Having your assets liquid may feel good because it’s accessible. But at the same time, let’s consider the big, longevity picture. We American’s are all living longer than ever. And when it comes to generating income during retirement, having your assets liquid at all times may actually increase the risk of your assets not lasting for your lifetime.
Your Retirement Mango Tree
Think of all of your assets as one mango tree with branches (your principal) producing enough mangos (income) you need to live comfortably during retirement. In the beginning, you may think there’s no harm chopping off a branch or two (liquidity) for firewood due to the overall size of the tree. But, when doing this you are “double counting” the asset for being equal to meeting two needs. The number of mangos produced would be lower and if you keep chopping off branches, there may come a point when your tree cannot produce enough mangos and cannot grow new branches, ultimately reducing the life of your tree. No more tree, no more mangos.
There are many decisions you will need to make in your life as you enter into retirement. One of the many financial decisions is what to do with the assets you had accumulated for retirement. Your paycheck is ending. It’s up to you to make a new one to last for your lifetime with your assets.
Retirement at Risk
After the market crash of 2008, percentage of American households who are “at risk” at age 65 increased to 51% (2009) from 43% (2004) according to the National Retirement Risk Index.1
Now, think of your assets as being multiple mango trees…
You fence off and give up your access (liquidity) to some trees so that these trees are only there to produce enough mangos to cover your necessary expenses. The remaining trees are for producing mangos and firewood for when you need it.
Under this approach, you have established sources for solely producing income and you also have sources for your liquidity needs.
Create one mango tree or multiple mango trees?
Your view about retirement should be long-term because it is unknown as to how long your retirement years will be; therefore, you should explore financial products that can provide income for your lifetime and that of your spouse’s lifetime. One of the main reasons that you save for retirement is to produce income (mangos) for your necessary expenditures, like paying your mortgage/rent, food and utilities, so you can live comfortably during these years. In addition, a portion of your income should be independent from and not reliant on market performance. Finishing confident is just as important as beginning confident.
Earlier the Better: Create Your Plan Today
Here are some action steps you can take today to better prepare for retirement:
- Understand how your lifetime sources of income work, like Social Security, and explore possible ways to increase these sources.
- Compare your retirement income with the total amount of your expenses — necessary expenses and comfort-living expenses — to see if you have a retirement income gap.
- Purchase financial products that can provide guaranteed payments for life or for the life of the surviving spouse, and that can provide protection for unexpected events.
- Follow a distribution/withdrawal plan by accessing pools of assets at certain points in time during retirement. This can help you lengthen the life of your assets, gain the potential benefit of compounding growth and systematically increase your retirement income when you need it most.
- Work with a financial professional to fully explore your options for developing your income plan for retirement.
1The National Retirement Risk Index measures the amount of American households who are at risk of not being able to support their pre-retirement lifestyle during retirement. This index is calculated by The Center of Retirement Research at Boston College and the report can be found at http://www.crr.bc.edu®
On May 21st, I’ll be one of the guest speakers at the Toastmasters International (Aloha District 49) 2011 Spring Conference. While I’m not a member of Toastmasters International, it is widely known that it’s THE club to join if you want to develop your presentation, speaking and leadership skills. When I was first approached by a client of mine (for whom we did staff training) to speak at this conference, I felt honored, but a little apprehensive at the same time. For me, speaking in front of a group composed of ambitious people who are there because they are actually interested in becoming better speakers was a bit intimidating. Nevertheless, I’m excited and looking forward to it as a “shared” experience–I’m going to share my “school of hard knocks” perspective on perseverance and learn from them, as well as their other slated speakers. In fact, Toastmasters has already taught me a few things. In perusing their website, I found their “10 Tips for Public Speaking”. Here’s what tips nine and ten have to say: “…concentrate on your message and your audience”, and “…your speech should represent you — as an authority and as a person.” Just the appropriate advice I needed…
Perhaps Dorothy, in “The Wizards of Oz”, said it best: There’s no place like home! That’s why many Hawaii residents who need LTC prefer to receive it in their own homes. The ability to live independently is critical to maintaining quality of life. Remember, long-term care is not just about nursing homes anymore. Ultimately, coverage gives you the freedom of choice.
Here are my top ten reasons to buy LTC insurance coverage:
1. You will have an experienced professional available to plan for your care at home, providing all types of services related to your particular illness, injury, or condition.
2. Your family can be part of the care plan, but will not have to be the planners.
3. You will have the money to pay for long term care (according to PBN, Hawaii ranked 7th most expensive in the nation for home care services, with a median annual rate of $51,480 in 2010) without having to deplete the family nest egg.
4. Your loved ones can carry on a more normal life rather than being subject to your everyday (“activities of daily living” like bathing, dressing, eating, toileting, etc.) needs.
5. Your family will be able to attend to your needs out of love rather than obligation.
6. Because you’ll have the funds, you will be able to choose your own facility or choose to stay at home longer rather than prematurely entering a nursing home.
7. You will be able to leave some of what you have to your family rather than using up a large portion of their assets to pay for needed care.
8. You will be able to stay with your children or other loved ones without depending on them for all your care.
9. You can feel good knowing that all of the money you worked so hard to attain won’t be used up in a few short years (PBN reported that Hawaii’s nursing home costs have a median annual rate of $114,975, compared to the national average of $75,190).
10. Finally, there will be less friction between family members; one member won’t be stuck with the responsibility of caregiving.
M. Garrett Wheeler is a long-term care specialist with Guardian in Honolulu, Hawaii. He’ll be glad to explore your options for coverage that suits you best, so that if you ever need it, you’ll have the freedom to choose the care setting that is most appropriate for your circumstances. He may be reached at firstname.lastname@example.org or by phone at (808) 216-4147.
Here’s just one example of how our customers appreciate our quick turnaround at SuccessHawaii:
Yesterday, I received a call from one of our loyal, longtime Successories of Hawaii customers, Derrick Wong. After catching-up with this successful pharmaceutical sales professional, I explained how we now have transitioned to delivering our high-quality island motivational merchandise strictly through our online store, SuccessHawaii.