Money Matter$

You’ve worked hard for years and saved money along the way, but how do you take those retirement savings and turn them into retirement income that will last for 30 years or more?

Should you consider taking Social Security early to cover financial hardships caused by COVID-19? Make these crucial considerations first.

We had a client commit $10,000 to try out our Long/Short CEF-Arb strategy on March 28, 2016. One year later, on March 31st, their account was valued at $11,315—up over 13%, after fees. The biggest swoon the account experienced was a drop of 2.9% in October. That compares to the S&P 500, which saw a 17% return in the same 12-month timeframe, but experienced a drop of 6% in June. This is what the investment world would call a good upside/downside ratio. We captured 76% of the market’s move up, but only 48% of the move down. A golden goose? Almost!

During a recent conversation about how to invest her portfolio, while looking at our model portfolio offerings, a client remarked about our Closed-End Fund (CEF) Arbitrage model: “Well this one appears to have the best potential for higher returns, without taking on any more risk than the ‘Conservative’ model. Why wouldn’t everyone choose CEF-Arb?”

The “safest sounding” decision would be to convert your retirement savings into lifetime income by purchasing an immediate annuity that guarantees you monthly payments for as long as you live. While that may feel “safe”, we need to consider the hidden “risks” of such a product. First, immediate annuities don’t often include an annual cost-of-living increase. Second, you undertake risk that the insurance company can’t fulfill their promise (AIG on the verge of collapse in 2008?). Most importantly—you lose your flexibility, and your principal; there will be no money for your heirs. That is one HUGE, irreversible decision: to hand over your nest egg to an insurance company for the promise of lifetime income.

A common question we are asked from those finally reaching retirement is which payout option do I choose? The options usually include lump sum payout, lifetime income or term certain. A lump sum payout is fairly easy to understand … you are paid a lump sum and sent out the door. But now what do you do with it? If you don’t move it to an IRA, be prepared for a huge tax consequence. If you move it to an IRA, how will you invest it?