Castles & Moats

Insurance and Investment Planning...Simply Explained

Living Life of Significance2018-07-05T21:29:26+00:00

Chapter 20

Living a Life of Significance and Leaving a Legacy of Love

I’m going to bring my graph from Chapter 6.2 back into the conversation again. Remember how this works? Now you’re in distribution mode and you have worked your financial plan well. You’ve avoided multiple events where life could have gone very differently…and now you’re planning for retirement.

The kids are grown and gone…there’s grandchildren in the picture…maybe great grandchildren! You, having a heart and a soul, want to leave a legacy of love for your family. So, how do you do it?

Remember when I mentioned that a lot of financial planners keep all four of these times in your life strictly on the ACCUMULATION line? This is where traditional planning fails in my mind. People that don’t use a financial advisor wind up in this situation all too frequently…and many that do use a financial advisor find that they do not believe in this strategy…but our firm does!

Scenario: You and your wife are both 65 years old, you’ve funded a nice retirement account, say it’s worth $1,000,000. (Remember Dr. Evil picture, but in a good way.) That cheap term you bought 30 years ago, has exhausted…there’s no ability to keep it at that price. You’ve had a health scare or two, but you’re still here. Now we must deal with another type of risk…longevity risk…the risk of living too long.

Per Vanguard this is what you can find on their website:

Male: A 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90.
Female: A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90.
Couple: If the man and woman are married, the chance that at least one of them will live to any given age is increased. There’s a

72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. There’s even an 18% chance that one of them will live to age 95!

Yes, you read that right and it’s from a legitimate source! One of you has a 72% chance of living to age 85 and a 45% change of making it to age 90!

So, you’ve accumulated $1,000,000 in retirement. Your home is paid for…kids grown…and now you’re ready for you & your spouse to enjoy “the golden years”. How are you feeling about now?

Let’s compound the picture a bit. That 30-year level term that you bought on the Internet? It’s finished…and has no conversion privileges…so it’s done.

Imagine this conversation with your spouse or significant other in your future:

“Honey, that $1,000,000 life insurance policy runs out next week, and we didn’t make plans to keep it past the 30 years when we bought, so I’m going to effectively disinherit you and the rest of the family of $1,000,000.”

You passed on the Long-Term Care plan many years ago…thinking it was too expensive and you had your sights set on maximizing that retirement account.

You have one account that you will begin pulling from to provide retirement income. That one domino is still standing! In addition to longevity risk, what else do you have to deal with?

  • Market risk (remember 2008?)
  • Inflation risk
  • Governmental risk (Income taxes going up in retirement)
  • Healthcare costs increasing
  • Need for in-home or nursing home care

What’s your strategy now? You’ve accumulated and preserved…now you’re in distribution mode, and you want to live a comfortable retirement without running out of money, AND you want to leave a legacy of love to your heirs.

Now’s the time to stop reading, back away from the book (or the computer screen) and visualize what that is going to look like!

You have one plan…and one plan only. You must get conservative with your investing and use an INTEREST ONLY STRATEGY for retirement income. What else do you have? Yeah, Social Security might be there for us Baby Boomers, but how about you Mr. & Ms. Millennial?

You’ve followed the financial entertainer/Internet/Traditional Planning models…and now you’ve set you and your spouse up for a possible disaster in retirement. I use the words “stress test” a lot. Now it’s time for you to do the same. Stress-test your plan and let’s see if it works. If it doesn’t, and it’s not too late, we can do something about it.

Many years ago, during the “raging 80’s & 90’s” when getting 15-20% annual returns were as simple as walking across the street, Fidelity polled their mutual fund clients. Remember, these people weren’t working with a Financial Advisor as back in the day, they offered only no-load mutual funds and “no load means no advice!”

The question was “What percentage of your retirement account will you withdraw in retirement?” The answer was an astounding 10% per year. That was then…this is now.

My industry used to use 5% as a reasonable annual withdrawal rate…now it’s closer to 4%, and I’ve read articles saying that due to market conditions and the longevity of Americans, maybe we should reduce it down to 3.5%.

So, with a $1,000,000 account balance at age 65, in order to avoid running out of money, doing all we can to avoid all of the risks we’ve talked about, and making sure you’re leaving that LEGACY OF LOVE…. your annual retirement income is $35,000 or $2917.oo/month.

Three questions should be in the forefront of your brain right now:
1) Is he right?
2) Can I prove him wrong?
3) Are there alternative strategies that I could have implemented early on?

The answers are Yes, No, and Yes! We see it all the time with clients in our office. We could have helped them…20 years earlier. If you own this problem, and only if you own it, I can share the solutions.

Remember the “Seven Habits of Highly Effective People”? One of them was “Begin with the end in mind”. First, remember back in Chapter 6 on Life Insurance Strategeries? I talked about owning term insurance from a Mutual company with the ability to convert down the road.

We had protected your income during your working years by purchasing your replacement value in death benefit…but now you’re looking at retirement within the next 10-15 years.

What is the first thing you’re going to do with regards to money? Save, save, save…and protect yourself. What is the last thing you’re going to do? You’re going to die, and possibly get sick and linger before you do.

What if…we took a small part of that term life plan, and converted a portion to own in retirement? What if we could add a Long-Term Care Rider to it in the event you got sick? What if we could find the funds to pay for that new whole life policy?

Lots of “what if’s”. Let’s say at age 50, that we found the available $$$ to convert a part of that term policy into cash value building whole life insurance. Maybe we could add a Long-Term Care Rider to it so that we’ve protected you against the need for care without burning retirement funds.

We fund a policy for a period of years so that it is self-sustaining and no additional $$$ would be necessary, and we would also give you the underwriting class you earned when you bought that term policy many years ago. That’s what conversion is all about!

This strategy, which we planned for way in advance of retirement, would be designed for two things: long term care for you while you’re living and most importantly, a Tax-Free Legacy of Love.

Some “financial entertainers” say whole life insurance is garbage…that it’s unnecessary…that you can “buy term insurance and invest the difference”. That strategy works during the ACCUMULATION & PRESERVATION phases of your life. However, it totally explodes when you are looking at DISTRIBUTION & LEGACY.

Now that we’ve taken care of your LEGACY, do we still need to adhere to that 3.5% withdrawal rate? Maybe not. What does that mean for you and your wife? Maybe you can afford to enjoy more income in retirement.

Maybe do things that you didn’t think you could afford to do on that 3.5% rate. Maybe:

  • Help pay for your grandkids’ school & college tuitions
  • Give more money away to charities
  • Travel more
  • Do the things you never could during your working years.
  • And the list goes on and on

…but look at the options we’ve created for you!

Ready to talk?

If you’re in need of auto, home, landlord, or life insurance, I look forward to getting to know you and becoming your partner in protection.

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