"An investment in knowledge always pays the best interest." 

Ben Franklin - 1781


"Let us help you navigate the path to financial security"

CDC Insurance Service, Inc.

Eric S. Wallace
Eric is the founder of CDC Insurance Service, Inc. and has over 40 years of experience helping his clients achieve financial security. Eric and his family have lived in, and actively contributed, to the community of Morgan Hill for over 30 years.

He is past President and remains an active member of the
Morgan Hill Downtown Association, a member of the
Chamber of Commerce, a member in good standing of the Society of Certified Senior Advisors and an approved member
of the National Ethics Bureau.

Our Safe Money advisory team's mission is to create the ideal retirement, free of worry and stress, by putting our clients' retirement “nest egg” in a position to create wealth and work smarter, without exposure to unsuitable risks.

Contact Information:
25 West 4th Street,
Morgan hill, CA 95037

Office: (408) 779-0232 
Eric Wallace   CA Ins. License #0453306


The Three Phases of Retirement Management

In the very near future the first wave of baby boomers will begin their travels into retirement. Many of them will have more of an adventure than they’d bargained for. They need to address the three phases of retirement income management. Many of them will arrive at their retirement unprepared for what lies ahead.

Boomers had been focused on phase 1 of the retirement planning process, the accumulation phase, during which they’ve been working to grow assets for the future in many cases, with horrendous results. The depressed stock market erased many $ trillions in shareholder wealth in 2001/2002. And it has done it again in 2008/2009.

Whether they like it or not, boomers are about to move into phase 2, the preservation phase. This is when the 55+ group and retirees need to be most concerned with two things: 1) preventing lose of their principal, which will be needed to generate future ongoing income and growth, and 2) making appropriate planning decisions that will set the stage for phase 3, the distribution phase. Unfortunately, this may include working part time to bring in the additional income to continue to build savings.

Phase 3, the distribution phase, addresses the structuring and, in some cases, restructuring of invested assets to provide retirement income for life. In fact, statistics show the No. 1 concern among retirees is the fear of outliving their money. This is with good reason: Boomers can count on living longer in retirement than any previous generation, which makes keeping their principal intact and safe during the preservation and distribution phases of retirement income management an essential focus of their planning.

They will be more active because of longer life and that just costs more. Maintaining health in later years will also add to the expense column. These are some of the financial challenges in the second half of life,

Additional differences in the three phases?

The risk-tolerance must be different for phases 2 and 3 than they are for phase 1. Traditional risk/return profiles used in the accumulation phase are replaced by more moderate / conservative risk-tolerance profiles in phases 2 and 3, where for most retirees the new focus will be on the preservation of principal while generating income and some growth.

This means 55+ group and retirees can no longer take the same risks they did in those days before 2000 and 2001. The ability to recover the loss of savings determines how much risk one can sustain. So the key question to ask in the distribution phase of retirement is: “What percentage of my retirement nest egg can I afford to lose?” That brings up the question: “What financial strategies will meet my retirement goals as defined by my new risk tolerance?” In other words, what should I do now with my retirement funds?

Basic rule: Safety first

If you don’t have time to recoup the money and you can’t afford to lose it, then you simply cannot take the risk. Period.

Many of the 55+ group and retirees are somewhat well-read regarding money matters. Having said that, they are not realistic about how much income will be needed to maintain their lifestyles. What baby boomers and retirees may not be aware of are the financial tools that are available today to help reduce the potential loss of their accumulated principal.

You have to make it happen!

The key question is how your assets can be positioned In the preservation phase. The way you structure your retirement assets can have a huge impact on the upcoming distribution phase. You need to protect your money from being eroded by extreme market risk or avoidable taxes. What you need at this stage are investment choices that can still provide growth and defer taxes while preserving your hard-earned accumulated principal. In addition, you will need a thorough understanding of how your phase 2 investment choices will affect your ability to withdraw enough income, when needed, over time to maintain your lifestyle.

The exact time to do this varies, but you should begin looking at the preservation and distribution phases of retirement income planning around age 50 +. Begin by reviewing current investments and comparing them to your current risk-tolerance profile and future lifestyle needs. Planning for the distribution phase of retirement almost always requires that some of your accumulated principal be placed in a program that has a guaranteed principal component.


Risk and Reward are Traveling Companions

The “Immutable Law of Investing” is: “Risk and reward are traveling companions”.  Schemes promising to double your money rapidly can also erase your money quickly.  The promise of a 12% return in today’s market also has a high probability of loss. The only exceptions are savings and investments products with guarantees – a very short list.  Yet, investors constantly search for exceptions to this “Immutable Law of Investing”.

There are numerous “kinds of risk” that investors face.  The most common faced are: (a) interest rate risk and (b) market risk.  Of course there is also the risk of insolvency (corporate bonds), liquidity (real estate), currency exchange (off-shore investments), sovereignty (bonds of foreign governments), inflation (purchasing power), legislation (tax law changes) and numerous others. But, let’s limit this discussion to the most common: interest rate and market.

Market risk is perhaps the best understood and most commonly associated with stocks or other investments that can vary in price.  Regardless of the “professional recommendation” or past performance, there is no “absolute safety” when purchasing investments whose price can fluctuate.  American business icons have failed and investments in them made worthless because of fraud, mismanagement, terrorism, class action lawsuits, product liability, government investigations, rapid technological changes, weather, and countless other causes not foreseen by “experts” or anticipated by stockholders. Granted, “blue chip” stocks are not as risky as “penny stock”, but there have been spectacular, and unanticipated, failures of “blue chip” companies.  If an investment can wax and wane in value, then it has market risk and the saying “caveat emptor” (buyer beware) is appropriate.  Your retirement nest eggs in stocks, bonds, mutual funds, variable annuities, real estate and general securities are exposed to market risk and losses can, and may, occur.  Only if you can “afford the risk” should you “assume the risk” because there is a safer alternative.

  Interest rate risk is encountered daily but understood by few.  This risk exposes even gilt-edged securities like U. S. Government Bonds to massive losses. For example, a 30-year Treasury bond paying 5% interest is purchased today at par (face value at maturity).  Interest of 5% will be paid every year and at the maturity in 30 years the principal amount will be repaid.  But, what happens if interest rates on similar bonds rise to 10%?  Every interest payment on the 5% bond is below market because now it would take only one-half the investment to earn the same amount of money.  Or, put another way, if you sold the 5% bond, a buyer would offer you only one-half what you paid for it.  Regardless if you hold or sell, you have lost opportunity or a loss.  The cautious, but uninformed, investor may (a) buy only short term bonds (or bank CDs) with low interest rates, (b) buy only when interest rates are at the peak (is this possible?), or (c) avoid fixed-rate investments if selling early might be needed (medical emergency or need for liquidity).  Again, there is a better alternative that offers safety. 

How about putting your money where it is guaranteed to only go up in value, will participate in market gains as they occur and avoid market declines if they happen, will avoid current income taxes on earnings, has no brokerage fees or other charges, has liquidity for emergencies, and is guaranteed by a global company with decades of operational stability and integrity?  I’m speaking, of course, about equity-linked fixed annuities.  There’s no market or interest rate risk, and they’re guaranteed by some of the largest, oldest and financially strongest insurance companies in the world that have survived wars, changes in governments, depressions, technological advances and virtually every shock that could occur.  Granted these annuities are not for those that want to take risk, enjoy the thrill of seeing the value of their money go up and down like a yo-yo, and are willing to lose it all in hopes of doubling their money overnight.  Equity-linked fixed annuities were designed for long-term savers that are building, or guarding, nest eggs for retirement and do not want, and cannot afford, to risk a diminished lifestyle after decades of working.  The exception to the “Immutable Law of Investing” is:  Equity-Linked Fixed Annuities, commonly known as Equity Index Annuities or just EIAs.  I told you it was a short list.

Shelby J. Smith, Ph.D.

© 2019 cdcinsuranceservice.com, Inc. All Rights Reserved.