfolio.

Ex: 4% X 1 million = $40,000

It has been over 20 years since the original findings came from that study, and since then, there has been additional research findings:

-Bengen’s original work didn’t account for taxes, advisory fees, or healthcare costs
-Diversification can actually help increase safe withdrawal rates
-Market valuations at the beginning of retirement have a disproportionate impact on portfolio success

Since the original research was formed, there have been many variations of the rule proposed. For the sake of this conversation, we’re going to keep it simple and focus on the philosophy behind the 4% rule and how it may impact retirees today, especially if retiree portfolios do not perform as expected.

History versus Today

There’s an old saying that we hear often in our industry, “Nothing beats the market over time.” The key word in that entire sentence is time. If you look at a long enough time horizon, equity returns can be quite compelling. One of the most serial offenders for abusing this principle is Dave Ramsey. (In the spirit of fairness, I will concede that I like Dave, and I think he is a great motivator in teaching people about the dangers of consumer debt. However, Dave is not a financial planner—something he openly admits.)

For years, Ramsey has promoted that people can invest in certain mutual funds and earn average returns of 12%, backing up his assertion with historical returns from 1926 until the end of 2012. That’s a 90 year time horizon for growth that I’m sure assumes perfect investor behavior; however, I would argue that, for retirees, what matters to them is their time horizon. Specifically, they don’t want to run out of money during their their retirement years. However, if retirees are expecting the markets to do the heavy lifting for them, they may be in for disappointment.

I have seen several different commentaries on this subject over the last year or two, but I’m going to highlight a couple of viewpoints in this post that I found interesting and easy to understand…

Will Boomers Drag Down Market Growth?

In a recent letter to his firm’s clients, Scott Krisiloff highlighted his belief that the wave of retiring baby boomers is going to have a profound impact on financial markets.* He wrote:

In an ideal environment, Boomers would be able to generate returns without having to sell assets. Income received from dividends and bond coupons would be enough. However, this isn’t a normal environment. Today very few if any assets are producing enough income to cover necessary expenses. With the dividend yield of the S&P 500 ETF at just 1.9% and the 10 year treasury yield at a similar level, back of the envelope math suggests that a Boomer would need a portfolio of $2.6 million to generate $50,000 per year in current income before taxes.

It’s my sense that most boomers and their financial advisors have probably not underwritten their retirement with the assumption of a 1.9% return on their investment portfolios though. This means that in order to generate the requisite income, Boomers will have to become sellers of assets in order to produce yield.

To be fair to Mr. Krisiloff, he does assert that he believes the impact of Boomers becoming more income focused will take time to develop; however, he does see it to be a trend that can create drag on overall market growth simply because the younger generations cannot afford to buy the assets as Boomers sell them at today’s valuations. This, it seems, lends itself to downward pressure on asset prices. Mr. Krisiloff goes on to write:

If you’re a Baby Boomer considering or approaching retirement, it’s important to keep in mind that today’s asset prices are inflated. The economic value of a portfolio at today’s levels can not necessarily be taken at face value. Stress your assumptions about the rate of return that your portfolio will generate. And if you have a strong stomach you may want to assume that the true value of your invested portfolio is about 30-35% lower than current levels. From those prices the standard 5-8% growth assumptions are more reasonable. The other alternative, which is the path that we are taking, is to utilize the tax advantages of retirement accounts to sell at these high levels.

If you’d like to read the full post from Scott Krisiloff, you can do it here.

*Scott Krisiloff is the Chief Investment Officer of Avondale Asset Management, a Los Angeles based investment firm.

How Do You Feel about Portfolio Failure?

Another view that I find even more clarifying on this topic comes from the research done by Blanchett, Finke, & Pfau. In their study from 2013, “The 4% Rule is Not Safe in a Low-Yield World,” they found that,

“…if we calibrate bond returns to the January 2013 real yields offered on 5-year TIPS, while maintaining the historical equity premium, the failure rate jumps to a whopping 57%,” which led to the conclusion that “the 4% rule cannot be treated as a safe initial withdrawal rate in today’s low-interest-rate environment.”

Naturally, some would argue that rates are due to rise, and they continued their study as if rates did indeed increase in 5 years and/or 10 years. In the 5 year scenario, the failure rate was still at 18%; and for rate increases that occurred in 10 years, the failure rate was 32%—roughly 1 out of 3 portfolios would fail.

The emphasis for me came with the statement,

“The bottom line is that the current low-yield environment is a retirement income game changer. And hoping that things will get better eventually is a risky strategy”….By relying on 20th century market returns which we may never see again we’re giving people a false sense of security.”

Finke then explains to advisors:

“I think an advisor has to think more carefully about constructing a retirement income portfolio that includes safeguards to prevent disaster if a client runs out of money.*”

*Quotes from Finke were pulled from an interview he did with ThinkAdvisor and the actual white paper itself.


As you can see, this topic is becoming more frequently debated and discussed; and fortunately, it’s a subject that will only continue to increase awareness because of the massive number of Baby Boomers retiring every day. Unfortunately, however, there are many individuals who are retiring on the idea that having a set “number” or investment strategy will be a panacea for their retirement income needs.

For this reason, we have chosen at our firm to focus on the cash flow side of retirement and protect income sources first and foremost for our clients. No matter how hard we try, we cannot force the equity markets to cooperate with our goals, but if I ever develop that skill, I promise I’ll tell you. What we MUST focus on is the things we can control—and build our plan to protect our retirement income. Then, we are able to construct portfolios that can give us the best chance for realizing our long-term investment goals.

As more and more Boomers retire and age into their retirement years, effective retirement income strategies will be paramount to their success. This is why social security claiming strategies are becoming an integral part of retirement income planning, and it’s also a reason that annuity income is beginning to see more and more praise in the academic world. Hopefully, this increased demand for cash flow and income security by the retiring Boomers will continue to be a driver of public awareness for the importance of having a comprehensive retirement income strategy and rewire future generations to consider cash flow generation over a specific account balance.

Retirement Focus: It’s About Cash Flow

I was recently having an in-depth conversation with one of my clients, and he said perhaps one of the truest statements I’ve ever heard when it comes to retirement planning. While we were discussing some potential ideas for him and his wife, he said:

“You know, you will probably create hundreds of these plans over the course of your lifetime. But, me, I only get to do this once…so I can’t afford to mess it up.”

Naturally, he was thinking about himself and his family when making this statement; however, his mindset reflects the thought process of plenty of workers today. The idea is that you only get one shot at having a successful retirement, so one had better make it count.

As more and more Boomers move into their retirement years, those of us in the financial industry are beginning to see changes in the retirement planning landscape. For one, people are living longer—-much longer—than they have in the past. In fact, I have a relative in my own family that worked for 34 years and is now entering his 31st year of retirement. How crazy is that?!

One might expect that with the Baby Boomer generation creating such demand for retirement planning services, there would be some definite benchmarks for how to measure retirement success. Unfortunately, the only thing our industry has agreed about is our disagreement on how to plan for retirement; and the continuous information dump provided by the internet only adds more layers of confusion and noise.

Some advisors will argue that retirement is all about “safe money” or “not losing” your nest egg, and others will stand for the exact opposite, saying “nothing beats the market over time.” The debate is endless, and in many ways, it can seem pointless, as proponents often care more about pushing their viewpoints than hearing those of their opposition. In the middle of this battleground stands the client, who just wants to enjoy a secure and safe retirement. In my opinion, this could quite possibly be the worst environment for someone who genuinely wants advice because they’re trapped in a world of debate about financial products.

So, how does someone go about trying to plan for their retirement? What should be the focus?

In my opinion, the most important facet of a retirement plan is having sources of guaranteed cash flow.

Now, for the sake of this discussion, let’s qualify what I consider to be guaranteed vs. non-guaranteed. In my view, guaranteed income sources would be: social security, pensions, or income from annuities (contractual guarantees only).

Income that I personally do not consider guaranteed is: bond interest, dividend payments, rental income, or any other type of distribution from a portfolio of securities.

Of course, this is the point where everyone’s biases begin to run wild, and they debate starts to rage. “How can you say that ______ is guaranteed?” or “Clearly, you must not understand the income reliability of __________.”

The goal here isn’t to get lost in the minutiae of social security reform proposals, pension funding, or the actuarial reliability of investment products. The point is this—- Cash Flow is what matters in retirement.

In the July 2014 Issue of the Harvard Business Review, Robert C. Merton writes:

“To begin with, putting relatively complex investment decisions in the hands of individuals with little or no financial expertise is problematic…More dangerous yet is the shift in focus away from retirement income to return on investment that has come with saver-managed DC plans: Investment decisions are now focused on the value of the funds, the returns on investment they deliver, and how volatile those returns are. Yet the primary concern of the saver remains what it always has been: Will I have sufficient income in retirement to live comfortably.”

Sadly, I believe that Merton is 100% correct in his beliefs. Financial discussions that focus on retirement planning are too often dominated by conversations about portfolio returns—-recent returns or projected returns—take your pick. Instead, we should be helping clients understand how the income pieces of their plans can fit together to establish an overall cash flow strategy.

From there, we can allow the clients to help determine what level of fluctuation they desire in their income streams. Naturally, some clients will not want to have any fluctuation; therefore, they will gravitate towards more of their assets being dedicated for income. Yet, some clients, will find themselves more open to some fluctuation, as long as they have a nice baseline of guaranteed income. These clients may be more inclined to place more assets in a growth-oriented strategy that allows for market fluctuation.

Our role as retirement income planners is to help clients navigate the multiple decisions they will face as they transition into the retirement season of their lives. But, I can honestly say that I have yet to meet with a client who didn’t have the desire for knowing their retirement cash flow potential as a very high priority. Workers today spend much of their energy in focusing on returns—too much energy. Returns are important; however, I don’t believe they should be the dominating factor in a planning process. If we want to work with the massive numbers of Baby Boomers moving into their retirement years, the conversation needs to begin with cash flow—-that’s where these clients experience their money and their retirement.

Michael H. Baker, CFP®, RICP®