How old are you now? Your answer will direct you toward different decisions about the money you will need in the future.

The current Covid-19 driven mess is probably the catalyst many of us have been expecting for the past several years. Not because we’re wizards but because sooner or later, something would happen on the world stage sufficient to trigger chaos.

The age question relates to when you’re going to need the money accumulating, or simply parked, somewhere in an account with your name attached to it. If you won’t need it until years down the road, then you can probably ignore what’s happening now. Just know that if you live long enough, it will happen again.

For those of us who’ve been around the block a few times, It’s a similar panic but with a different trigger. Most of us have memories that include crashes, to some extent how long they last, and then the years that follow where we gleefully watch our money grow again.

We’ve been in a “watching our money grow” period for some time now. It was simply a matter of time before the bottom fell out. Some of us expected it several years ago, and as the years passed with no crash, knew that when it did happen, the bottom may be way lower than we’d like.

Where you are now on the age spectrum will suggest what you need to do. The closer you are to retirement, of if you’re now in retirement, the fear factor is greater, and justifiably so. Your ability to ignore the effects of this chaos is increasingly limited because you know you’ll need those funds to pay your bills next year. And if they shrink significantly, you’ve got a problem.

So what should you do? I have no idea the level of financial literacy you possess. If it’s not much, I hope you have access to help that can be trusted to help you make decisions that are in your best interest. There are many so called “advisors” out there, some through no fault of their own, who are not going to push you in the right direction. They’re going to push you in their direction, and assume you know what you’re doing. Or are not going to bother telling you about better options.

Each of us needs income every month to cover our non-discretionary expenses. What do I mean by that? We all need money for food, shelter, medical care, transportation, to communicate with others and pay our taxes. Depending on our circumstances, it may be a lot or it may be not much.

Whatever the case for you, those are your core expenses. In some form or fashion, you need money positioned such that those core expenses are covered every month, no matter what. Over time, and depending on your circumstances, those core expenses will tend to move up or down.

Keep in mind that for about 40% of retired Americans, a monthly Social Security check is their sole source of income. For them, their core expenses are driven by what’s available. For the rest of us, we may have enough coming in to give us discretionary income. We’ve covered our core expenses and have some left over to play with.

Some of you have heard of asset allocation. It’s an approach to making good investment choices by allocating your money across different asset classes such that the eventual outcome is more favorable to you. Since none of us can read tea leaves, it results in a mix of investments that have, in historical terms, a lower correlation with each other. That low correlation means that when some asset classes are going down, others are going up, and vice versa. The net effect is a bigger pile of money than if you decided to invest most of your money in the hottest choice today.

The older you get, the more you need to start paying attention to something else. It’s called income allocation. For the same reason asset allocation works if you’re accumulating money, income allocation works when you’re transitioning to retirement, or are already in retirement.

This is not the place for me to give you a detailed analysis of income allocation, except to say this. If you first identify your core income needs, then your money should be invested such that from various sources, you have sufficient money coming in to meet those needs. Done correctly, those needs will be met and you’ll have discretionary money left over.

Income allocation obviously includes Social Security benefits. But did you decide to sign up at 62 and commit yourself to a smaller monthly benefit for the rest of your life? Or did you find a way to keep working until your Full Retirement Age or beyond, and get a bigger check? Have you checked out funds from places like Vanguard and Fidelity for funds or ETFs focused on high dividend paying stocks? If you haven’t, you should do that. A significant erosion of accumulated funds can come from paying excessive fees for many years. That too is something to question.

And don’t forget annuities. They get a bad rap, mostly from those in the wealth management business who see them as existential threats to their ability to make money from you, never mind if they actually help you.

Annuities effectively transfer the risk of loss from investment risk to a third party, the insurance company behind the annuity. Sure, there are good ones and there are bad ones, but again, if you find someone you can trust to give advice that’s in your best interest, they can play an important role when it comes to monthly income to cover your core expenses.

I learned long ago that while the good times come to an end, so do the bad times. That’s an important thought to keep in mind as you navigate the current chaos and try to make good decisions, not just about your investments, but about a lot of things.

Tony Kendzior \ 5 MAR 2020