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Listen to Johnson Brunetti's Money Wisdom with Joel Johnson CFP®, host of Better Money Television program and Forbes Contributor. Gain true financial wisdom and advice aimed at educating you about all of your financial options when it comes to retirement so you can make the best decisions for you and your family. Get information and education that can bring you peace of mind with your savings and retirement. Whether it’s your 401k account, IRA, or an underperforming asset, Joel Johnson can answer your questions and make you more aware of issues that may affect you.

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Jul 6, 2018

How hot stock tips usually happen after the stock has had its run. Invest to create income. Your retirement isn’t something to play around with. Today, we learn what a good solid overall retirement plan looks like and the retirement pyramid. We also talk about risk aversion.

Main Questions Asked:

How to create a plan that generates income for the rest of your life?

How to structure a solid retirement plan?

What are the main parts of the retirement pyramid?

What is risk aversion?

Key Lessons Learned:

The Retirement Pyramid

  • The bottom part of the pyramid should protect against risk. These are things like life insurance, home owner’s insurance, long-term care insurance, and maybe some type of umbrella policy.
  • Without insurance protection you could lose everything. Insurance simply covers the risk that can take away your assets. It makes sense to have insurance.
  • Long-term care insurance. This is a big one everyone should analyze whether they need long-term care insurance, because if you do need it you could be paying over $10,000 a month.
  • The middle part of the pyramid should be guaranteed income. This is consistent income that you can count on living on for the rest of your life. This includes things like pensions and Social Security.
  • Guaranteed income. This means anything you need to create paychecks for life. Social Security, a pension guaranteed by a big company, a portfolio that is structured for income. You could even have some insurance products like annuities or guaranteed investment contracts.
  • The top part should be your long-term investments. These are stocks, bonds, CDs, and mutual funds. These are discretionary as you can change investments from time to time and take income out.
  • Some people make their investments the foundation of their pyramid, but if you think about it the pyramid is flipped upside down and unstable. Once your risk is taken care of, it is then time to grow your network.
  • Now it's time to decide if you have the right portfolio based on your risk tolerance and things that have happened in your life. The investment piece needs to be on the top of the pyramid.

Risk Aversion

  • People rarely say that they are risk averse. It's important for a good financial advisor to listen to a client to understand what they are describing when it comes to their tolerance for risk.
  • When people say words that mean they are risk-averse, their financial advisor needs to be cautious with managing their money. They need to explain the risk of a downturn in the market, and make sure that the client is comfortable with that.
  • It's a professional’s job to probe into what the client is telling them and completely understand their potential for risk.
  • Often, people don’t understand that their portfolio is filled with all kinds of risk. Sometimes they are getting bad advice, or they are managing their own money and don’t understand what could happen in a downturn.
  • The market will drop. When this happens, people need to be prepared for that. Part of the problem is not having a plan. You need to do more than just go over investments.

When An Investment Isn’t Conservative

  • Analyze your portfolio to understand the percentage you could lose when the market drops. When an account drops it is tempting to get out of the portfolio.
  • Finding a good financial advisor has everything to do with how someone will behave when the inevitable market drop happens.

Links To Resources Mentioned

Money Map Retirement Review

1-800-757-0436

Thank you for listening!