Retirement Roadmap

Playing It Too Safe in Retirement Can Be Dangerous

• Mark Fricks • Season 4 • Episode 1

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Retirement planning isn’t just about avoiding risk — it’s about understanding which risks actually matter.
For many retirees and near-retirees, playing it “too safe” can quietly become one of the biggest threats to long-term financial security.

In this episode of Retirement Roadmap with Master Plan Retirement Consultants, Evan and retirement planner Mark Fricks discuss why overly conservative portfolios can struggle to keep up with inflation, how emotional reactions to market downturns can lead to missed recoveries, and how proper diversification and income planning can help your retirement last decades — not just years.

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Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

SPEAKER_00:

All matters discussed during this show are for informational purposes of each individual situation there. The materials expressed here may not apply to everyone. Materials presented from reliable sources, but no representations can be made as to its doctors. All my deeds of information should be discussed in detail for all five representatives prior to implementation. Advisory services offered by Master Plan Retirement Consultants, a registered investment advisor in the state of Georgia. Mark Fricks and Master Plan Retirement Consultants are not affiliated with or endorsed by the Social Security Administration or any other government agency.

SPEAKER_01:

Are you playing it too safe in retirement? Hey folks, welcome back and thank you for joining us. Welcome to Master Plan Retirement's Retirement Roadmap. My name is Evan. With me as always, retirement planner Mark Fricks. During this episode, we're going to discuss why playing it safe isn't always the right move, even during retirement. Mark, we see um all sorts of people come in with all sorts of histories financially. Um but especially these days, we're seeing a push in ultra-conservatism on um the financial front for uh for accounts and things like that and investments.

SPEAKER_03:

Yeah, a lot of people m folks don't even know what their risk tolerance is. Right. And they also don't know really where they're positioned. You know, they just they just kind of pick things or maybe they are told by a coworker, pick this in your 401k. Uh so there's just a uh a wide uh range of folks that are just in position wrong based on their age, based on, you know, there is some emotion, but you need to get past some of the emotion if you're have a long-term horizon ahead of you.

SPEAKER_01:

Absolutely. I mean, recent financial pressures, tariffs, inflation, market volatility, we understand they're causing many near retirees to become more conservative with their investments. Completely understandable as retirees aim to protect savings intended to last decades. However, we see that that can be counterintuitive when you're looking at making your money last your entire life.

SPEAKER_03:

Well, we we kind of saw a big example of that in 2008. Right. Uh people that came in to us after 2008 because many of them had lost so much money. And maybe they're in their 30s and 40s, but still uh they'd they'd we'd have people come in 20 years later still sitting in cash because they just got their heads blown off with 2008 and really emotionally never recovered. You know, and and people that either stayed the course or if if they're close to retirement like our folks, we will make moves very quickly. But you gotta understand where you're at in time, where you're at in in retirement, things of that nature, and not let the headlines drive your emotions.

SPEAKER_01:

Well, and people don't often see it that way, too, as being overly conservative can be harmful, especially during periods of market recovery. Um they don't really understand that. I mean, we have had more than one person come through our office who uh in 2008 moved to everything. You know, they the the huge drop, they're like, you know what, I'm moving to cash, I'm staying there. Um and left it there. And you know, we'll talk to them and be like, well, it's been here in cash since then, and um, you know, it's still grown, but nowhere near what it could have been.

SPEAKER_03:

Yeah. Uh bond rates and and savings account rates have been so low, they've been earning one to two percent over the last however many years, and a lot of those folks have gotten back into the market now. This is just an example, of course. Uh but COVID maybe triggered a lot of people, and by the way, the year of COVID, the market dropped over 20 percent, uh, the SP, but we made money that year. Yeah. So if we just left it alone, I know it was they were there were weird times, uh something that had not happened in our lifetime for sure. Um, so I can see how people would react. But again, I think that's where people like us come into play, we can um kind of pull them back off the cliff, so to speak.

SPEAKER_01:

Yeah. I have some numbers I want to share about that, but uh it's that now that you mentioned that, I I don't know. I haven't looked at the actual number of clients we have at this point, but it's a lot. Um and even during this past kind of rocky part at the end of last year, um was it end of 2024?

SPEAKER_03:

A little bit of both the election last year, end of twenty-four, yeah. When now we're back in the new year, uh, but also during the tariff talk, uh the initial tariff talk, early 2024.

SPEAKER_01:

I can think of two clients that reached out to us out of our whole client, you know, of saying I just I just got I need to I need from my own.

SPEAKER_03:

They've been educated.

SPEAKER_01:

Right, right. Like they they have whether it's um seeing the news headlines that are just made to worry make you worry or and and freak out. And um but yeah, I mean uh we try to educate our clients so they understand why they're positioned certain ways, um, and that uh your retirement plan can survive a market uh market downturn, and that's the whole point of making sure that we have that longevity there. Um so a little bit about um these numbers I want to present a few numbers here. So investors who moved to cash during past down tur downturns 2008, um early COVID-19, 2022, okay, so they missed significant rebounds. Five hundred and forty-eight percent total return from two thousand eight to twenty twenty-five, so that's eleven point two two percent annual return. Five hundred and forty-eight percent total return from two thousand eight to twenty twenty-five, surpassing inflation. We'll talk about that in a minute, fueling a decade-plus bull market until twenty twenty with substantial gains in subsequent years, demonstrating consistent, powerful recoveries from major downturns like the 2008s, which was a negative 50 percent SP in 2008. So we saw that hit. A lot of people felt it. Um but if you had just stayed the course, that's 548 percent total return. I mean, uh one of these people I was talking about who stayed in cash without giving up too uh too much information about them, um, they still ended up with half a million in their 401k. Just imagine what it would have been. But double that. It was unreal. So I mean it's it's we need the conservatism. We'll talk a little bit about strategies. We need conservatism in certain buckets, certain um areas of our fan finances of depending on need, and we'll talk about those specifics in a bit. But overly conservative portfolios, um they won't recover the same way, but they also may fail to keep up with inflation. So that's increasing your longevity risk, which means um outliving your money. So take a simple example. If you start with$100,000 and inflation sits at 3%, after$25 years, that same$100,000 only buys about$47,760 worth of goods and services. So$25 years,$100,000, the purchasing power is now down to$47,000. You've lost more than half of your purchasing power. And that's just at 3%. Right.

SPEAKER_03:

Which we believe inflation is higher than that. Uh there are numbers truer than what the government represents. But yeah, again, it's it's it's they feel safe. My money's safe, it's protected, it's FDIC insured, it's whatever, and yet you technically are losing money every day you leave it in that cash position. We need some in cash. Um I think where people have have kind of gotten messed up a little bit is that they've gotten used to all their money being in this big 401k and it's all there. And what I mean by that is is when we take money, uh, we take it and we divide it into various buckets, each with a different uh philosophy or each with a different uh type of investment uh parameters. Um and and so each one of them performs differently in different markets. Um and so that's why overall, and you can't do that with one big 401k. Right. I mean you you've got a hundred funds and and you can you could try to maneuver around some of those and some may might make more money than others in certain areas, but do you have a precious metals area? Do you have a uh can you put a 401k in into a rental house? No. You can do an IRA that way. So there's so many things you're missing, but mostly just being able to have specific jobs. As we tell folks, you know, when you're 20, 30, 40 years old, uh your job in your 401k is to grow, you know, so you won't, like you're talking about, be be more aggressive. Uh you're putting new money in. So even if your funds are down, you're getting more shares for the dollar, right? So just, you know, you're almost better. Now we do manage 401ks, we manage throw savings plans, and so that gives them a little bit better return. But even if you don't do that, you're better to set it, get a nice little mix, and leave it alone.

SPEAKER_01:

Yeah. I mean, also another point. Many portfolios will drift conservative unintentionally due to the the set it and forget it allocation or lack of ongoing review, um, which is we see that uh we again, um let's take the TSP for example. Um and this isn't quite a set it and forget it sort of situation, but um a lot I think they still do it. When federal employees are first employed by the federal government, um their TSP is completely 100 percent allocated to the G Fund, which is just government bonds. It's basically their cash position as calls you can do through it. Correct. Yeah, and if they're not taught that, then we've seen people go years in a cash position.

SPEAKER_03:

I've had government workers come up and say, you know, I went to your class, I I went back and checked my TSP. I've been with the government ten years, I've been in G fund from day one. Because I didn't know. I had no idea I was supposed to go in there and change it, or I had better choices, or whatever. I just thought that's what you went into. And they've lost down on a lot of earnings. I've had so many people say, Where were you guys 10 years ago? And well, actually, we were right here.

SPEAKER_01:

So You know, that's actually a good point. Let's pause for a moment. I would like to direct our listeners and our viewers to our website, masterplanretire.com. There you can schedule your complimentary consultation. Um it's a simple one-click directly to our calendar, find a time that works best for you. Um these consultations are an opportunity for you to discuss your own retirement, your hopes, your dreams, your fears, your concerns. Um, the first meeting is just a conversation, really. We get information from you, and then all the homework is on our on our end of the table. We run a series of reports, um, basically a 10,000-foot view of your own retirement, what happens without any planning, just where we are today, what happens when we put the key in that retirement ignition and turn it on, how long does our money last? Um, where are our problems? Where are our strengths? Let's stress test that retirement a little bit and see areas that need improvement, things like that. All that's completely complimentary. Uh masterplanretire.com or give us a call at the office 770-980-9262.

SPEAKER_03:

And let me just say those reports will probably surprise all the folks a good bit. I mean, I've had a few people come in and they've got their spreadsheets and they're like, hey, I'm never going to run out of money. And I say, how much inflation rate did you apply? Oh, I didn't apply any inflation. Uh have you looked at what happens if taxes go up? If, you know, and we start putting all these what ifs, and they're like, no, no, no, no, no. And so really they're very accurate, and uh it's not to plan or make recommendations, as you know, Evan, it is to illuminate. Let's find out what is there so that we can then address it.

SPEAKER_01:

Yeah, yeah. Um I do want to backtrack a little bit just because I think these numbers, it's good to hear the actual numbers. Um, you know, when I did mention about the inflation rate at 3%, um if you$100,000 over 25 years with 3% inflation rate only buys about$47,000 worth of goods and services in 25 years, but we've already talked about we think inflation is a little bit more than that. Now think about periods um like the years following the pandemic when inflation hit around 8%. Now I know that was just one year. Life is not linear like this, but let's look at that 8% environment. Over the same time horizon, 25 years, you lose about 85 percent of your purchasing power. That's the kind of erosion that we're talking about that can make a well even a well-planned retirement um start to feel uncertain.

SPEAKER_03:

Which is again why you have to keep your investments uh correctly uh allocated to take advantage of the markets, uh what they're giving us. Uh again, uh we have a portfolio, and I'm not going to discuss specific portfolios, but it's a conservative portfolio that's designed to make money in any kind of market. And it's done extraordinarily well from a standpoint of not being in the negative over the last 25 years. You know, so if I can get a nice something, that's just a pocket of money though. I'm just saying that's my steady piece of my investments. But then over here I can take some risk, I can take off a little bit and things like that. So again, it's not um i you know, I said this earlier, it's probably wasn't a great thing to say, but even if you have a 401k at work, you should be working with someone that can help you reallocate that at least once a year. Because like Evan said earlier, you've got a drift. Uh, you know, if if bonds do really well, suddenly your 60-40 allocation, I'm being very simple here, right? 60 percent stocks, 40 percent bonds, all of a sudden now it's 50-50.

SPEAKER_02:

Yeah.

SPEAKER_03:

You've drifted to a more conservative position. If you don't fix that, it's it it's you're gonna be getting less return than you should be getting.

SPEAKER_02:

Right.

SPEAKER_03:

Uh so again, it it even if you set and forget it, again, that's probably the the best worst case you can do. Okay. So if you're going to mess it up, leave it alone, but at least you know, maybe if you can get some help and you got somebody that knows what they're doing to reallocate that once a year and let us see uh where we've drifted, what needs to be picked up, maybe you need a little bit more, maybe they've introduced some new funds in your 401k, right? Things like that. I know the thrust savings plan has opened up a window of additional funds you can purchase. Um you've got to keep an eye on that more than probably a lot of folks are.

SPEAKER_01:

Yeah, and like really simply put, you know, bonds are great for stability, uh, where whereas stocks are really great for growth, um, and a balance between the two when Mark says 60-40 is typically 60% equity um stocks, things like that, and then um 40% bonds, uh when that gets out of line, it can if it's not in line with your retirement horizon and your risk profile, it can drastically affect um the performance of that portfolio and your needs and whether or not it's fulfilling the goals that you've set forth for yourself financially. For instance, um$100,000 over 20 years, if that's all in bonds over 20 years, it gets to$185,000 in 20 years. Uh guess how much it does in stock over 20 years,$100,000.

SPEAKER_03:

Uh let's say$525.

SPEAKER_01:

A little low.$144,000,$844,000. That's amazing. Yeah. So yeah, that's great. And we I'm not talking trash on bonds by any means because we need diversity. We need some safety, we need some income, and there are a lot of other vehicles for income, we'll talk about that. Um but if you're not properly allocated for yourself and your specific needs, you can miss out on a lot of growth.

SPEAKER_03:

Yeah. Again, just uh pay attention to it. That's the biggest thing. And you know, you also don't want to get too far the other way. I know that the title of today's episode is about being, you know, not being aggressive enough. Um but you know, I've got several people that come in uh and talk about Bitcoin and cryptocurrency. And and I tell people that should not be your retirement fund, that should be your penny stock fund. I can throw some dollars over here because uh we don't know where that's going. I read an article this morning that was talking a very um legitimate economist saying the reason he doesn't believe in Bitcoin and he can't he cannot find uh to his knowledge a legit a legitimate purpose or legitimate purchase of something using Bitcoin. Now I don't know if that's true or not, okay? I know for a while you could go buy a car with Bitcoin and things like that. I've not heard as much about that lately. I guess because it's so volatile. How can you buy something when it's worth something different from the time you get to step on the lot to the time you make the purchase, right? Um but he says it's he's not finding legitimate purchases, mostly it's people gathering it up, making money, and turning it in for cash.

SPEAKER_02:

Yeah.

SPEAKER_03:

So what role does that play? I don't know. We have a lot of regulation coming, I think, on it as well. I think that might drive the price down. This is not a Bitcoin show. I'm just saying that if you've got all your money going into Bitcoin, you may be being much too aggressive because if that fails or if that pulls back greatly, then you've you've shot your one shot and you may not be retired.

SPEAKER_01:

That's absolutely right. Um yeah, yeah, please don't put all your eggs in that basket, especially. But um any basket, yes, any basket. But some some warning signs, okay, of poor diversification uh would include if you own fewer than 10 stocks, um heavily weighting in one asset class, weight as in heaviness, weighting in one asset class. Um overreaction to single company news, we saw NVIDIA news over the past few months, but they're still doing well. But you know, did really well, but then they pull back a good back and then back again. So um if you are overreacting to uh single company news, you might be a little bit uh overexposed uh and have not have enough diversification.

SPEAKER_03:

And let me say this with that again, if you get some extra money you want to throw into one particular stock, that's fine. Don't it be a majority part of your your retirement? I know for many years uh larger corporations even required 401ks that 25% of your money or whatever it might be go into their company stock. And all of a sudden you're sitting there with 25-30 percent of your stock position in your 401k was in your company. Well, that sounds great until you work for Enron or or somebody, you know, or whatever. I mean, there's so many big companies that are no longer there anymore. Uh the Dow Jones turns over every 25 to 30 years. Go back 50 years and see how many companies were in the Dow Jones that are not there today. Okay, so you may say, hey, they've been around forever. No, don't think so. Uh so be careful with that. Uh, you know, right now Amazon seems like a a magical unicorn type thing that's never going to go away. Is it Jeff Bezos? Is he the Amazon guy? Yeah. He himself said a company's strong position is about 30 years old. How old is Amazon?

SPEAKER_01:

Yeah, and they're also not cheap stocks either. Well, that that as well. So if you're buying it now, it makes you a lot of things.

SPEAKER_03:

You're not getting a lot and you're buying probably maybe high, maybe not. It may double in the next 10 years. I don't know. But that's why you don't position all, like your great point, all in one or two or three positions just because they are the uh flavor of the month.

SPEAKER_01:

Yeah. And other couple of the other things to keep in mind, no overlapping funds, especially in your 401k, if you don't know what these mutual funds are, you just see Admiral shares and Vanguard so-and-so and American funds, you don't really know what they're in. You could basically be holding all these. Buying the same stocks. You never know. That's um, I know you're buying some of the same stocks. Some of the same, absolutely. Um international exposure is important if you don't have any international exposure in your exposure in your portfolio. Um that might show that you could use a little bit more diversification or concentration in only one sector. These are all things just to consider uh on your own diversification. Let's explain sector real quick. Yeah, great.

SPEAKER_03:

That's a great point. Um so what we mean by sector is if you m if a lot of your holdings are in technology, technology is a sector, uh a grouping of like-minded stocks. Healthcare is a sector, uh, real estate is a sector. So uh, you know, that's a lot of real estate agents that are really heavy in real estate because they own rental houses. And I warned them, and I can get in 2008 through 2011, a lot of those houses were lost, and they were totally I've got a I've got an acquaintance, he lost 28 rental houses during that time period, which was basically everything he had. And he had to start over. So whatever it is you're in, I I can see being in real estate or any other kind of industry, you know that industry, therefore you felt like, hey, I see where it's going, I'm gonna make money. If I work for a tech company, I'm probably got my mind more on tech stocks. And so be careful with that as well because there are more places to make money and industries change, times change.

SPEAKER_01:

To transition that from the need for diversification to what it uh how it applies to an entire Retirement plan. One thing that does help is making sure you have a withdrawal strategy. Now we've discussed this before, but in retirement you need those holdings to start transitioning into funding for your life, into income. So as putting in place a withdrawal strategy can help balance confidence and growth by covering essential expenses basically and leaving remaining assets to invested to do their thing. So you create your withdrawal strategy with certain accounts, with certain things you need, whereas with the others you can be much more aggressive or diversified and things like that because you know where your money's coming from. Really all I'm talking about is creating an income plan before anything else.

SPEAKER_03:

Yeah, your your total uh horizon, not horizon, but your total aim changes from accumulation to bringing money out or decumulation. Yeah. We've never decided if that's a real word or not, but deaccumulation of money coming out. But if you can section that off and say, oh here, here's my deaccumulation accounts, my income accounts. Uh but I still need some growth. Yeah. You know, because those income accounts uh may or may not be keeping up with inflation. So I come over here and I've got three or four or six or eight portfolios that are making money in different parts of the market. And that's a balanced strategy. I've got my income taken care of. I don't wake up every morning wondering what the market's going to do because my income's coming from a large cap growth fund or whatever it may be. And so it just gives peace of mind. It allows us to create an income plan that is everlasting or lasting as long as that person does. Yeah.

SPEAKER_01:

I recently heard that referred to as the flooring approach, and I haven't heard that before. Um but that's exactly right. It creates a guaranteed income base to cover monthly essentials, the have to money, allowing other assets to stay growth focused. Um and then you've already mentioned the bucket strategy, which we've had episodes on before. Um retirement assets are basically split into short-term, which is one to four years, medium five to ten, and long-term, ten to thirty, all different buckets, each with different risk levels, each different tools with different jobs. So we can be riskier in those long-term growth ten-year buckets. And we should be, we should have those buckets allocated for that long-term purpose. But we're okay with that because we have our short short-term buckets for immediate needs, midterm buckets as well.

SPEAKER_03:

Yeah, we tell clients on the on their long-term buckets when the markets are shaky, just close your eyes. Because it's a long-term bucket. We're not touching it, we don't think. I mean it's it's liquid, but our plan is not to touch it for the next 10 to 20 years or whatever that time limit or timeline might be on that account. That's right. And so we're gonna see greater volatility, you know. So I've I've got a couple of clients that if they see a drop in a one-month period, they'll call me. You know, I'm down two percent this month. What's going on? Okay, that's your tenure bucket. It's up twelve percent for the year, so let's let's not worry about it. Leave it alone. Uh, you've got other buckets that are making money short-term type of thing. So again, it's uh a little bit of a change of mentality. I think that's why we spend so much time educating through our classes, through our meetings with our clients, is to kind of change that paradigm from one of gathering to one of harvesting.

SPEAKER_01:

Yeah, and there's also a uh a timing the market mentality for a lot of people that we meet, especially if they've done their own investing or chosen, you know, their own fundings and their 401ks or whatever. And um that's that's also that's what article like you I hate the term, but uh um investment porn. Investment pornography. It's like that's all what that's about. It's like did you get this stock at the right time? Now is the time, all this other stuff. And we just if you remember one thing, remember it's not timing the market, it's time in the market. And it's just that consistent long-term growth, um, compounding interest, uh, and not the next best stock and making sure that you pick up that huge gain.

SPEAKER_03:

And we've got some uh we probably should have brought into this episode, we've got some numbers that show if you miss the eight eight days in the market.

SPEAKER_02:

Yeah.

SPEAKER_03:

The best eight days, what your return is like half of what it should have been. If you miss the two best days in the market or whatever. And that can happen very easily, again, if you're moving in and out of things because, oh, I saw an article, um, or whatever type of thing. So again, that's emotional investing. Uh, and I love the phrase time in the market as opposed to timing the market.

SPEAKER_01:

Well, folks, that's it for today. Remember, check out our website, masterplanretired.com, to schedule your complimentary consultation uh and call us at the office 770-980-9262.

SPEAKER_03:

Lots of resources on that, uh, masterplanretired.com. Hope you'll visit it. Uh but until we see each other again, remember plan well and prosper.