A lot of people use the term “financial plan” to refer to “a savings and investment plan.”
I always wince.
I’ve yet to meet someone who says, “My life goal is to save and invest money.” What people tell me is, “I want to save and invest money so that one day I can …” (then they finish the sentence in all sorts of interesting ways).
That’s really what we want: to have enough income—once we stop working—to live a certain kind of life.
In other words, it’s not simply assets, it’s income that we need in retirement—a regular money stream to replace the paychecks we’re earning now in our working lives. In short, we need is a “retirement income plan.”
Too many people enter retirement with a nice nest egg—but no retirement plan. Then they get indigestion as they watch their portfolio values rise and fall in today’s volatile markets. Their “financial plan” only focused on growing their assets; it didn’t go the final step of providing a strategy for steady, guaranteed income.
Lots of those retirees discover—the painful way—that spending too much, living a long time, or facing a long market downturn eventually puts them at risk running out of money!
There’s a better way. It’s a plan that takes your assets and arranges for guaranteed income and a guaranteed legacy.
In simple terms you want to a retirement plan that offers the following results:
- If you live a long life, you have guaranteed income you cannot outlive.
- Even if the financial markets are like a roller coaster during your retirement, your income is unaffected, because it is guaranteed for life.
- If you die before you retire, insurance gives your family gets the retirement funds you would have earned during your working life.
- At your death, the insurance part of your plan gives your family a tax-free benefit to replace the money you spent during retirement.
How can you create such a plan? By combining the strengths of your investments with insurance.
Smart investments will help you grow your assets during your working years. Most of us get that part.
But then insurance offers us a way spend those accumulated assets efficiently in retirement. That’s the part that isn’t always obvious (until it’s too late).
Insurance companies do two things well. They group large numbers of policy holders together—some living longer than expected and others dying early. And they invest all those premiums we pay. This gives them the ability to offer products to retirees that guarantee income in life and legacy benefits at death.
Without the advantage of this insurance component, a retiree’s best plan is to hope his or her various investments can grow enough to last a lifetime.
As a financial advisor for the last 30 years, I find different people have an affinity for one over the other…a preference for either investments or insurance.
The truth is they are not competing with one another. They are (or should be) complementary.
Their proper balance is what will give you the best kind of “financial plan”—a true retirement income plan that will allow you to live the kind of live you want.
To help you think through the aspects of creating your own retirement income plan, I wrote an e-book titled “How to Put Money Worries in Your Rear View Mirror – The Financial Freedom Roadmap.” The book is free if you’d like a copy. Just email me at email@example.com, and I’ll send it to you right away.
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