Life & Retirement Planning - The Big IF in Life

I usually tell people that there’s a big IF right in the middle of life. Just as you never know what may happen in the game of Life, there are many “what ifs” when retirees begin to plan for their retirement. For retirees and soon to be retirees, there are many ifs running through their minds.  One of the biggest retirement planning concerns is if they will outlive their income.  The good news is that there are products, processes and plans available to help mitigate longevity risk (outliving one’s income).

We typically address 3 core retirement planning scenarios with our clients:

The Handy Adder – A Blast from the Past

In the Kemp household, whenever we have a lively dinner table conversation, inevitably, my work as a financial planner comes into play. Recently, my son asked me about these red mechanisms with buttons he’s been observing at his job at the local grocery store. After some discussion, we determined that it was a Handy Adder - a true blast from the past.

After that, everyone was very interested in what the Handy Adder is and why my son was seeing people use it.  The Handy Adder is a small handheld adding machine.  I explained that it wasn't long ago that people used cash or personal checks at the grocery store instead of credit cards.  They had to make sure they had enough cash in their wallet or money in their checking account to cover the bill, so every dollar and cent mattered.  The Handy Adder is an effective way to track each item you plan on purchasing to keep your budget under control.

Mortality Credits and Period Certain

Mortality credits and period certain are two important concepts not to overlook when discussing the features of a life annuity product.  Many people aren’t familiar with these essential terms.   

Consider this: Doug and Helen walk into a bank. Doug is 20 years old and Helen is 70 years old. They both tell the bank officer that they have $100,000 to invest and want to take the most interest they can get for the rest of their lifetimes.

Because of her age, Helen has a distinct advantage in her number of choices.  Helen could simply put $100,000 in a bank CD and take the current interest rate of 2% on a five-year CD.

Social Security Benefits - When to Begin Collecting Them

As with most financial planning topics, this question, although seemingly straightforward, is actually rather complicated. As a result, when it comes to retirement planning, there are few issues that raise as much interest right now as Social Security.

Although it’s been around since 1935, most people today still admit knowing very little about Social Security and how it works. Yet, it is an important aspect of any retirement plan. Consider the following statistics:

• Nine out of ten individuals age 65 and older receive Social Security benefits.¹
• Social Security benefits represent about 39% of the income of the elderly. ¹
• Social Security provides more than half of the income for nearly two-thirds (65%) of elderly beneficiaries.²
• For almost four out of ten elderly recipients (36%), Social Security provides more than 90% of their income.

According to the Social Security Administration, the average monthly benefit being paid to current retirees is $1,234 per month. For a 66-year-old man with an average life expectancy of 82, this represents total payments of well over $200,000 in today’s dollars.

With so much at stake, the decision to begin Social Security benefits becomes a critical one. Let’s review the basics, setting aside for the moment the rules of eligibility.

Prisoner of Wealth

Very rarely would someone ask: are you or have you ever been a POW (“Prisoner of War”).  If you were asked that question, you might ask what in the world they are talking about or jokingly respond that you are indeed a prisoner – a prisoner of work.  But certainly, no one would admit to or even consider being a “Prisoner of Wealth."

The primary step to financial freedom is to free yourself from all the things that make you a Prisoner of Wealth. What do I mean by Prisoner of Wealth? The story of the Monkey Trap is a great way to illustrate this theory.