Big 6 Questions on Retirees’ and Soon-to-Be’s Minds (Part 2)

Navigating the complex terrain of retirement planning often leads to more questions than answers. As we find ourselves confronted with a changing financial landscape, it becomes essential to have a guiding hand that can address these concerns with expertise and insight. Welcome to "Big 6 Questions on Retirees' and Soon-to-Be's Minds (Part 2)," hosted by Correct Capital Wealth Management, an independent, St. Louis-based financial advisor firm.

In this second installment of a three-part series, Colin Day, CERTIFIED FINANCIAL PLANNER™ professional, and John Biedenstein delve into two vital questions that preoccupy the minds of soon-to-be and current retirees:

  1. Where do I put my cash?
  2. How do I stay invested in these turbulent times?

For recent investment news and our take on the current market, retirement planning, and investment, listen to our podcast Capital Conversations or view our recent blog posts.

Below is the transcript of Part 2 of our current Capital Conversation podcast series, "Big 6 Questions on Retirees’ and Soon-to-Be’s Minds."

Colin Day: Welcome back everyone to another capital conversation. My name is Colin Day, CERTIFIED FINANCIAL PLANNER™ professional. With me again, John Biedenstein. John, it's been a couple minutes since the last time I saw you.

John Biedenstein: It's still a beautiful day.

Colin Day: Yeah, it's still a beautiful day. We're still wearing our colorful shirts. I'm getting lots of great compliments on that. We always wear pink on Wednesdays, but you didn't get the memo. That's okay.

This is a second part of our three part series on six things that soon-to-be or current retirees are asking us as financial professionals. So, we've already talked about the first two. The first two were: Will _____affect my ability to retire? Will inflation wreck my retirement? If you have not seen or heard from those particular video or audio podcasts feel free to take a look or have a listen to those. Now we are on number three: Where do I put my cash?

And it seems kind of weird that we as financial professionals are talking more about bank products. Or at least that’s how I feel. When it comes to handling cash, that's not exactly something that we as financial advisors normally do. Would you agree?

John Biedenstein: I would agree.

Colin Day: So we are trying to find ways for our clients to be productive because when the stock market isn't agreeable – when it's doing the things we don't want it to do – we have to find ways to say, “Okay, well, if that part of our money isn't doing well, what good stories can we tell? Where can we be more productive?”

So for many folks, it’s finding better instruments than where you've been at. You may have been with this bank forever, but they're still paying that same 0. 01% interest rate on your savings; it might be time to walk. But the challenge is that when I get that question, I'm always thinking about, “What are the questions that we need to ask first before we get to the result? What is your solution?” And for me, the first thing that I like to say is, “We're going to make sure that we have enough for our monthly expenses, regardless of what we do with this money.” Because, I don't know about you, but when I go drive down the street and I see the banks advertising a 12 to 15 month CD (certificate of deposit), I don't know if that's something I want to lock my client's money into, right?

So, that's the first thing that I like to start at. Now, there's another thing that we like to talk about, which is knowing how much cash to have. So John, I'm just curious, how do you decide how much cash you might want to have personally, or when you're talking to a client, how much money they should have just in immediate savings? How would you answer that?

John Biedenstein: My father told me once that before you invest money, make sure that you've got at least six months in savings. And I think that's still a good rule of thumb, whether it's just in case you lose your job – we have had some difficult times, especially during COVID.

You might want to – especially if you have a family and you've got kids and a significant other involved – maybe you want to extend that to say, “I want to have 12 months in the bank, just in case.” It's always good to have some cash in the portfolio, and that means bank CDs, high yield savings, something like that.

Colin Day: Yeah, and even for the younger clients that that I talk to, I try to make sure that they understand, “Hey, we want to be productive. We want to grow our money over time. Especially when we went through a decade plus of growth since the Great Recession, it's been hard to tell people to make sure that they still hold on to cash. Because when the market is up pretty consistently over a 10 year period, it's tough to remind folks that, “Hey, not everything is sunshine and rainbows like it is outside today.” Sometimes we hit some rain. Sometimes it's thunderstorms, sometimes it's worse than that. So we have to make sure that we have the security there.

Then, after we have that type of security, then we can explore other options. So, when we were doing our presentation, a couple weeks back, we were talking about things like CDs, like I just mentioned, where the bank is taking your funds, and they're going to guarantee some kind of interest rate for the duration of that loan. You've got high yield savings accounts, which are becoming more and more popular. I can't remember the outlet, but there was a big front page on high yield savings and how not having a brick-and-mortar presence is actually allowing these banks to offer higher interest rates. Then we're finding if we walk into the local bank, we've got money markets, we've got treasuries. We've been working with several clients on purchasing and laddering treasuries; purchasing treasuries at certain durations so that they might mature and we can explore new opportunities or interest rates. Any particular thing that you've been talking about with folks?

John Biedenstein: Yeah. Again, if people are comfortable with putting their money in a high yield savings account it might not be your brick-and-mortar, but it's more of an online bank company. Those are the ones that I've seen more and more people using today.

Colin Day: Yeah. And there's a great difference in terms of the interest rates that you're going to find on those. Certain well known banks might offer fairly decent rates, but they might have high minimums. Or you might find some obscure bank that's just giving you a ridiculous percentage, but then you gotta wonder, “What else are you going to do with my information? What are you going to try to sell me?” If I'm going to lose money on something, I'm probably going to gain someplace else. So, I need to make sure that if I'm making a suggestion on a high yield savings account, let's make sure that we're working with a reputable organization, of course.

John Biedenstein: I think that's critical.

Colin Day: Yeah. So John, why don't you take us to question number four.

John Biedenstein: Question number four is: How do I stay invested in these turbulent times?

It's important in regards to staying invested because we can't control what the markets do going up and down. So it's very important that we have – and we've talked about this before – but we have different “buckets” of money. A 401(k) investor might have a Roth bucket and a traditional or taxable bucket. Retirees want three buckets to look at. You want that “cash bucket,” that's really that income you need over the next 12 or 24 months. And then the second tier would be kind of a “fixed income-targeted bucket,” which would be a higher yield, maybe more of a 60/40 bond portfolio, bond equities,that might pay a greater return. And then an equity portfolio that would be the longer term stuff, or the “equity bucket” or the “long term bucket.”

Now, you put the other items I mentioned earlier, the Roth, because in a lot of cases retirees view that as legacy dollars, you might not need it. So Roth might be something that you go for that growth bucket, versus money that you might need in five to ten years or three to ten years, which is more in that fixed income.

Colin Day: Right, and I think, especially when it comes to current retirees – those people that are relying on the wealth that they've built over the years – we preach, again, having enough cash first of all. For many folks that means having maybe a year or two years worth of their expenses, outside of their pension and outside of their social security checks, to make sure that when something bad happens in the market – and it's more of a when, less an if – we're gonna make sure that we have enough cash to withstand the market pressure so that we don't feel like we have to sell just because things don't look good in the market currently. Things will generally turn around over a couple of years. So having that amount of cash relieves some of that pressure.

Worst case scenario, we spend through a lot of that cash, and that's where the second bucket that John described comes into play. That's that income bucket, that bond bucket. It hopefully earns a little bit more than cash. We refill the cash coffer by dumping money from the income into the cash. And now, because the income bucket is a little bit less, we have that growth bucket – which takes some time for it to grow, but it should be the most rapidly growing of the three – then we take from the growth and we pour it into the income.

So, growth pours into income, income pours into cash. This cascading of dollars helps our retirees understand, “OK, I don't have to worry so much about the short term implications of the market.” Again, it takes a few years to recover, but as long as we have a system in place, I feel like that gives a lot of confidence to folks. I don't know if you would agree.

John Biedenstein: I would agree. And again, just being able to rest assured that – like I said, you're not working anymore for a retiree – it's just like if you were in a situation during COVID and you lost your job. It's very difficult, maybe you had no resources or maybe your employer didn't pay severance, things like that. So you want those available resources to pull from. And you also want to manage things. In these difficult times where, let's say, you had a car problem and you had to take additional money out of your cash portfolio to pay for a big expenditure. Well, you want to kind of plan ahead with that, so maybe you won't be able to do the extended vacation that you might have planned earlier because of things like that.

So, I think doing some lifestyle adjustments due to those factors is critical too.

Colin Day: All right. Well, those were questions three and four. Stay tuned for questions five and six in the next edition of Capital Conversations. For John Biedenstein, thank you.

Disclaimer: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember, investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Correct Capital Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Correct Capital Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Correct Capital Wealth Management unless a client service agreement is in place.

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Maintaining financial stability when nearing or in retirement requires careful planning, prudent decisions, and a trusted financial partner. If you have unanswered questions or are seeking personalized financial guidance, don't hesitate to connect with the team at Correct Capital Wealth Management. As fiduciary advisors experienced in retirement planning, we are committed to crafting a financial strategy tailored to your unique needs and goals. Call Correct Capital at 877-930-4015 or contact us online to speak to a financial advisor today.