The #1 Financial Adjective Going Forward is Principal Conservation

The boomers are in shell shock. Succeeding generations take heed!

I’ve been living a monastic lifestyle. During the day I’ve been wearing a hoodie, a drywall mask and washing my hands so much my age spots seem like they’re going away. In the early days of this crisis the grocery chains were hit hard with hoarding. Some of my favorite meats and canned foods were gone. So, I thought this would be a good opportunity to lose some weight while fasting from my usual diet. It’s like practicing Lent on steroids.

I feel like a prisoner during my time in the hole. The last fifteen years I’ve volunteered in jails, state and federal prisons, meeting men and women whose behavior landed them isolation. While my isolation can’t possibly be compared to doing time in the hole, it has some similar aspects in this type of incarceration.

So, I’m hunkering down. I’m sheltering in place, and with the exception of going to the grocery store and my occasional drive through in the DQ, I’m separated from society like a hermit. During this time, my disposition hasn’t always been Norman Vincent Peal. I’ve been a bit crabby. So, my new moniker during my self-imposed home arrest has been the hermit crab.

Many of your prospects and clients are sitting at home in limbo right now with their finances foremost on their minds. Everyone is thinking of principal conservation. Especially the newly retired and soon to be retired baby boomers, who are sitting at home waiting for their 401(k) first quarter statements, knowing that it’s going to be bad...really bad. They’ve experienced so many market down turns from the October 1987 market crash, to the first three years of the Dotcom bubble bear markets of the new millennium (2000-2002), and the 2008 one two punch of the housing crash and market meltdown. For most boomers, early 2015 was the break-even year to get back to par. But later that year markets swooned, slowing principal recovery from the lost decade. In 2016 and through 2017, the markets went on a roll. Happy days were here again. The economy was epic. Then a bump in the road in 2018, a small market downturn. But from then to the end of the month of January 2020, the market was on fire, turning in historic highs and record setting numbers.

Suddenly, without warning, the global pandemic immediately threw the markets in turmoil, descending into bear territory in days, not weeks or months. All market gains since 2016 are gone and the mortality timeline for baby boomers are too short to recover losses like this. They’re going to have to live with it. And shelter what’s left in their portfolios in products that are safe. A couple of weeks ago, the talking heads on cable financial news actually recommended that seniors look to the junk bond yields and high yielding dividend stocks to supplement their retirement income. Not one mentioned the risk in their advice and not one mention of five-year fixed rate annuities paying 3.25 to 3.40%. Are they so partisan in their product recommendations that they won’t mention annuities because they’re manufactured by insurance companies?

For those that are really healthy and relatively young boomers, participating whole life could be an alternative if the policy is designed to maximize income. Tax free distributions from a TAMRA compliant designed policy may generate around 5%, better than most municipal bonds without the risk and are not included in the Social Security provisional income test for benefit taxation. A TAMRA compliant Indexed Universal Life designed for maximum income may be another option because of the hedge protection, if one can live with 5-6% net returns over a long period of time.

I had a small amount in the market to specifically deal with inflation. But the losses are so profound that those monies in the market cannot produce the principle lost over the time that I have left, much less act as an inflation hedge. Deferred income annuities or single premium deferred annuities with cost of living riders may be the new safe alternative to inflation protection instead of the market portfolio positions.

A warning for the succeeding generations: The paradigms of today are now the paradigms of the past. The Ibbotson Mountain chart is no longer a visual comfort in the future horizon of financial security. Time cannot correct multiple downturns, bear markets and a couple of black swan events. Did the boomers learn anything from their great depression parents? No, they did not. Will this younger generation learn the lessons from their baby boomer parents?

Steve is a syndicated financial columnist, talk show host and popular platform speaker. He is also a nationally recognized videographer, content creator and co-contributor to Advisys, InsMark and LifeSpecs. Steve’s videos and content are distributed to over 280 media outlets and 200,000 Twitter users. To contact him visit www.lifesizesolutions.com