If the Shoe Fits

If your feet hurt when you walk, get smaller feet, bigger shoes or go barefoot. 

That’s both the predicament and the choice left to many retirees (and those anticipating retirement) today. 

Their feet hurt. A.K.A., their expenses are larger than their income. If you’ve ever spent much time spending more money than you bring in, you’ve either got debt or a close relationship with a bankruptcy attorney. Either way, you’ve got pain.

If your feet hurt when you walk, what choices do you have?

You can get smaller feet. Pretty impossible to do in real life, and difficult to do in economic life. Economically, you can do it, but it will be difficult. In economic terms, getting smaller feet means spending less. Your spending habits make a smaller footprint. 

Doable, but not easy. And not without another kind of pain.

You can get bigger shoes. In the economic sense, bigger shoes mean a bigger income. Naturally, that’s the solution anyone with a choice would make. But how do you find a bigger “income shoes?” More on that in a moment. 

You can go barefoot. Going barefoot represents no restraints and total freedom to spend what you want when you want it. I know people doing that. They seem to have few cares and they spend money as if it would never run out.

But eventually it does run out, which is a risk of going barefoot. Most of us are willing to walk around the clean and clear surroundings of our home barefoot. Around the house, we aren’t concerned with harmful obstacles like rocks or cut glass that might do our bare feet harm. 

A few years ago, I saw a guy jogging barefoot on the streets of downtown Chicago (that used to be a thing). I winced thinking about the inevitability of the podiatric pain in his future. For obvious reasons, the popularity of barefoot running declined as quickly as the fad began.

Barefoot spending eventually results in pain.

So, we are left with the one option most attractive – get a bigger pair of shoes, i.e., get a bigger income. But how does one do that? With interest rates down and the stock market more volatile than some can stomach, how do you generate more income? 

Here are two possibilities:

Scheduled spend down. If your need for more income is temporary, its OK to spend some of your principal. For example, suppose you delay taking Social Security for a year to increase that amount of fixed income that will continue for your life. In that case,  you may need to spend some of your capital (the money that normally produces your income – the goose that lays the golden eggs), so long as there is an end in sight.

Actuarial cooperation. But if your need for income is long-term, and if you really don’t know how to define “long-term” other than by saying, “as long as I live,” you might consider actuarial cooperation.

Actuarial science is the pooling of life spans and longevity among large groups of people. This is the specialty of pension funds and insurance companies. 

Actuarial cooperation involves you and many others like you pooling some of your money and allowing a pension plan or insurance company to manage and absorb the unknown risk of your life span. This allows them to pay you a larger income based on three things: the interest they earn, a return of your own principal and a mortality credit. 

A mortality credit is simply the portion of the pooled resources unused by the (as yet unknown) half of the pool that dies before full life expectancy, which is paid out to the half that lives beyond full life expectancy. 

It is not unusual for a retiree to obtain guaranteed income for life through actuarial cooperation at twice the amount as if he or she would obtain by keeping the same assets and taking the income generated by interest or dividends only. 

Actuarial cooperation isn’t for everyone and probably isn’t for all your money. But it may assist as part of an overall solution. The specifics of your circumstances should dictate.

If your feet hurt, there my not be a perfect solution and you may try more than one method of relief.

But if the shoe fits…

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information at http://www.ruston.argentadvisors.com/important-disclosure-information

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