Safe Money Places
What is a Safe Money Place? Safe Money Places are exactly what they sound like.
They are places to put your hard-earned retirement money where it is very, very unlikely that a person will lose their principal and interest earned. What that means is that the odds of losing money because the Safe Money Place failed are very low.
That is not to say impossible, nothing in life is impossible, but based on history a Safe Money Place should at a minimum return your money to you, unless you make the decision to surrender them early which is entirely in your control.
What is a Risky Money Place?
A Risk Money Place is one where your principal and interest, or gains, can be lost due to circumstances beyond your control. There is absolutely nothing wrong with allocating part of your retirement nest egg to Risk Money Places, which you would expect to generate a higher rate of return than a Safe Money Place could in order to compensate you from the risk of loss.
The Big Three Questions
Reflecting on your finances and retirement is an exercise in self-examination about how you live, what’s important to you, and your ability to accept losses in your retirement funds. Getting to the root of these issues will help determine how you can manage your wealth before and during retirement to meet your objectives.
The first step in constructing your Safe Wealth Plan is to know where you are now and where you want to be. No one else can answer these questions for you, but an experienced agent or advisor can help you ask the right questions. In this first step in constructing your Safe Wealth Plan you should be defining:
What are YOUR purposes for your retirement savings accounts?
For many, the answer is the same — to cover living expenses during retirement. However, we encourage you to think carefully about your answer because it will matter later on.
Do you have a retirement savings account just to cover your basic needs? Will you use a portion of it for your grandchildren’s college funds? Are you planning on relocating?
What is YOUR time horizon for each of your purposes?
Financial planning is a timeline-centric game. As you zero in on your purposes, it’s important to know the time horizon for each Purpose. This is imperative to ensure your funds will be sufficient and available when you need them for each purpose you identified in the first step.
What is YOUR tolerance with risk? Or said another way, how much loss in your retirement accounts are you willing to accept?
This will be a personal decision on your part. In this very important step, you need to determine how much you can accept to lose. One commonly asked question is, “If you made 5% more next year in your investments, would it change your life?” But if you lost 20% of your retirement nest egg, would that change your life?
Only you can answer these questions. Once you’ve identified how risk-taking or risk-averse you are, you’ll allocate your retirement funds between Safe Money Places and Risk Money Places which align with your risk tolerance.