Coasting in Retirement – Episode 90
Our industry is changing. In many ways, it has already changed.
You can hardly open social media, turn on the TV, or watch YouTube without somebody talking about the “future of investing.” Some of it involves meme stocks, altcoins, or finding a way to make money trading whatever unusual asset somebody dreamed up this week.
But there is a real conversation worth having underneath all that noise. The way we think about investing for retirement needs to account for the world we live in today, and the tools available to us have expanded.
For years, many investors followed a familiar approach: own stocks for growth, hold bonds for stability, and move more money into “safe” investments as retirement gets closer. Those investments can still have a place. But we need to look carefully at what we mean by safe.
Does safe mean your account balance does not go down? Or does it mean your money can still cover your groceries, electric bill, and other expenses ten or twenty years from now? Those are two different concerns, and your retirement plan needs to address both.
In this episode of Coasting in Retirement, Josh sits down with JD Gardner, founder and chief investment officer of Aptus Capital Advisors, to discuss purchasing power, the relationship between stocks and bonds, and the tools we can use to help manage investment risk.
They say the future of investing is already here. So if you are in or near retirement, it is worth understanding what has changed and whether your portfolio has kept up.
Your Retirement Portfolio Needs More Than Autopilot
For years, investing felt fairly straightforward. You pick a few mutual funds or index ETFs, hold some stocks for growth and bonds for stability, check on the mix once a year, and keep moving.
But we need to pay attention to what those investments are actually doing. Stocks and bonds can fall at the same time. Cash can sit quietly in your account while rising prices chip away at what it will buy. An investment that feels safe may still leave you losing ground after taxes and inflation.
That becomes a bigger concern when you start taking money out.
Imagine retiring with $1 million and watching your portfolio drop 20%. You are now down to $800,000 before taking any withdrawals. Meanwhile, the electric bill still arrives, groceries still cost money, and the car does not care that the market had a bad year.
If you sell investments to cover those expenses, you have less money left to participate when the market recovers. That is why managing losses matters so much when your savings become your paycheck.
Fortunately, the investment toolbox is bigger than it used to be.
Certain ETFs can use options strategies designed to help cushion some market losses while keeping money invested for potential growth. Think of it as putting brakes on the car. You still want the engine to move you forward, but you also want a way to help manage the ride.
Those brakes come with tradeoffs. Some strategies limit your potential gains, cost more, or provide protection only under specific conditions. They can still lose money.
The point is that you have choices beyond moving everything into cash or holding stocks and hoping for the best. A retirement portfolio should have a clear plan for pursuing growth, managing risk, and providing income when you need it.
A “Safe” Investment Can Still Cost You
When people tell me they want to keep their money safe, they usually mean they do not want to see their account balance go down. That is understandable. But if your money earns less than the increase in your living expenses, you can lose purchasing power even while the balance grows. Your statement may look fine while your grocery cart gets more expensive.
Cash, CDs, and bonds can still have a place in your retirement plan. We just need to understand their limitations. A CD can provide a predictable interest payment, but that payment may not keep up with inflation after taxes. Bond prices can also fall when interest rates rise, particularly for bonds with longer maturities. Calling something conservative does not mean every risk disappears.
Reaching Your Number Is Only the Beginning
People often enter retirement with a number in mind. “If I can get to $1 million, I will be ready.” Having a savings goal is useful, but reaching that number does not tell you how to turn it into a paycheck. You still need to decide where the money will come from each month and what you will do when the market has a rough stretch.
Will you spend cash first or withdraw from an IRA? Can you adjust spending during a downturn? How will taxes and required minimum distributions affect those decisions? Two households with the same account balance can have very different retirement experiences depending on their expenses and withdrawal plans. Once your savings need to pay the bills, how you use the money deserves as much attention as how you accumulated it.
Your Portfolio Needs a Plan for the Bumps
A portfolio with 60% stocks and 40% bonds may be a reasonable starting point for some investors. But choosing those percentages does not finish the job. We still need to ask how the investments work together and what happens when both sides decline. The mix should reflect your income needs and ability to handle losses, rather than simply the fact that you turned 65.
There are additional tools available to help manage those risks. Some strategies use options designed to cushion certain losses. Others may include investments that respond differently to market conditions or help address inflation. Think back to the engine and brakes: we want growth potential, along with a way to help manage the ride. These tools have costs and limitations, and some give up part of the upside in exchange for downside protection. The right approach depends on what your plan needs.
Taxes Belong in the Income Conversation
If you need money to replace the roof, the amount you withdraw may need to be larger than the contractor’s bill. A withdrawal from a traditional IRA can create taxable income, while money from another account may receive different tax treatment. That makes the question “Which account should I use?” worth asking before the withdrawal happens.
Thoughtful planning may include spreading withdrawals across account types, considering Roth conversions in appropriate years, and watching how income could affect Medicare premiums. Those decisions do not guarantee tax savings, and a Roth conversion can create a tax bill today. But understanding the tradeoffs can help you make more deliberate choices about what you keep and spend. Taxes also deserve attention inside the investments themselves, including how a fund manages trading and distributions.
The Mutual Fund Isn’t Dead, but the ETF Has Changed the Game
For decades, mutual funds were the familiar way to get professional investment management. You wanted a manager picking stocks? You bought a mutual fund. You wanted to follow the S&P 500? You bought an index mutual fund. Then exchange traded funds, or ETFs, came along, and many investors assumed they were simply another way to buy an index.
That picture has changed. Today, ETFs can deliver actively managed stock and bond portfolios, options strategies, and approaches designed to help manage certain market losses. Think of the ETF as the vehicle carrying the investments. Knowing the vehicle’s name does not tell you everything about what is under the hood.
You also do not have to choose one side of the active versus passive debate and stay there forever. A portfolio can combine index funds with actively managed strategies when each serves a useful purpose. Owning an ETF does not automatically make an investment better, and owning a mutual fund does not make it outdated. We still need to look at what it does, what it costs, and what risks come with it.
The more useful question is, “What do I need this part of my portfolio to accomplish?”
Money you expect to spend next year has a different job from money you may not touch for fifteen years. One portion might help cover regular withdrawals. Another might pursue long-term growth. Other investments may help address inflation, manage downside risk, or limit unnecessary tax costs.
That is what I mean when I say the toolbox is bigger now. You do not need every tool in it. But understanding what is available helps you choose investments for a reason, rather than simply holding the same funds because that is what you have always done.
The Future of Investing Is Already Here
Many people still picture investing this way: “I have my 401(k), I have a couple of mutual funds, and hopefully they go up.”
But what are those investments actually doing for you? How might they respond when markets get difficult? And are there other tools that could help address the risks facing your retirement?
The point is not to throw away everything you have learned about investing. Saving consistently, diversifying, and thinking long term still matter. But the toolbox is much bigger now, and a good retirement plan should at least consider what is available.
There is a big difference between saying, “That tool does not fit my needs,” and realizing you never knew it existed.
You do not need to become an investment expert. You should, however, understand why you own what you own and how it supports your retirement. The future of investing is already here. It is worth taking a look at whether your plan has kept up.
Let’s Talk About Your Retirement Plan
If you are approaching retirement, beginning to take withdrawals, or wondering whether your investments still support your goals, Gulf Coast Financial Advisors can help you begin that conversation.
Call 251-327-2124, or click this link to schedule a meeting.
Meeting options include:
- A 15-minute introductory phone call
- A 30-minute Zoom meeting
- An in-person meeting in Fairhope, Orange Beach, or Mobile
No pressure. No obligation. Just a conversation about how your investments and income plan fit the retirement you want.
Listen to the complete discussion on YouTube: https://www.youtube.com/watch?v=oj52ogy2odg
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.