Helping Advisors Narrow Retirement Gaps With … Cash

With inflation residing at 40-year highs, advisors are facing fresh challenges serving clients nearing or in retirement. Compounding those woes for investable assets is the fact that short-term interest rates continue to rise – the Fed’s only tool to tamp hot inflation – which has roiled stock indices and have crimped bond performance throughout the year. 

As of November 28, the Bloomberg US Aggregate Bond Index is saddled with a double-digit year-to-date loss, around -13%, indicating high-quality government bonds aren’t buffering clients from turbulent equity markets nor are those bonds providing adequate refuge from inflation.

Obviously, this is problematic because the conventional wisdom in the financial advice business is that as clients age, their exposure to bonds should increase while equity allocations should be trimmed. In 2022, that’s been a difficult task, but a familiar, yet unlikely, asset could help: Cash. Cash is one asset benefiting from rising interest rates and solutions made for advisors and their high-net-worth (HNW) clients, such as FICA For Advisors (FICA) by StoneCastle, offers advisors effective solutions for helping to narrow retirement gaps in a turbulent market environment.

Solutions like FICA allow advisors to leverage cash outside of a retirement account (held-away cash) – a risk-free asset class – to help clients narrow their retirement gaps, which are being exacerbated by inflation and rising interest rates.

Why It Matters Now

Retirement data in the U.S. are startling. There’s a $7 trillion retirement crisis afoot and advisors continue to battle that tide with carefully crafted wealth strategies for their clients. Often overlooked however, is a potential mitigator that can draw water from a vast well. Looking to cash is a credible idea due to another eye-catching data point: Out of the approximate $18 trillion in U.S. depository institutions, there’s approximately $5.5 trillion sitting in bank accounts earning no interest, according to the FDIC. The number gets more staggering when accounts earning only a few basis points are factored in. 

Add to that, the average HNW household maintains 24% of its net worth sitting in cash, according to the Capgemini World Wealth Report 2022. A big part of the problem is that for years, advisors eschewed cash as an asset class owing to low interest rates. As a result, many advisors simply aren’t cash knowledgeable. StoneCastle ameliorates that scenario in efficient fashion.

Consider the point that, due to rampant rate hikes this year, cash could be the best performing asset class of 2022. All things considered, that’s pretty impressive for such an underdog asset. Rates on high yield savings accounts are mostly at or near 3.00% APY while the FICA solution sits near the top at 3.51% APY since early November, which is more than double the dividend yield on the S&P 500 as of November 25, 2022. Risk free. That’s music to the ears of advisors serving retirees.  

Doing the Math

It is not reasonable to think that the $5 trillion in deposits earning no interest, mostly at large money center banks, will suddenly move into interest-bearing solutions. Take just 5% of that, or $250 billion, earning 3.51% using today’s number (and based on Fed notes, rates are likely to rise further in the short term). That alone creates nearly $9 billion in interest for clients. No added risk. Still FDIC insured. As Greg McBride, Chief Financial Analyst at, recently highlighted in a Wall Street Journal piece, “If you’re not taking any risk, would you rather earn 3.50%, or would you rather earn 0.01%? I mean, that’s a slam dunk. That’s easy.” 

What if advisors chipped away at 10% of that multi-trillion-dollar pool? 15%? Still just a dent in the retirement gap, but at least you’re doing your part. 

To make it more personal, think of any one of your HNW clients that has $3 million in the bank earning the average savings rate of .24% according to the FDIC. That’s $600 per month in interest. At 3.51%, monthly interest is a whopping $8,775, more than $8,000 extra per month for doing nothing but taking your advice. That alone can fund trusts, insurance policies, reduce the retirement gap, whatever. That’s for you to determine. 

A Unique Symbiosis and Multiplier Effect

These client deposits, or held-away cash, also have an interesting effect that many don’t even consider. Deposits in FICA (one account linked to your client’s bank or brokerage account) are placed into a network of more than 900 banks, mostly community banks, in all 50 states. These banks get access to deposits that they otherwise may not be able to source on their own, which are needed on their balance sheets to support local lending, which supports small business lending/expansion, creates jobs, builds homes, expands social programs, and increases local tax bases. When your clients earn more (without risk), increase their FDIC insurance up to $25 million per tax ID, and local economies are strengthened, the multiplier effect of these deposits can quickly contribute to making a larger dent in the retirement gap. 

As advisors well know inflation is often framed – accurately – as harmful to retirement. After all, it reduces purchasing power and compels investors to take undue risk in the name of income. Fortunately, the right cash solution can improve that scenario and can get clients better situated leading up to or living in retirement.

Bottom line: Cash as an asset class has long been overlooked, but the current elevated rate environment, which is expected to remain into 2024, mandates advisors become cash-educated and do so sooner than later. Have the cash conversation with each of your clients and start chipping away at the retirement gap.

Related: How Advisors Can Avoid the Three Deadly Sins of Cash