What is Safe Money in Retirement Planning?

Chances are you have heard of “safe money” at some point. From financial talk shows and radio commercials to television broadcasts and retirement seminars, it’s a concept that is all over the place. “Safe money” is commonly defined as the money you can’t afford to lose.

But for those of us approaching retirement, what does that mean in real-world terms? Many advisors explain safe money in investment terms. For example, it could mean discussion of “safe money investments,” or vehicles with less exposure to market volatility.

A downside with this approach is its investment planning focus. We have discussed how retirement planning should emphasize monthly income over asset values in its goal-setting. After all, retirement is a life stage in which we draw on a nest egg and other income sources for income – wealth we have accumulated over many years for this timespan. So, when discussing “safe money” in retirement, we shouldn’t frame it in terms of only the possibility of money losing value.

Here’s a quick look at what “safe money” – or money you can’t afford to lose – looks like when we frame it in the discussion of retirement income planning. This can help bring greater clarity to the planning process for a secure, financially confident retirement future.

The Basis of Retirement Income Security

Let’s consider this in the context of income security, first. When it comes to retirement, Americans may have financial goals for two critical junctures:

• The span of their retirement years, and
• The point when they transfer their wealth to loved ones upon passing away.

During the retirement years, we want to have the financial resources to live comfortably. It is a matter of having money for lifestyle expenses, or what it costs monthly to maintain our desired style of living. Of course, there are other expenses besides monthly living costs. Vacation getaways, traveling for family events, helping grandchildren or family members with college education costs, or personal retirement luxuries are some miscellaneous expenses.

In the case of wealth transfer, financial goals may be two-fold: replacing the lost income of the deceased party for loved ones, and leaving a legacy to beneficiaries. In that case, we want to be sure how wealth is transferred is as tax-efficient and free from probate as possible.

When considering financial goals in retirement, it helps to think of this in terms of monthly income streams. We already tend to think of our financial life in 30-day time-frames: mortgage payments, monthly savings goals, monthly household bills, and so on. So whenever we lose money, we lose some of our income security – we sustain losses in the funds we will use to pay for retirement income needs. Now consider this in the context of the discussion earlier.

Considering Safe Money in Context of Income

In the context of lifestyle and estate planning goals, “safe money” is what we need to achieve our lifestyle and estate planning expectations. In real-world terms, it is the money we can’t afford to lose as:

• Lifestyle income dollars
• Replacement income for when a household provider passes away
• Wealth for inheritors, and how much of it is affected by taxes, probate, and/or other costly factors

To achieve these goals, Americans may allocate their monies into a wide array of vehicles, from stocks and bonds to CDs, annuities, or other financial instruments. If safe money is put into vehicles which have a higher risk profile – again, like equities – and those vehicles sustain losses, it ultimately means a setback in financial goals.

So, in the context of retirement planning, safe money is not only the portion of someone’s life savings they can’t afford to lose. It’s also the part of your life savings which you can’t afford to lose for the purpose of sustaining lifestyle expectations and legacy planning goals.

In other words, it’s thinking of how to keep your money intact so it lasts for your entire retirement lifetime, helps you sustain spendable cash-flow, and how it helps you meet estate planning objectives. The decisions of how someone allocates their money into different vehicles are based on those criteria.

It is important to emphasize that safe money depends on context: Monies which are critical will vary at different life stages. For example, when you are married with children, those monies can’t afford to lose are different from what they will be when you’re retired.

Worried about Your Money?

If you worry about your money not lasting the entirety of your retirement, SafeMoney.com can help you. We can connect you with a financial professional who will help you uncover different strategies to enjoy llfelong income certainty and peace of mind.

Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.