Due to a variety of interests I often find myself on the 15 freeway back and forth to Utah for family visits, summer vacations, retrieving kids from BYU or rival football games. Sometimes I think I’ve spent a good portion of my life on the I-15 freeway.
Las Vegas is typically our first gas stop. I have never been a big Vegas fan, but who can say “No” to those cheap breakfast buffets? Years ago I had an experience at Circus Circus that I will never forget. I love to observe people and this trip proved to illustrate an important life lesson.
I was sitting on the sidelines watching the crowd after a delicious breakfast. A particular man caught my attention as he put coin after coin into a flickering slot machine. He seemed to be there for a long time. Notwithstanding, he kept reaching into his Big Gulp sized cup to put more and more money into the machine. Without winning anything but an occasional coin, he got to a certain point where it was unmistakable from his body language that he wanted to leave.
He wasn’t pulling the lever like he was before. His cadence slowed and he clearly seemed concerned obviously because of all of the money he had shoved into the machine. Restlessly, he shifted from side to side, looking around the room with long pauses almost begging to be rescued. I couldn’t read his mind, but he seemed to say, “I have dumped hundreds of dollars into this machine and if I leave now someone else is going to walk up and hit the jackpot.” And so there he stood continuing to load more and more coins into the machine until finally after several more listless minutes he got the courage to stop, ultimately walking away with nothing!
I see this same perplexing story play out everyday with seniors, although rather than a few coins their entire estates are often at risk. An early important step in working with client’s estates is to assess risk. Other than long-term care risk, most seniors face a high level of market risk, having their assets positioned in typical brokerage accounts, and/or variable annuities. Each of these financial instruments clearly lacks capital protection and yet, without fail, each of my clients tell me they want less risk, more safety and a measured degree of guarantees.
They instinctively recognize a need to change course, but have been unable to step away from the infamous slot machine. They experienced the downturns of 2000-2002 and in 2008, but haven’t to date been able to change course. They find themselves rooted in accumulation phase thinking when they should be using distribution and preservation tools. This is largely due to a lack of education regarding the viable safe money strategies available in the preservation phase, whereby seniors can achieve capital protection, but not have to settle for lack luster rates of return.
Remember the old investment maxim regarding risk? A person’s age minus 100 should reflect the percentage of assets one has at risk. This means a 70 year-old could have 30% of assets at risk. But this rule was forged when the average retiree only lived 5-10 years after retirement, whereas life expectancies today are in the mid 80’s, demanding assets last 20 or more years in retirement.
One of the main reasons market risk can be so devastating for a senior is that there is limited time to recover lost assets. For example, what happens if in the midst of trying to get back to even a spouse passes and assets are needed to replace lost income, or a partner experiences a long-term care event and capital is required for care. One begins to realize that a return of capital is more important than a return on capital, especially during these times of high market volatility.
I’ve sat with many seniors who lament not repositioning assets sooner, only to communicate regretful stories of assets lost because they couldn’t step away from the slot machine. With all the urgency I can gather, I urge you to become educated on the various strategies available to protect your estate. Let’s not forget that the tortoise won the race!