Real World Financial Solutions

A pension is a wonderful thing; choose wisely

If you or your spouse are covered under a company pension plan, and you plan to retire within the next ten years, you have a choice to make that could impact your family's wealth by tens or hundreds of thousands of dollars. It's a huge decision, and most employees make the decision without any outside input. In fact, a visit to your company's HR department will often leave you making the wrong choice altogether. It's not your fault, you just weren't given the facts.

In an upcoming video, I will lay out the scenario for you to simply provide you with the context of your pension decision and the possible consequences of making the wrong choice. Once you see the choices in front of you, the solution is quite elegant, provided the proper analysis is done. I will help you with that analysis and create options that most retirees aren't yet considering. I urge you to seek counsel before making an irrevocable decision on one of the most valuable assets you will ever own.

Think about this: if you are able to get a guaranteed 4% return on your money in the marketplace, then receiving a pension of $3,333 per month is roughly the equivalent of being handed $1,000,000 to manage. I don't know about you, but that gets my attention and leaves me to wonder why more people don't seek a second or third opinion before choosing their pension income option. Stay tuned for more information. In the meantime, feel free to send me a note if you are facing this choice right now. I'm happy to help.

The dirty debt secret

Almost every person or family that I meet with asks me in so many words: "How are we doing and how do we compare to others that you work with?" The courageous ones will actually say it out loud; others politely mask it under covert statements of curiosity. While I never share details, most people are comforted by this fact. Almost everyone I talk with has debt that they're not particularly fond of. Almost all of them (maybe you) secretly wishes that they (you) could be debt-free as soon as humanly possible. Completely debt-free.

Unfortunately, the forces at play have convinced most of us that being completely debt-free is impossible and equates to bad planning (what about the tax deduction on my home equity line of credit, or the merits of having used student loans to become educated). Truth be told, living debt-free is the desire of most, but we're inclined to keep that secret to ourselves because we are all equally vulnerable to the attraction of new cars and bigger homes. So, we live a debt-ridden lifestyle out-loud and hunger for a debt-free life deep down inside. How to reconcile? Decide to be a little crazy and become debt-free just to shake things up in your social circle. Decide to admit to your spouse that you might just be a better spouse without the financial noose around your neck.

Once you have made the decision to do something that you've been told can't be done, call someone that can show you how they are doing it and ask for advice. Make a call to find out how to align your actions with your deepest desires. Have a conversation with someone that will ask you the tough questions in order to break down the obstacles that stand between you and financial freedom. And lastly, when sophisticated-sounding people tell you that there are good ways to use personal debt to expedite success, they probably don't really believe what they're saying either.   

Semi-retired: hoping to stay that way

A semi-retired couple had growing concerns about the reduced value of their retirement accounts. Although they believe that their assets will grow over the long-term, they were concerned that the death of the income-earner may jeopardize the financial security of the widowed spouse until their assets recover. In addition, the widowed spouse would have to begin drawing more heavily on those retirement assets to sustain her lifestyle. The solution was for the couple to purchase a 10-year term insurance policy on the income-earning spouse to hedge against the risk of a premature death. They purchased enough insurance to simply cover the reduction in their retirement account values to shore up their income plans. The result is a greater sense of peace and a few more sleep-filled nights.

New babies warrant a plan review

The concept of buying more life insurance when a new baby arrives is probably not a mystery to you. As parents of three girls, we had the right amount of insurance in place to provide for them in the event of our demise. When we were blessed with twins (more girls!), the game suddenly changed. Here's why. Although three children are no doubt a challenge to raise, five children (one with special needs) becomes a huge burden to a family to take on in addition to their own children. We had to consider the cost of skilled nursing care, a new home, a small bus for transportation, and on and on. As a result, we chose to add more life insurance on my life and on my wife's life. Because the cost of term insurance has actually gone down in the past few years, we were able to add quite a bit of coverage for very little additional expense. Beyond insurance, an update to wills and trusts by an estate planning attorney means that we can safeguard the assets and the integrity of the family members left behind to care for our kids and all of that additional money. Of course, it may take a book deal and a TV show to pay for all of the college educations and weddings, but we'll have to work on that later.

Income that you won't outlive

There's no question that the economic woes of the past couple of years have forced us all to stop and question what we believe about risk and retirement. The elimination of most corporate pension plans means that we are on our own when it comes to putting together a sensible retirement income plan. A newly-retired couple was fortunate to have timed the market collapse really well and moved much of their investments into guaranteed funds prior to 2008. Although this allowed them to avoid significant market losses, they knew that they could not remain on the sidelines forever if they wished to keep pace with the likely inflation that will result from government monetary policy.

To reduce the complexity of their vast options, we chose to work backward. By asking the question "how much income do you need today to meet you basic monthly expenses?" we were able to plan the appropriate portion of their retirement assets required to generate sufficient guaranteed cash flow. This would allow them to know that their basic needs are met without having to worry about the fluctuations of the stock market. Because we knew this fundamental piece had been addressed properly, we were able to build from that foundation and move other assets back into the market with an investment advisor to help them hedge against the pace of inflation and the possible decline of their purchaing power. By choosing to use this method, they can have confidence that their lifestyle is protected and they can receive their fair share of the growth that the economy and the market will provide.