At this year's Retirement Income Industry Association's (RIIA) spring conference, conventional wisdom was told to take a hike and good, old-fashioned logic became the norm.
As reported in Boomer Market Advisor, during a panel discussion about risk and risk aversion Jeremy Siegel, author of "Stocks for the Long Run," tried valiantly to persuade those in attendance that retirees who want to make sure their portfolios last 25 or 30 years should use stocks to fight inflation. Based on recent economic events and future predictions, his logic didn't fly.
The featured speaker was York University professor of finance and retirement income expert Moshe Milevsky. He took the stage and looked at the audience and said, "risk is risk" and people who are mortality risk-adverse — academia for afraid of living past 95 and running out of money — shouldn't be encouraged to invest in stocks or stock funds. He believes that people who are risk-adverse to mortality will be just as risk-adverse to equities.
Conferees heard repeatedly that stocks aren't reliable for "long-term" growth and inflation protection. Those looking for portfolio longevity of 25 to 30 years need to look at alternative methods of sustainability. Fear that equities might never mature or mature at the right time to provide the needed retirement income fueled the discussion for risk-free "floor" planning.
For the majority of us these last few years have been devastating. Some portfolios lost 50 to 60 percent in value and even with the market recovering recently we still are reeling from the beating we've taken. There are those who still cling to the stock brokers mantra, "Hang in there, it will come back." Yet when it does come back will it be at the right time? Are you in a position to "stay the course"?
For many of us that answer is no.
Milevsky stressed that people who are risk-adverse should utilize "longevity insurance" to lengthen the life of their portfolio.
He was, of course, referring to immediate annuities, as well as deferred income annuities, all which provide the "floor" protections and the income base most people look for in retirement.
He went on to say that people, "should buy equities only with money they can afford to lose."
Personally, I haven't found any money in my household I can afford to lose.
Unfortunately, somewhere within our body resides the "greed" bone. This bone, when irritated, emits a low-pitch frequency that upon reaching the brain eliminates any sense of logic and concern.
I think that each and every investment commercial on TV utilizes a greed bone interface, which triggers the frequency that causes us to truly believe that we will recover the thousands of dollars we've lost if we just dive right back in and invest the rest.
What we need is a greed bonectomy.
Don't get me wrong. I'm not a doom sayer. I believe that this economy will recover over time. We've done it in the past and I suspect we'll be forced to do it in the future. But I also don't believe in being stupid. Like I mentioned, I haven't found any money in my household I can afford to lose. But maybe, just maybe, if I have a floor of "risk-free" income-producing assets I could find a few pennies to risk in the stock market.
Recently I attended a conference which focused on IRAs and Roth IRAs. What was frightening to me was the amount of assets lost over the last 24 to 36 months. With trillions of dollars still in 401(k)s and IRAs the corporate greed bone is humming loud and clear. As we boomers enter the retirement arena, folks are turning up the heat to compete for your retirement dollars.
Before you sign on the dotted line, stop and look where you're putting those dollars. Is it risk-free? Does it provide the security you're looking for to be sustainable and long lasting? Be smart and like a house build that foundation before you add the roof.
Fred L. Goldenberg is a Certified Senior Advisor (CSA) and the owner of Senior Benefit Solutions, LLC, a patient and consumer advocacy and financial services organization in Traverse City. Questions or comments about this article or other senior issues can be directed to (231) 922-1010 or www.srbenefitsolutions.com
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