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"Safe" Pockets Of Money Seniors Need More than One Place to Store Savings ROCKVILLE CENTRE, N.Y. - Remember your first piggybank? You kept adding and adding money, knowing that one day all those pennies, nickels and dimes would pay for something really important - like a new bike. As you grew up the reality of life set in, and that piggybank soon turned into savings accounts and college funds. Now that you're a senior, it's even trickier. You have to save for retirement, the grandkids and the unexpected - all at once. Regardless of those savings, no person over the age of 55 should be without "safe" pockets of money, according to Robert A. Sagar, president of The Senior Financial Center, Inc.® In fact, you need three such "pockets." "You should have one pocket for emergency money, one for intermediate money and one for long-term money," says Sagar. "Unfortunately, most people find it difficult to think about any other pocket other than the one their wallet is in." Sagar describes the emergency money pocket as liquid cash, accessible and ready when you need it. People are always thankful for this "pocket" when the unexpected happens. Think about the last time your car needed a major repair or a family emergency had you flying around the country. Did you have cash available to pay the mechanic or to buy your plane ticket and rent a car? If your answer is no, you already have a good idea of how important a pocket of emergency money is. The intermediate money pocket represents assets that are available to you within one-to-three years. This could be an investment CD or money market account. These assets don't usually earn a high rate of return, but they are "safe," meaning they should guarantee a return of principle. Any assets available to you from three-to-five years or more belong in the long-term money pocket. Some investment CDs and most bonds fall in this category. Long-term assets usually earn a slightly higher return than intermediate assets do. The catch is there are usually fees associated with early withdrawal. So when making long-term investments, make sure it's with money you won't need anytime soon. While the availability of your investments is important, so is the risk. According to Sagar, "safe money" investments are those that guarantee the principle and offer a reasonable rate of return. "In the past, banks were the safe money alternative," says Sagar. "However, with today's interest rates at a 40-year low and the average CD yielding below 2 percent, investors have been flocking to more modern alternatives." One of today's options is the fixed annuity. This build-up investment accumulates a fixed rate of return, typically around 4 percent. The fixed annuity is essentially a contract issued by a life insurance company. By giving a fixed amount of money you earn interest over time. Sales of fixed annuities grew by about 40 percent in both 2001 and 2002, according to the Financial Services Fact Book. Regardless of which "safe money" investment you choose, Sagar says to follow the Rule of 100, which says that the percentage of safe money investments should be equal to your age, with the remaining balance available for more risky investments. "If you are 30 years old, you should then have 30 percent of your assets in safe money and 70 percent in more risky vehicles," explains Sagar. "The ratio changes as you age, by the time you are 60, you should have 60 percent in safe money and the other 40 percent in more risky ventures." As seniors grow older, the preservation of assets should be their number one priority. If you are unsure of your financial portfolio or how to start filling those safe pockets of money, talk with an expert. A qualified financial advisor can help protect your assets and make the investments that are right for you. |
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