Published October 26, 2012
Nothing strikes fear in your heart like the sudden plunge of an aircraft during severe turbulence. We’ve all been on that flight. Everything seems to be smooth sailing until, WHAM! The plane lurches in the sky, drinks topple, and a collective gasp comes from the frightened passengers. The pilot issues a quick request for everyone to return to their seats and strap in because it’s going to be a bumpy ride.
If you’re in retirement or approaching retirement, you’re already on the plane. You’ve got one shot at getting to your final destination, and you can’t afford to miss the landing. You’ve worked hard during your lifetime to save for retirement, and you need that money to last. Do you have a financial flight plan that takes into account adverse situations that may end your flight or cause you to land short of your destination? Or are you just crossing your fingers, heading into the storm and hoping you’ll make it out the other side? Most people don’t plan to fail; they simply fail to plan.
Today we are faced with an unrelenting storm—a market fraught with volatility and low interest rates and an economy that is struggling with hidden inflation, astronomical healthcare costs, unsustainable government debt, higher taxes, and a dollar declining in value. People are living longer and oftentimes outliving their money. Nothing in this storm is within our control. We can’t change it. And if we fly through it, we are subject to its damaging effects. Like an airplane that has little room for correction at low altitude, many retirees are unable to recover from the losses sustained while flying through the storm.
I recently had a client that came into my office who retired 10 years ago with $400,000 in his retirement account. When he retired, he went to his broker and said, “This $400,000 is all I’ve got and I need to take out a small percent to supplement my retirement income. But I need to make sure that it lasts me and I don’t run out of money.” When I met him, 10 years later, he had only $67,000 left to his name and most likely more than 20 years left to live. He and his wife both had tears rolling down their cheeks as they realized they didn’t have enough money left to last them through their retirement years and that they would, unfortunately, have to go back to work.
Here’s an example of a broker who used traditional thinking to invest this couple’s money as though they were still in the accumulation phase: young, working and not using their savings. But they were in the distribution phase. When you lose money and combine that with taking money out as an income, it can throw you into a financial spin that’s nearly impossible to recover from. When you’ve got lots of time and/or assets, there’s room to recover. But when you have little time and minimal assets, you cannot afford to take a financial spin. You must protect those assets. This is a scenario where the advisor said, “Let’s just fly straight through the storm. It will be okay.” But it wasn’t okay and now they’re well into their retirement years and still hard at work.
The next decade has the potential to be even more volatile than the last. There are two defining moments of truth that we must recognize: 1. Your money will never be worth more than it is today (that’s what we call inflation); and 2. You will never pay less in taxes than you do today. So the question you must ask is, who’s future are you funding—yours or the government’s? How many tax dollars do you want to give them? If given a choice, would you want to put your money into something that is 100% taxable, sometimes taxable or tax-free? There is a better plan.
My philosophy is that the best way to make a lot of money is not to lose a lot of money. So why not avert the storm and find a more conservative path? If you know the storm ahead has turbulence and an uncertain outcome, why chance going through it? Why not choose a different route that will get you to your destination safely and on time? In today’s marketplace, insurance products offer an alternate course that has passed the test of time and won’t put your hard-earned retirement dollars at risk.
When creating a flight plan for retirement, here are a few guiding principles to remember so that your decisions are aligned with your risk tolerance and goals:
For those that want to minimize turbulence during an uncertain storm, a solid financial flight plan that includes insurance can make the trip a much more pleasant experience. Don’t pretend you’re a young, ace fighter pilot with time and quick reflexes on your side. They’re the ones who can take a chance and head straight into the storm.
You’re in retirement. Can you really afford to take the chance? If a crash landing is not on your agenda, then you owe it to yourself to get the advice of a qualified insurance and retirement advisor, someone who can pilot you to your destination safely and on time.
Todd Wooten is a retirement income planning advisor based out of Valparaiso, Indiana. Specializing in helping pre-retirees and retirees prepare for a secure retirement, Todd is a licensed pilot and understands how scary turbulence can be. Let Todd show you how to avoid turbulence in your retirement plan. Contact Todd by calling (219) 548-9370 or visit his website at financialflightplan.com.