Hegna's Hotseat

Show Clients How to Lock in Gains


he market has been pretty volatile lately. If you had $1,000,000 in the market at the start of this month, how much would you have after the market experienced its worst day yet this year on August 5th, 2019? The S&P 500 plunged 3%, and that could have been a $30,000 hit to many of your clients. I don’t believe in looking at short-term ups and downs, but it wasn’t that long ago that the market dropped 40% and stayed down for most of 10 years. The Japanese market has been down for over 30 years! Now what would THAT do to a retirement? After a nearly 10-year bull market, it might very well be time to lock in some of those gains. Your clients absolutely should be locking in gains during the years immediately before and after retirement. Remember, losing money right before or right after retiring can devastate a retirement. Let me show you how you can educate clients with this powerful lesson.

Show clients how sequence of returns risk can wipe out a retirement. Most people have no idea that they could AVERAGE 10% per year, only withdraw 5% per year, and still run out of money. It doesn’t seem to make sense to them. They have also been told that markets go up and down but over time they always go up. They figure they will just “wait it out.” How is that working for that 65-year-old Japanese guy that retired 30 years ago? Look, I am NOT against having money in the market. I am against having TOO MUCH of a portfolio in the market. How much is too much? Simple. If the market were to drop 40% and stay there for 20 years, would that affect your client’s lifestyle in retirement? If the answer is yes, they should trim the portfolio to where the answer would be no. A simple way to do that is to just move some or all of the bonds in the portfolio to some form of lifetime income annuity. This will provide them the income they need to live on so they “wait out the market” with the rest of their portfolio. That way, they won’t have to change their retirement plans. Many of their friends without guaranteed lifetime income will spend their whole retirement worrying about losing everything! Show them the power of guaranteed lifetime income. If your clients haven’t locked in gains yet, you need to explain that the worst might still be yet to come.

I remember growing up, and my parents were both teachers. They didn't have big 401(k)s or IRAs, but they did have pensions. Imagine if they had worked their whole life and all of a sudden BOOM, the market went down the day they planned to retire. It sounds like I’m overreacting, but I’m not. There were years when my parents didn’t even make $10,000 for the whole year. The more and more I follow the market, the less and less I think people understand it. If this doesn’t convince clients that they need to lock in gains NOW with guaranteed lifetime income, you need to use one of my other articles to explain all the risks they face.

Everyone’s risk tolerance is unique and so is their retirement plan. Some people have different goals they want to meet, and if they work with the right financial advisor, they can optimize their plan and retire HAPPY! I’ve never said a person should annuitize 100% of their savings, but your clients should move most of their gains to products with guarantees! Sequence of returns risk and inflation risk can completely erode purchasing power and cause your clients to suffer in retirement. The bottom line is, any plan that doesn’t include guaranteed lifetime income will be suboptimal. Your clients’ retirements will be less than it could or should have been.

See you on the road soon,
Tom Hegna

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