Red and green are colors, how do they interact in retirement planning?
Red in red money doesn’t mean to stop, and green in green money doesn’t mean go. Actually when it comes to safe money and income planning it’s quite the opposite. Now those terms may sound funny, but I believe they will help us understand a very important concept.
Allow me to explain, red money is money that we are willing to expose to market risk, in hopes of a higher return. We accept the possibility of losses, even significant losses in hope of greater gains. Red money is exposed to market risk and market reward.
You might be asking yourself, “what are the red money options?” They are stocks, bonds, mutual funds, variable annuities, and all the money that is exposed to market risk .It’s also money that often expose you to fees and expenses.
Red money is good for those with a distant time horizon and have the time to regain any losses from a market downward move. You might be asking yourself, “What green money options are there other than cash, checking, saving account, or bank certificate of deposit?”
Green money is about safety and security. With green money we are not willing to accept the risk of losses, so we are willing to accept a lower yield in exchange. Green money does not have downside market risk but it can have inflationary risk. We all know that markets go up and markets go down. How much of your life savings that is exposed to market risk is a very important consideration.
Here is the question you should ask yourself; how much of your money is currently in the red money market? Did you make a conscious decision to have a particular percentage exposed to market risk? Do you have all of it? 50% of it exposed to market risk?
There are some exciting green money options such as Fixed Indexed Annuities. (FIA) FIA have upside market potential but they are not exposed to market risk. FIA are about guarantees and benefits. Benefits such as safety, security and a commitment to an income that cannot ever be outlived regardless of how long you or your spouse lives.
So if red money is exposed to upside and downside market risk, and green money has only upside potential with no risk, which one is better? It all depends. If you where to lose some most or all the money in a red account, would that have an effect on the quality of your life?
If you are at or near retirement should any of your money be in red money? Can you afford to lose any of your retirement funds? If the answer is no then you should consider the green money option.
With green money can also come a less stressful life, FIA offer that and more. Please contact me for additional information, maybe green money can benefit your future retirement.