Safe Money Strategies — The Basics of a Financially Secure Retirement

As we inch closer to our retirement age, it becomes more important for us to have more control of our money and the future. This is true for a variety of reasons. But for many of us, more control means a greater sense of financial security.

However, financial peace is hardly a happy accident. Rather, it comes from careful planning and following a well-laid-out strategy built for retirement, a plan that emphasizes income, safety, and protection. In simple terms, we can call this sort of plan a “Safe Money Strategy.”

Building a solid safe money strategy, however, is not as simple as it may sound. For one, the financial needs for each of us are different, especially at the near-retirement and post-retirement phases of life. And as the life expectancies of people in the U.S. have increased, retirement planning has certainly become important like never before.

There was a time not so long ago when our grandparents lived comfortably throughout their retirement years, relying mostly on their employer pension, Social Security, and perhaps other income sources. However, the golden days of pensions and other employer-sponsored income vehicles are long gone. Now our approach to retirement planning must be different, as it’s more of an individual responsibility than ever.

What is True Financial Security?

Financial security, in the true sense, is about keeping your money protected from the whimsical nature of the market. One of the world’s top investors ever, Warren Buffett has said something to the effect that you should accumulate wealth and as you do, you shouldn’t lose it. According to that dictum, a safe money strategy should protect money, preserve it from wealth-draining effects of equity market downturns, and offer some growth potential.     

Now, how does this apply in the context of retirement planning? If you are in the “retirement red zone,” or just 10 years before retirement or even 10 years into retirement, now is a critical period. A financial plan should prioritize protection and preservation of wealth so it’s around when you need steady, reliable cash-flow in your retirement years.

Accordingly, here are a few must-have elements that should be part of a safe money strategy:

• Protection of principal and financial gains from down-market effects
• Suitable access to your money for liquidity needs
• Reliable ability to give a steady, permanent income stream
• Guaranteed protections that keep the “money you can’t afford to lose” safe
• Favorable tax treatment

How to Build a Safe Money Strategy?

Building a safe money strategy for retirement should start at least a few years prior to retirement. Here are some steps that will help you enjoy a more financially secure retirement and lifestyle.

Institute a retirement-ready diversification strategy. Depending on your needs, goals, and situation, the configuration of your assets and savings should be tailored to your age, situation, and overall financial picture. As you near retirement, or if you’re already there, you will want to consider strategies to preserve and protect your retirement money from risks like market corrections. No strategy is foolproof, but many investors find it helpful to start with the “Rule of 100” for judging and assessing their current retirement portfolio allocation.

A retirement diversification strategy may include a weightier allocation into “safer” havens like bonds and money market funds so money is less exposed to the possibility of equity market losses. Or if you have a more conservative risk tolerance, insurance products with contractual guarantees, like fixed annuities and life insurance, can offer a high degree of safety. An experienced financial professional can help you determine what options may make sense for you.

Determine all expected costs of living and expenses for your future. Try to figure out your monthly expenses for the future based on your current expenditures. Your projections should take in account food, housing, clothing, transportation, insurance, utilities, healthcare needs, entertainment, and other month-to-month spending. You are likely to have less frequent expenditures come up as well. Those can include hobbies, vacations, doting on family or other “one-off” expenses coming up from time to time.

Ideally, you should have these projections for a retirement timespan of 30 years or more. Don’t forget inflation each year. An ideal range is to use 2-3% per year so you can account for cost-of-living adjustments and ensure you will have the income to pay for it all.

Create an income and cash-flow plan to pay the bills and maintain your lifestyle. You have worked to get to this point. Now’s the time to make sure you can retire comfortably and safely. When you have an idea of what your spending picture will look like, then you can start looking at ways you will supplement your daily living needs and overall lifestyle expectations. Because Social Security makes up over 50% of income for a majority of Americans, when you claim your benefits will likely be one of your most important retirement decisions.

Unfortunately, a major income planning mistake many people make is claiming too early. As a study by the American College for Financial Services found, just a little more than 5 in 10 Americans knew that delaying claiming of benefits can mean far more lifetime income. In fact, claiming your benefits at age 70 versus age 62 can entitle you to 76% more income.

While planning for the income sources, don’t forget to consider your tax implications of each source and a well-thought-out schedule for withdrawal rates. Annuities are certainly a good idea for regular, planned income payments. This can apply especially if you fear leaving income dollars tied to market volatility.

If you’re in the retirement red zone and it’s possible, delete outstanding debt. Anyone nearing the retirement age must make a conscious effort to avoid new debts. The period between ten years before and ten years into the retirement is known as the “retirement red zone.” Any new liability at this stage can seriously deplete your savings and put an additional burden on your budget.

Especially mortgage payments — the U.S. Bureau of Labor Statistics reports that housing costs tend to be one of the greatest — if not the greatest — expenditure for retired households. That figure includes monthly mortgage payments, which can eat away a big chunk of your monthly cash-flow. So, consider ways you can wipe out debt now before you move into retirement. And if you’re considering new purchases which mean new debt liabilities, it may be worth a second look. It’s advisable to pay cash. Should you not have the money now, maybe consider delaying the purchase until you do those financial resources.

While these are simple steps, they will go a long ways toward more financial security and peace of mind. Follow them, and you will find yourself well on the way to enjoying more financial confidence, more money certainty, and in a better position to manage risks.

Ready for Personal Guidance with Your Safe Money Strategy?

Need help building a safe money strategy for your retirement? Financial professionals at SafeMoney.com stand ready to help you.

Use our “Find a Financial Professional” section to connect with a financial professional directly. You can request a no-obligation consultation or another meeting to get started with your retirement income and financial goals. And should you need a personal referral, call us at 877.476.9723.