Does Your Retirement Portfolio Include a Volatility Buffer?

{4 minutes to read}  So what exactly is a volatility buffer? A volatility buffer is a way for you to create an alternate asset class in your retirement portfolio that will allow you to avoid some of the problems of what is known as sequence of events risk. Sequence of events risk is, for instance, if you had your money invested in the S&P, over time, you would have done very well, but if you started retirement in let’s say 2008, you would have started off with two negative return years in a row. And if you were forced to withdraw out of that account for those two years, you would be in a position where you would’ve experienced a very significant loss, possibly half of your retirement portfolio, in just two years.

In a hypothetical example attached, a $2,000,000 portfolio, having two years of negative returns coupled with a withdrawal of $150,000 per year would bring that $2,000,000 portfolio down to about $1,000,000. If you continue down that path, at the end of 15 years, even though the account returned 11%, the portfolio would have been down to approximately $900,000.

Alternatively, if you withdrew from that account only in years following a positive return, and did not withdraw from the account when there was a negative return, instead of ending up in 15 years with only $900,000, you would end up with $3.3 million, $2.4 million more. Now granted, you would have withdrawn $500,000 less, and you would have needed income to be generated for retirement in those years following a negative year when you didn’t withdraw out of your investment account.

So now we come to what we call the volatility buffer — the account that may enable you to have income in the years that you don’t want to withdraw out of your investment account.

We believe that a volatility buffer can be a life insurance policy with cash value. Now why is that? Here are a few reasons:

1. The values in the life insurance grow without taxation.
2. In many states the values in the life insurance are creditor protected.
3. When we withdraw money out of the life insurance, if the policy is managed correctly, we can potentially withdraw that money without any income taxation.
4. On top of that, if the policy was purchased with a long-term care rider, that would enable you to protect yourself against even higher withdrawals during negative years by putting a claim on that life insurance policy when you cannot do two out of six activities of daily living.
5. The participating mutual dividend paying whole life policy is a non-correlated asset and will not move in the same direction as the stock and bond market.

So, a volatility buffer and good quality participating mutual life insurance, may make your retirement that much better. Take a look at the articles and the material attached and if you have any questions or want to learn more about how a volatility buffer may help you in your retirement, give us a call.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS.  Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.