Getting Close To Retirement? Opportunity is Knocking...Open the Door!

Filbrandt & Company
Nov 06, 2019

A Message From the Chairman

Close to Retirement

Many years ago, twelve to be exact, I was meeting with a sixty five year old University professor in her office and she was telling me about her plans to retire within the next year. This was our first meeting and she was telling me about her family and financial situation. She was very successful in her field of endeavor, but confessed that she had little interest in money – much less investments. As a result, her university retirement plan was going to be her only source of income after she retired.

She had many questions about the transition into retirement, including whether or not I thought she had accumulated enough money in her retirement plan and how to access the money when her salary ended. What was piquing my curiosity however were the questions she was not asking. So, I posed a question to her, “Have you ever invested in the stock market?” Without hesitation she sat straight up in her chair and said “Absolutely not! I do not understand the stock market and it scares me to death!”

I looked down at the retirement plan annual statement that she had given me to review and I could not believe what I saw. She was a bit surprised when I asked her to tell me her name again and verify that the statement I was holding was hers. Indeed, her name matched the name on the retirement statement. It was hers; a nice round sum total of more than $1.5 million dollars. Sensing some concern on my part she asked, “What’s the matter? What did I do wrong?” I replied, ”Absolutely nothing. But….you do understand that your entire retirement plan is invested in the Cref Stock Fund which consists of hundreds of individual stocks, don’t you?” “Well, sure I know that. But Cref is different. It’s really not stock,” she exclaimed. “Is it?”

Long story short, after more discussion about the unintended risk in her portfolio she sold 50% of The Cref Stock Fund and put the proceeds into an account that pays her a minimum rate of interest each year and guarantees the principle balance as well. Little did we know that the stock market was going to plunge by more than 50% in 2008-09, a little over a year ahead when she would retire. The Cref Stock Fund did not escape the downturn in the market and it too plunged almost 53%. Twelve years later she remains a satisfied client, with the peace of mind knowing that her investments are arranged to provide income for as long as she lives. Her income in retirement would have been substantially reduced had she not sold the $750,000 of Cref Stock Fund.

An extreme example? Not really. Successful university professionals are very passionate and focused on what they do. They immerse themselves into their work twenty-four seven and don’t really think too much about retirement, much less their investments. Why retire when you love your work and you have tenure? But, the day will come when you part ways from the university. If you think that the stock market will be up on the day you retire so you can sell your stock funds at a profit to provide income, you are making a big mistake. Stocks don’t care about when you are going to retire.

All we know for sure is that stock prices go up and down. For the last dozen years the stock market has been going up and has recently reached all-time highs. We also know that academics do a great job of accumulating money in their retirement plan, but rarely sell their investments unless they have to ( i.e. to provide cash for income) or when the market goes down and fear strikes. These are the very worst times to sell.

Stocks are up. Real estate is up. Bonds are up. Everything is up. If you are within one to five years of leaving the university and your guaranteed salary behind, then this is a wake-up call that you should heed. If you have been in stock funds for the last twelve years you have undoubtedly made money. Now is a great time to have your retirement plan investments reviewed by a fiduciary adviser. The peace of mind that you will get will make the process well worth the effort!

Michael J. Filbrandt, CLU, ChFC
Chairman of the Board


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