A Mistake And A Miracle

By |2021-07-26T20:47:28+00:00July 23rd, 2021|Retirement Planning|

“Money, like emotions, is something you must control to keep your life on the right track.” – Lyle Boss & Dave Anderson

This is a great example of what happens when greed takes over and teaches you hard lessons. Frank retired in 1999, and at that time, interest rates were much higher than they are today. As a result, our firm secured a Multi-Year-Fixed Interest Annuity that paid 6% for ten years.

Frank and his wife, Alice, were elated not to risk any of his retirement savings at risk. They were tired of the ups and downs they had experienced for many years. She often told me that the stock market scared her to death.

Because Frank was self-employed, he had no company pension plan he could fall back on in the event he lost a large portion of his nest egg. As his advisor, I saw the lack of a pension plan as one of the biggest reasons why Frank needed to avoid losing even one penny in retirement.

Like many retirees, Frank was subject to what I call “Time Horizon” risk, also described as “age risk.” Since he was already retired, Frank no longer received a paycheck and did not contribute to his retirement accounts. As a result, he was no longer in the accumulation phase of his financial life and was now in the distribution phase.

Over the next two years, the market did better than the 6% Frank was getting in the account I’d helped him get. Unfortunately, Frank started to believe that he was missing out on the interest he felt he could be getting with less conservative investments. At our annual review, I had to remind Frank that he was now retired and that 6% interest was still an excellent return. A year later, and without telling me, he invested $130,000 in the stock market, money from a deferred payment on the sale of his business.

In three months, Frank had lost $51,000 of his original investment of $130,000.  His balance was now $79,000. Thus, Frank had lost over $50,000 of his and Alice’s hard-earned nest egg.  I calculated the losses he would have taken in his previous investment to be around 40%.

I remember asking Frank why, if his guaranteed money met his needs, he would want to place any of it at risk for a return he might not get. He reluctantly agreed to stay the course and keep his wealth safe from market risk. Then, in 2001, the “dot com” bubble burst, and the market experienced a considerably painful correction. If Frank’s money had been still invested, he would have been exposed to market risks.  The losses from which it would have been difficult, even impossible to recover.

Frank died in 2017. We were able to recover the lost $50,000 before he died, but it took eight years; Alice has continued with her guaranteed income, free from market risk.

The Lesson: The longer you live, the more critical it is to have a safe money foundation for your retirement years. Chasing after returns as you near retirement is seldom a great idea. And, when you no longer draw a paycheck, it can be a recipe for disaster.


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About the Author:

Lyle has actively taught advanced estate planning and asset preservation for more than twenty years in such places as the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho and Wyoming. Websites: lyleboss.retirevillage.com | safemoneylyleboss.com

Office: (801) 475-9400 | Boss Financial & Insurance Services, LLC