Why cash is an important part of your retirement plan

Retirement savers are often told they’ll see a greater return in their retirement assets if they invest it – and that may be true – but it’s important to prioritize some cash in a retirement plan as well.

For those close to retirement, consider keeping a portion of your retirement plan in cash – whether that be in the portfolio itself, in the bank, or in another safe retirement account like a fixed index annuity.

Bank and money market accounts do not typically generate the same type of returns as investments, though when the stock market is in decline, some investors may argue that safe money with low returns is better than losing money.  Investing in equities can be an important piece of the puzzle while you are younger and planning for future retirement income, as stocks and equity funds create large returns sometimes over time.

But there are instances – like right now – when more mature investors, especially those that are already retired, could really benefit from having some of their money placed safely AWAY from the volatility of equities, stocks, mutual funds, etc. In fact, some more mature investors find that Fixed Index Annuities, especially those with lifetime income benefits, can serve as a very good middle ground since they tend to grow at a more reasonable rate of return than a bank account or money market account, during years when the stock market is doing well but they do not lose value during market declines.

As the saying goes, “cash is king.” That’s not always true when it comes to preparing for retirement, but having some cash on hand does allow retirees the opportunity to avoid tapping into their portfolio during market volatility. Retirement savers often find value in the fact that accounts like Fixed Index Annuities can sometimes provide just enough access to their cash (typically allowing a 10% free withdraw yearly) to ensure liquidity needs are met when they need it most. Retirees may also be stressed to see their investment balances dropping week after week as major indices and sectors across the US stock market suffer from the current volatility and an FIA can alleviate that stress as well, since it will not lose value, even in times of investment strife.

Since taking money out of an investment portfolio and converting it to cash when it’s on the decline can provoke the “sequence of returns risk,” an FIA can provide a better way to liquidate for safety while still maintaining some market growth.  This means, when investors are suffering from deficits in their portfolio, they can still maintain a reasonable rate of return over time on some of their money using an FIA.  Of course, people who do need cash in retirement should withdraw from their portfolios- albeit conservatively. Having cash on hand in the bank, or receiving a cash payout or income benefit from your Fixed Index Annuity, can help avoid excessive withdrawals from other investments.

If the thought of riding out a down market sounds daunting, safe money strategies, like a fixed index annuity can really help. They can provide cash access and can also be an ideal tool to supplement other income sources like social security income and pensions.

There’s no one set amount of money that should be kept in cash – the answer depends on individuals’ personal circumstances and comfort level. One rule of thumb is to keep about a year’s worth of living expenses in cash, which could be drawn against when portfolios are riding a rollercoaster investment market.  During these times, for many people, cash can be kept safe, achieve growth, and last a lifetime with the help of a fixed index annuity through Summerlin Benefits Consulting.
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Summerlin Benefits Consulting has helped many people determine what type of strategy makes sense for them and their families and we can help you too!