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Build a 3-layer structure to organize your retirement savings

October 28, 2019
Kirk Fricke, CLU®, CFP®
Kirk Fricke, CLU®, CFP®

You save and invest to build financial resources that will help you meet your life goals, including a comfortable, secure retirement. Yet investing itself can put those same financial resources at risk. Taking a three-layer approach to the structure of your money and investments can help provide essential liquidity, protect what is most important to you and still let you take advantage of market growth opportunities.


Market risk and the three-layer approach

No one knows whether the future will see the market go up, down or sideways. A downturn at the wrong moment can have a significant negative impact on your portfolio — which can translate to a large dent in your retirement nest egg and your retirement income. That’s particularly true if you need to sell investments at that down moment to cover expenses or meet a minimum distribution requirement.


To manage that risk — and help build a financially secure retirement — you should broadly diversify your money and investments to serve different roles within your plan. One approach is to build three layers into the structure of your portfolio: cash, secure income sources and growth assets.


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Layer 1: Cash

  • Gives you ready access to money when you need it — such as for unexpected expenses (think roof repairs or healthcare bills) or an upcoming major purchase (think a new home or vehicle).
  • Helps manage the risk of selling equities in a down market.
  • Recommendation: Have enough liquid cash reserves to cover from 6 months to 2 years of cash flow needs.


Layer 2: Secure Income Sources

  • Should provide enough retirement income to cover your essential expenses, allowing you more freedom to ride out market fluctuations in your growth investments.
  • May include Social Security, pension, rental income, annuity, bond portfolio and other forms of stable income.
  • Recommendation: Define what you consider essential expenses. This may include basics such as groceries, housing, healthcare and transportation. In addition, you may have other expenses that you consider essential, such as regular golf outings or visiting out-of-state loved ones. Compare your expense goals to known income sources to identify gaps. Work with your financial advisor to determine ways to fill the gaps.


Layer 3: Growth Assets

  • May include a variety of investment vehicles, including equities and bonds, that may carry higher risk, but also offer a potentially higher rate of return.
  • May act as a buffer against the possibility of inflation and offer “bonus” funds to cover non-essential wants-and-wishes expenses.
  • Recommendation: Target a total return of at least 6% for this layer of your portfolio.


Customize the layers

This three-layer approach can be an effective way to structure your money and investments to reach your goals, including enjoying a financially comfortable retirement. However, every person’s risk tolerance, investing viewpoint, goals, experiences and timelines are different. Those differences can shift the emphasis placed on any given layer, as well as the specific elements within the layer. If you’d like help developing a plan customized to your personal situation, please consult one of our experienced financial advisors. 

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Investing involves risk, including the possible loss of principal invested. Diversification and asset allocation do not guarantee better performance and cannot eliminate the risk of investment loss.


The information, views, opinions, and positions expressed by the author(s), presenter(s) and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.


This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.


Investment products and services, such as brokerage, advisory accounts, annuities, and insurance are offered through Hancock Whitney Investment Services, Inc., a registered broker/dealer, member FINRA/SIPC and an SEC-Registered Investment Advisor.


Hancock Whitney Bank offers other investment products, which may include asset management accounts as part of its Wealth Management Services. Hancock Whitney Bank and Hancock Whitney Investment Services Inc. are both wholly owned subsidiaries of Hancock Whitney Corporation.


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