Security & Uncertainty

Titled "Security & Uncertainty" with senior couple's hands interlocked in the background.

True Story. Talking recently to a friend and respected Financial Planner, we concluded the absolute worst possible time to retire was March of 2020. She had a client who had been planning to retire for over three years, and the week before the Dow lost 30% of its value this couple both retired from long standing jobs.​

…they lost over $100,000.00 in retirement income funds in one week. Their retirement party was over before they had a chance to hold it!

Colorful electronic graph with blur focusing.

Millions of retirees across America are looking at their investments, watching savings and portfolios ravaged by this Covid-19 Correction, and for many it’s a Covid-19 Collapse, devastating their once solid retirement income plan.

As you may know, when you withdraw income from a portfolio in a down year, it has significant negative consequences over many years of planned retirement. Practically speaking, these losses may never be recovered.

…having alternative cash resources to provide additional cash flow in down years is vital to protecting future retirement assets, by preserving your portfolio. This strategy is called “Mitigating Sequence of Returns Risk.” Be sure to speak with your financial advisor about what you can do now in your personal situation.

Expect the Unexpected

It has been said, “Life is what happens to you when you are making other plans”. One of the great reminders of this national emergency is the best laid plans can be tossed to the wind. Forces beyond our control can take what seemed very much like Good Times, and disrupt everything we thought was normal.

…what’s shocking is how quickly things are changing. Adding further stress is knowing we are still in the early stages of the Pandemics Acceleration Phase.

We have much more pain in front of us. We must adapt quickly, which starts with a shift in mindset.

we must, Expect the Unexpected.

In a recent USA Today Article, they quoted findings from a survey published by Empower, regarding Retirement Fears. They cited for roughly half of retirees, or near-retirees the biggest fear is “Unexpected Expenses”.

Read the USA Today Article Here

Hands hovering over crystal ball containing a jar of coins labeled "retirement."

I’m not saying you have to predict the un-knowable. You will not be required to suddenly see the un-seeable.

It’s clear, no one has a crystal ball. I’m suggesting, urging you to think strategically, and plan for what you can expect which is…the unexpected.

Emergency Ball

Recently this Pandemic was ruled a National Emergency by the President of The United States! What we know for sure is we have no idea how this is going to play out. We do not know how severe, how costly in lives and treasury, or how long it will take before our lives get back to normal.

We are in a whole New Ball Game, and you must play both Offense and Defense.

…You must adapt and adapt quickly.

Good Defense is Positive

Cut Expenses everywhere, re-think essentials.

  • Eliminate All Non-essential Expenses. *Cancel under used memberships, subscriptions, auto pays you signed up for, thought to cancel months ago but didn’t, cancel it now. Look at your cable package…trim it down.

Ask the Family for input, eliminate what you can do without. Do it now!

  • Limit Spending Surges.* In emergencies it is easy to justify Credit Card expenditures when we are reacting to the news, or the needs of Family.

…think twice before every card swipe!

If additional people are staying with you, ask for them to contribute anything they can. It is springtime, when yard and maintenance costs tend to rise. Ask if Family can help you with it this spring, rather than hiring it out. Look for specials at the grocery store, do without some of the food luxuries you may be accustomed to. Be aggressive, act now!

  • Restructure Consumer Debt.* Pull out every debt payment you make, and look closely at every statement. You may be surprised to find things you forgot you were paying and no longer need…cancel those now.

List out every account, write down the interest rate, the outstanding balance and your high credit limit. List out how much available credit you have on each account, and add up your total available credit. Call each card company, tell them you intend to continue making timely payments.

Cutout wooden letters spelling the word "tips" with a lightbulb above the word.

Then ask for a reduction in your interest rate, and an increase in your line of credit.

If you have a Zero Interest balance transfer offer sitting on your pile of mail, call them and transfer high balances, or high rates to this new account.

…take whatever steps you can to cut, do not wait!

*This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation.

Quarterback the Offense

There is a basic fundamental rule of personal finance which goes like this: Shore up your lines of credit when you do not need them, so they are in place when you do. Someone in your home must play Quarterback and initiate your offensive strategy. Begin by looking into what Lines Of Credit (LOC) might be available to you.

If you are a homeowner, secured lines of credit come in two basic forms:

  • HELOC: Home Equity Lines Of Credit, these are best used by homeowners who are under age 62. If you have one, contact your lender and ask what it would take to increase your limit…then if it is possible, increase it!

There are distinct positives to a HELOC, such as higher borrowing capacity. Often you can get a LOC up to 85% or even 90% of the home’s value. You can also consolidate other consumer debt, drastically reducing your monthly payment obligations.

  • HECM: Home Equity Conversion Mortgage, these are best used by Homeowners aged 62 and older. It is a Safe, Smart and Sensible way to convert a portion of your Home Equity into Cash…If you qualify, look at it seriously!

HECM’s are highly misunderstood and a vastly under-utilized loan, designed purposely for Senior Homeowners to convert a portion of a homes’ equity, into cash to be used for any purpose. As long as you live in and maintain the home as your primary residence, pay your home owners insurance and property taxes, then there is …No Required Monthly Payment.

If you are a homeowner, at least 62 and still making a payment, you are not alone. Today, over 40% of senior homeowners still make a Mortgage Payment, and many of them do not need to. If this is you, shift out of your traditional mortgage to a HECM.  Ask yourself this question; If I did not ever have to make another Mortgage Payment, how would this change my cash flow?

…I promise, the more you learn about the HECM, the more you’ll like it!

Three business associates discussing and smiling over papers and a laptop in a bright room with windows.
  • HECM Line Of Credit: By far, the most common HECM option of choice is the Line Of Credit. The HECM LOC, once in place is standing by for you to access when you need it, for whatever reason you deem necessary. Similar to a HELOC, interest is charged only on the portion of the LOC that has been used. Much different than the HELOC, the unused portion of the HECM LOC is growing at an internal rate of growth.

If you have ample Home Equity, or your home is paid off, this equity is illiquid and difficult to access. You can immediately set up a HECM Line of Credit, and let it sit there and grow, for when you do need it down the road…this will help you with Sequence Risk!

Security and Uncertainty

In my experience, when people do not know what to do…they hesitate, or do nothing. It is human nature to be fearful of what we do not know, or understand. Find Security in knowing there are Certain things you can do.

The best advice I can offer is this:

Focus on what you know and can do, and do not worry about what you cannot control, or what you can’t know.

Be thoughtful in your action, be introspective about what is really important, and be grateful for all you have…take action, do it now!

Paul Donohue