Planning for the Golden Years
By: Dustin Dinges
In our practice, one of our focuses is assisting retirees and those on the cusp of retirement through the intricate planning process for their golden years. As individuals start to draw on their hard-earned assets, they are often concerned about ensuring that these assets outlive them. The challenges are multifaceted, influenced by factors such as the size of one's nest egg, investment strategies and returns, and the balance of withdrawal to sustain a desired lifestyle in retirement. It is a task that, for many, evokes a sense of uncertainty and worry.
A pivotal strategy as you enter the withdrawal phase is maintaining a prudent amount in cash reserves. This serves the dual purpose of covering unforeseen emergencies and navigating the unpredictable waters of market volatility. The focus here lies on safety, accessibility, and, ideally, a respectable return on cash. For many years, the cash part of a portfolio has been a drag on overall performance due to persistently low interest rates, presenting unique challenges for retirees. The recent recalibration of interest rates that we’ve experienced since the onset of inflation has made cash more enticing. But, as with any financial decision, research is imperative and maximizing yield while protecting the principal and easy access to the funds are paramount. This brings us to the realm of online bank savings accounts.
Online banks, with their allure of higher interest rates on savings compared to their traditional brick-and-mortar counterparts, have emerged as attractive in this current rate environment. Our preferred evaluation method involves a comprehensive review of depositaccounts.com, offering a view of various online banks and their savings account yields. While we may lean towards those with a national footprint, even if the interest rates are marginally lower, the widening spread between online and brick-and-mortar banks becomes increasingly evident as interest rates climb. This heightened interest rate can significantly contribute to the overarching goal of securing the longevity of your assets throughout retirement.
Yet, as we navigate this landscape, a cautionary note is sounded. A recent Wall Street Journal article titled "When High-Yield Savings Accounts Come With an Asterisk" (February 25th, 2024) sheds light on a nuanced aspect of online banking. Some institutions offer new customers disparate rates compared to longer-tenured accounts. This revelation hits close to home for me, having utilized multiple online banks over the years, including Capital One, specifically mentioned in the article.
After reading this article, I was prompted to look closer at my Capital One account, revealing a discrepancy between the advertised rate on depositaccounts.com and the actual rate earned – a mere 0.30%. A lesson resonates here: while online banks can contribute significantly to your retirement success with attractive yields, an eye must be kept on your accounts. My affinity for online accounts remains steadfast, but the experience underscores the importance of monitoring the actual returns versus the advertised rates for new customers.
In my days of coaching baseball, we stressed doing the little things to give our team an advantage. In the retirement planning world, interest earned on cash may seem minuscule in the big picture, however, it can be the little things that can make retirement much more enjoyable.
Content reflects the personal opinions, viewpoints and analyses of Insight Asset Management employees providing such comments, and should not be regarded as a description of advisory services provided by the Insight Asset Management or performance returns of any clients of Insight Asset Management. The views and opinions reflected in the content are subject to change at any time without notice. The content speaks only as of the date indicated. Some information was obtained from external sources. The information is believed to be accurate, but there is no guarantee that it is. Panoramic Invesment Advisors and Insight Asset Management assumed no liability for its use. Nothing herein constitutes investment advice or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security, index or asset class and related performance data is not a recommendation to buy or sell. Insight Asset Management manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.