My Thoughts on the Coronavirus with David McKnight

the power of zero

The two single greatest threats to your retirement are tax rate risk and longevity risk. The Power of Zero paradigm is the unified approach to mitigating both of these risks.

As of March 9, 2020, the stock market is down 19% from its peak in February which has erased a lot of the returns from 2019.

The infections of the Coronavirus are doubling approximately every six days. Around mid-May that doubling interval should start to taper off. People over the age of 70 are at the most risk from serious complications. Everyone else practicing safe social distances and taking precautions will help.

There is a lot of panic in the media at the moment. The main concern of the federal government is that the number of infections will overwhelm the nation’s healthcare system. We are not going to avoid 90 million people getting infected, but the longer we can draw out the window of time we can give the US healthcare system the time to deal with the situation.

One of the biggest drags of your retirement, it’s not taxes or fees, it’s emotion. Investors left to their own devices make horrible decisions when it comes to stock market investing. Emotion-driven investments could knock about 3% of your expected portfolio returns.

The worst thing you can do is say “I know when the bottom of the market is, and I know when to get out and when to get back in.” You can’t predict the market, if you got out before the crash in 2008, you weren’t prescient, you were lucky.

Don’t panic. This situation highlights the importance of being able to guarantee your retirement income adjusted for inflation, so you don’t have to panic when the stock market goes up and down.

The money in your stock market portfolio should be earmarked to cover your discretionary lifestyle expenses. The LIRP can be a great compliment to your stock market portfolio to cover lifestyle expenses.

When you have your lifestyle guaranteed by a combination of social security, a pension, and a guaranteed lifetime income, you have the luxury of not having to worry about the stock market as much. If you are funding your lifestyle needs right now you are probably freaking out at the moment. A guaranteed lifetime income also allows you to take more risk in retirement.

If you are retiring now, the vast majority of your money that you are planning on spending has not been earned yet. You have to be able to take some risk in the stock market in order to earn returns that will allow you to properly fund your retirement.

The people relying on the 3% or 4% rule and the returns of the stock market to be able to pay for their lifestyle don’t have the luxury of enjoying their retirement. They have to be in hibernation mode in retirement and tend to be more stressed and die earlier.

For all intents and purposes, the guaranteed lifetime income becomes the bond portion of your portfolio. It allows you to invest the rest of your money in a more aggressive stock allocation which means your money lasts longer.

Do your part to stretch out the window of coronavirus infections so the healthcare system has more opportunity to deal with the situation. Don’t panic about the market. Studies have shown that panic will erode your returns. With a guaranteed lifetime income, you don’t have to worry about where your next paycheck is coming from.

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