Five financial risks require everyone's attention, because a person's financial security in retirement depends upon understanding and managing these risks. The obvious fact is that financial decisions impact every aspect of life--and that includes the mental, the physical, and the emotional. People really want confidence and comfort. As a Registered Representative with Fundamental Financial Services, Gibbs orientation to financial management is simple. I utilize a disciplined strategy of 'risk management' designed to allow my clients portfolios to participate in rising markets and help reduce loss of principal during declining markets.
"Each of us need to understand five risk areas of life in order to deal with our related financial concerns. The first one is 'longevity,'" Gibbs noted. There is a risk that we will live beyond our dollars. Today we have a real risk of living past that last dollar. A 65 year old person today might well live into the 80s or 90s, so there needs to be a way of maintaining sufficient resources to stretch them till a death in those 80s or 90s.
"A second risk relates to the loss of purchasing power. We call it 'inflation.'" As a practical matter we are all aware of the cost of goods and services increasing all the time. Everyone knows that things cost more in our generation than they did in our parents' time. "We interpret this as an erosion of dollars or wealth or savings," Gibbs explained.
The third risk relates to the organization of our resources, "to 'asset allocation,' the risk that our savings will not support our long-term, retirement needs." Gibbs explained that "any asset allocation strategy must recognize areas of risk, meet liquidity needs, grow assets, minimize taxes, and plan for retirement distributions. Developing a plan of wealth transfer to children and grandchildren is secondary."
A fourth risk relates to the use of resources. It is the "risk of 'excess withdrawal,' and it relates to the common fear of exhausting a life-time of resources before the lifetime is past." Only a decade ago financial planners would have recommended drawing down resources at a rate of seven or eight percent per year. One common retirement investment strategy recommended in those days would exhaust all diversified resources in only eleven years. "The kind of economy we had in the early 1990s is not our economy today. We now recognize the necessity of only drawing down about four to five percent of resources per year and using different kind of balance in diversifying our assets. We want assets to last a potential life expectancy of 38 years for that person aged 65 at retirement," Gibbs explained.
"The last risk is 'health care.' We all know that health care problems can change our 'asset basket' and change our lives. Major illness is a problem if it happens, and it continues to be a major problem if we make it through an expensive illness and live many years afterward in poverty. Unfortunately, we need to plan on having $160,000 available at retirement just to fund our Medicare from age 65 till our death. In fact at age 65, at least half of us are looking at doing some kind of nursing home time before death, and this care is costly," Gibbs offered.
All these risks explain why we need planning in our senior years and before. "It is never too late or too early to consider these risks and explore our options to minimize them," Gibbs concluded.
Registered Representative James Mack Gibbs works with wife Linda in Fundamental Financial Services located in Foley. Questions related to Fundamental Financial Services, may be directed to (251) 987-5490 or jgibbs@fscadvisor.com.
