by Dave Kutcher
It is Super Bowl Sunday and I am sitting at my desk considering topics for this week’s article to share with you all. In the spirit of today’s game, I thought I might share with you all an analogy of how some of our programs work that we use for folks near or at their retirement age and who are seeking growth on their retirement funds but are very concerned about potential losses in the stock market.
If you listen to us on the radio or have come to one of our seminars, you’ve already heard me talk about how we can provide downside protection without you having to give up opportunity for growth on your money. You may have heard me talk about annual or end-of-period re-sets. You might have heard me say “zero is your hero” …the idea that a -0- % rate of return is very different than a negative rate of return because there is no loss to make up before you can begin to grow your money again when market conditions improve.
Some prior articles have provided a glimpse into the impact of a negative sequence of returns on your retirement nest egg and how detrimental it can be if we must draw income from our retirement plans during a period of negative returns in the market.
Sometimes, those of us in the financial services business forget that it can be difficult for a person to understand all the machinations of the various products available to consumers today and we tend to talk in a language that only we can understand. So, today, lets talk football! Well, not really. What I want to do below is use a football analogy to explain how we can help you find safety, seek growth and maintain control over your retirement income planning in a way you have not likely considered before.
Let’s pretend our favorite team has the football on their own 20-yard line. And let’s assume the next four downs go as follows; 1st down- a gain of 3 yards. 2nd down- a loss of 11 yards. 3rd down- a gain of 7 yards, 4th down- a gain of 6 yards. For those of you that have been following along, that means we would have ended up at the 24-yard line, a 4 yard gain overall from where we started. We would have advanced to the 23rd yard line after the first down, fallen back 11 yards from there to the 12th yard line on 2nd down, advanced to the 19th yard line on the 3rd down and finally to the 24th yard line on the 4th down.
Here is how some of our programs work with the same gains and losses we just experienced while in possession of the football. On the 1st down we would have advanced the same to the 23rd yard line with a 3-yard gain. On the 2nd down, however, the referee would have picked up the ball and moved it back to the 23rd yard line following the 11-yard loss because we are protecting you from any yardage loss in our game. So, following 1st and 2nd down, we are still at the 23rd yard line. The 3rd down produces a 7-yard gain moving the ball to the 30-yard line and the 4th down produces a 6-yard gain moving the ball to the 36 yard line.
The exact same set of downs with the exact same gains and losses as was in our football game, leaves us sitting not at the 24th yard line, but at the 36th yard line. A 12-yard gain with the same results but a different set of rules.
As you can see above, zero is your hero. By locking in your gains (positive market returns) and eliminating lost yardage (a -0% floor with no losses counted) we are far better off at the end of the 4 downs … or perhaps in our real world, at the end of a 4-year period during retirement.
We will be at the Rural Small Business Conference this week at the Anchorage Sheraton Hotel February 14th-16th…come stop by our booth and say hello. Perhaps it is time for you to shore up the offensive line of your retirement planning team… We are “Kutcher Financial Services”.
I am Dave Kutcher, a retired Marine Corp Captain and founder and owner of Kutcher Financial Services in Eagle River. We are on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Kutcher Financial Services, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.
