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Layin’ It on the Line: Understanding time horizons is essential in retirement planning

By Lyle Boss - Special to the Standard-Examiner | Mar 23, 2022

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Lyle Boss

“Money, like emotions, is something you must control to keep your life on the right track.” — Lyle Boss

Frank retired in 1999, and at that time, interest rates were much higher than they are today. As a result, our firm secured a Multi-Year-Fixed Interest Annuity that paid 6% for 10 years. This is an excellent example of what happens when greed takes over and teaches you hard lessons.

Frank and his wife, Alice, were elated not to put any of his retirement savings at risk. They were tired of the ups and downs they had experienced for many years. She often told me that the stock market scared her to death.

Because Frank was self-employed, he had no company pension plan he could fall back on in the event he lost a large portion of his nest egg. As his advisor, I saw the lack of a pension plan as one of the biggest reasons why Frank needed to avoid losing even one penny in retirement.

Like many retirees, Frank was subject to what I call “Time Horizon” risk, also described as “age risk.” Since he was already retired, Frank no longer received a paycheck and did not contribute to his retirement accounts. As a result, he was no longer in the accumulation phase of his financial life and was now in the distribution phase.

Over the next two years, the market did better than the 6% Frank was getting in the account I’d helped him get. Unfortunately, Frank started to believe that he was missing out on the interest he felt he could be getting with less conservative investments. At our annual review, I reminded Frank that he was now retired and that 6% interest was still an excellent return. A year later, and without telling me, he invested $130,000 in the stock market, money from a deferred payment on the sale of his business.

In three months, Frank had lost $51,000 of his original investment of $130,000. His balance was now $79,000. Thus, Frank had lost over $50,000 of his and Alice’s hard-earned nest egg. I calculated the losses he would have taken in his previous investment to be around 40%.

If his guaranteed money met his needs, I remember asking Frank why he would want to place any of it at risk for a return he might not get. He reluctantly agreed to stay the course and keep his wealth safe from market risk. Then, in 2001, the “dot com” bubble burst, and the market experienced a considerably painful correction. If Frank’s money had been still invested, he would have been exposed to market risks. The losses from which it would have been difficult, even impossible, to recover.

Frank died in 2017. We were able to recover the lost $50,000 before he died, but it took eight years; Alice has continued with her guaranteed income, free from market risk.

The Lesson: The longer you live, the more critical it is to have a safe money foundation for your retirement years. Chasing after returns as you near retirement is seldom a great idea. And, when you no longer draw a paycheck, it can be a recipe for disaster.

Lyle Boss is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Boss Financial 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.


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