How the Common Plan helps protect your financial future
If the recent swings in the stock market have you wondering how protected your retirement portfolio is today, here’s some news that may ease your mind: as a Partner Physician, your pension, often called ‘the Common Plan’ or the ‘Partnership Pay-out’, can work wonders at safeguarding your financial health—even during the wildest market volatility.
Though every Partner I know is aware of this valuable benefit, very few of those I speak to understand the role it plays in their investment strategy. Since the market rollercoaster began in the early days of January, many have asked me about the plan and its role in their financial big picture. Three of the most common questions I’ve heard are: “How should I plan for this big chunk of my savings?” “Should assets in the Common Plan be considered when deciding the asset allocation in my portfolio?” “And if so, how exactly should those assets be weighted?”
These are great questions, so be proud of yourself if you, too, are asking them. If you’re thinking about how your pension fits into your strategy, it means that you understand the importance of portfolio diversification and balancing high- and low-risk invested assets, and that you’re focused on the right things when it comes to building long-term financial wealth.
The best explanation of how a guaranteed pension should be strategically positioned in a retirement portfolio comes from one of America’s most legendary investors, John ‘Jack’ Bogle, the founder of Vanguard and inventor of the very first index mutual fund for investors. Bogle has suggested that the best way to view Social Security, sometimes referred to as a public pension, is like a bond that’s been bought and paid for. Bonds, of course, are considered an important safety net in any investment portfolio because they offer a fixed rate of interest that guarantees income in the future, regardless of the ups and downs of the stock market. Bogle goes on to suggest that guaranteed income provided by Social Security should be built into the investment strategy as part of the bond allocation.
Though there are certainly differences between Social Security and pensions (including a significant difference in value!), Bogle’s advice applies here as well. Your pension is similarly insulated from market risk, so it may be wise to view some or all of those assets as bonds when balancing risk in your portfolio. Because your ‘bonds bucket’ is pretty full, allocating more assets to higher-risk equities may offer you greater opportunity for growth—without giving up your retirement safety net. Note, too, that if you have a written financial plan from a CFP® (and I hope you do!), the assets in your Common Plan are probably already incorporated into your Retirement Cash Flow Projection, and even stress tested to help ensure you have the highest percentage chance of retiring when you choose, not when the market tells you that you can.
A volatile stock market can give any investor the jitters. Luckily, your pension puts safety on your side. Even so, the most important thing to do during any market downturn is to stick to your written financial plan. In more wise words from Jack Bogle, when the market tempts you to change your strategy, “Don’t do something, just stand there!”
Hopefully that answers your questions. If not, please reach out. I’m happy to walk you through the details and take a closer look at the potential impact of the current market on your retirement plan, including how your pension can help smooth the path ahead.