David Royer

There once was a time when, after working for your employer for 20, 25 or 30 years, your loyalty and hard work was rewarded with a gold watch – a retirement party and a pension check for the rest of your life. Add in Social Security and your retirement was set for life. What a great deal; your company made all the deposits for you and managed the money, and you did not need to put any of your earnings into the plan. When you retired you would have a guaranteed income for life and if you chose the survivor option, the income would also go to your spouse for as long as they live. You might think that nothing that good could last forever and you would be correct.

Over the last few decades, employer sponsored pension plans faded away for the private sector. They were replaced by plans such as IRAs, 401k and 403b plans. These plans required you to make contributions and the burden of saving for retirement was taken away from the company and shifted to the employee. Not only did you have to make contributions to these plans; you also needed to manage your contributions and any company matching contributions.

Company pension plan funds were managed by professionals to make sure the plan could meet its obligations to the retired and retiring employees. These plan managers had years of experience in investing and managing pension funds. Presumably, they knew what they were doing. When the burden of saving for retirement was shifted away from the employers, the employees were left to fend for themselves. They were forced to make retirement savings and investment decisions with little or no investment experience. The result is some did well while others lost fortunes due to bad timing and uninformed investment choices.

Timing and making informed investment choices can make the difference between a comfortable retirement and struggling to make ends meet.

Let us go back to review some recent history. After four decades in financial services, I have some observations about a year that was straight out of a horror movie – 2020.

1. 2020 was the craziest year I have lived in.
2. Over 50 million workers were laid off due to the Covid pandemic.
3. The federal reserve printed trillions of dollars to head off an economic meltdown.
4.  More businesses filed for bankruptcy than during the market crash of 2008.
5. Interest rates fell to an all-time low hurting the growth of Americans’ retirement savings.
6. Central banks added close to 200 tons of gold to their stockpiles.
7. The value of the dollar dropped compared to a basket of other currencies.
8. There was unchecked rioting in the streets.
9. The Covid pandemic reached every corner of the globe.
10. To top it all off; it was an election year with a deeply divided country.

With 2020 behind us, it is time to focus on the future and get informed about how to protect our retirement savings. The big question we all must ask ourselves is should we continue to roll the dice and pray that the market will continue to grow, or is it time to take some chips off the table?

That brings us to the Bears the Bulls and the Wise. Wall Street has two opposing mind sets about Safety and Growth vs. Risk and Market Loss. The Bulls are all about growth and chasing the next big market gain while the Bears see turbulence ahead and are predicting a correction that could lead to investors losing a sizable chunk of their retirement savings.

Let us begin with the Bears. This is the group that believes that we will see a catastrophic correction in the markets. They are focused on reasons why the market will take a nosedive, and many are predicting that the next correction will make 2008 look like a picnic. Here is a list of potential events that the Wall Street Bears believe could drive the market into a freefall and wipe out the recent market gains and crush your retirement accounts:

1. The Money Bubble – There is approximately $200 trillion in debt and unfunded liabilities. Who will pay for this? You guessed it; we will.
2. Unprecedented New Regulations – This will affect many industries and could choke the economy.
3. Attack on the US Dollar – China now has a central bank and their own cryptocurrency.
4. Inflation – How will that affect our purchasing power?
5. High Interest Rates – Due to runaway inflation the Fed increased interest rates to cool the economy and bring inflation under control.
6. Unemployment – Due to Covid, many jobs are gone and are not coming back because thousands of businesses shut down for good.
7. Commercial Real Estate Crisis – Nationwide we have empty office buildings, and some will remain empty. According to FORTUNE, commercial loan delinquencies surpassed 10% for the first time in more than a decade.
8. The Tech Bubble – Tech stocks are unpredictable and may be overpriced.
9. The Massive Amount of Money being Printed – The unprecedented amount of money printed will cause a loss of confidence from foreign nations.

The frightening thing about the Bear’s perspective is that any one of these events can cause a market correction and investors will pay the price. Imagine if half of these predictions occurred. The point that the Wall Street Bears are making is a market correction is both likely and overdue.

Let us move on to the Bulls. This group believes that the market will continue to grow, and they recommend that you stay invested and continue to invest more of your retirement dollars. Their view is that the market growth we witnessed from 2009 through 2024 will continue indefinitely. They also have their reasons to believe in their positive outlook.

1. Stimulus Checks – This was like a shot of B-12 to the economy if those who receive the checks will spend the money and stimulate economic growth.
2. Paycheck Protection Program (PPP) Loans – These loans to businesses will allow them to continue to pay their employees while business profits are not sufficient to keep employees. Portions of these loans are forgivable and will not need to be repaid if the business follows the rules for loan forgiveness.
3. The Pandemic and Vaccines – The Covid pandemic ran its course, and the sleepy economy awakened.
4. Restaurants, Hotels and Places of Social Gatherings – These venues reopened, and the hospitality industry returned to pre-pandemic prosperity.
5. Social Distancing Ended – The malls and other retail establishments again are seeing pre-pandemic traffic and internet sales are booming.
6. Planes are Flying Again – The airline industry, which has been idle for most of 2020, is now seeing a host of eager business and leisure travelers.
7. Cruise Ships are Sailing Again – The vast worldwide fleet of cruise ships filled up after Covid was under control.

The Wall Street Bulls and Bears make opposite predictions based on what they believe. The problem is that no one knows who is right.

Through 2024 the Bulls have had their way, and markets hit all-time highs.

The big question is, WHAT’S NEXT?

As we head into 2025 many of the financial markets are considered overvalued.

According to INVESTOR’S BUSINNESS DAILY

“Traditional valuation measures suggest the S&P 500 is more than 20% overvalued.” Dec.2024

This Brings Us to The Wise

What if there was a way to position SOME of your retirement savings so you cannot lose if the Bears are right and the market crashes, but you still win if the Bulls are right, and the market continues to grow? Would that not be the best of both worlds?

This concept is called Indexed Performance. Indexing is a simple and safe strategy where your money is not actually in the market but instead is tied to one of the market indexes like the S&P 500. If the Bulls are right and the market goes up your account goes up. You will not get all the Market gain, but few investors ever do as well as the performance of the Dow Jones or S&P 500 when the market is climbing. Here is the great news; If the Bears are right and we go through another market correction, you will not lose a penny.

Let’s use Jim, age 65, as an example. Jim thought himself to be an above average investor and has done a decent job picking stocks and mutual funds. Jim’s retirement accounts and 401k did well during the past 10 years and his $300,000 investment has grown to $500,000. Now let’s assume that the market drops 40% like it did in 2008. How much will Jim lose? Forty percent of $500,000 would equal $200,000 loss due to a market downturn.

What if Jim decided to put one half of his savings ($250,000) in an Indexed Performance Account and we have the same 40% market correction. Remember that the Indexed account can never lose money no matter how far the market drops. Now Jim will have only one half of his $500,000 savings ($250,000) exposed to the same market correction. A forty percent loss of $250,000 would equal $100,000 loss to the same marker downturn. Using this simple maneuver Jim would have cut his market losses in half.

Keep in mind that Jim is age 65 and will need his savings to supplement his retirement income sooner than later. Does it make sense for Jim to have SOME of his retirement savings in a safe place that will grow as the market grows but he cannot lose anything if the market completely crashes and burns.

The Indexed Performance Account I am describing is a Fixed Indexed Annuity (FIA). They work similarly to bank CDs; the longer the term the higher interest you are likely to earn. According to LIMRA, a worldwide research and data provider, In the first nine months of 2024, total annuity sales increased 23% to $331.2 billion. Annuity sales previously set a record for the first six months of the year.

  In addition to safety, they offer many other advantages:

• Market gains without market risk
• The account can be turned into a guaranteed income for life that you cannot outlive for both you and your spouse. Americans are living longer, and many retirees are concerned about outliving their savings.
• Liquidity when you need it. Most Fixed Indexed accounts offer a 10% penalty free withdrawal each year.
• Additional liquidity for catastrophic illness and additional income for Long-Term Care expenses.
• Your deposit and all gains are locked in so this account can only go in one direction – UP!
• Tax deferred growth. You only pay the taxes when you withdrawal your money.
•  Triple compounding. You earn interest on your deposit, interest on your interest and interest on what otherwise would have been paid in taxes.
• Leaving money for your loved ones. If properly structured the death benefit is not subject to cost and time probate.

Getting back to the beginning; the day of the company pension plans are all but gone and the burden of saving for retirement has shifted from employers to individuals. We must now play the essential role of managing our retirement dollars now and during retirement. The Wall Street Bulls and Bears disagree about the direction the market will take in the near term, but no one knows the answer with any degree of certainty. There is no shortage of reasons why the market could go up or go down, but we all need to make choices to better protect our savings and make sure we do not outlive our retirement accounts. You may be of the Bear or Bull persuasion and that is OK. I submit that being Wise with at least some of your retirement savings, including IRAs, 401k, 403b and TSP plans, will put you in the position that if the market goes up, you win, but if the market heads south, you don’t lose.