Will You Be Planting or Begging?
One of my favorite Jim Rohn quotes is "You must get good at one of two things. Planting in the spring or begging in the fall." Retirement is no different than business. In fact, it is more important to plant the seeds for a long and fruitful retirement because we may be in retirement as long as we are in our livelihood, but without the earning power to make up for economic surprises.
So what if you didn't do such a great job planting retirement seeds? Or what if you don't know if you've done a good job planting the seeds of a successful retirement? What if you think you don't have enough "seeds" to yield a great retirement harvest?
The great news is that we aren't limited to just one season a year to plant seeds for a plentiful harvest. We don't have to "beg in the fall" or in retirement terms, depending on our kids and/or the government. We can begin planting all kinds of seeds for the harvest of our retirement years anytime and with any amount of money. Seeds for paychecks, playchecks, long term care, legacy, and joy! And just like planting a garden you first begin understanding what crop can thrive in your climate and landscape.
Determining your financial temperament and landscape is something many people procrastinate doing yet it is the most important aspect of any retirement plan. Before we decide what seeds, we want to plant we need to be sure our risk tolerance and risk capacity is congruent with the retirement crops you want to harvest. Let's look at our catalog of seeds so you can determine how to begin planting for a fruitful retirement harvest.
Seed one: Determine what you will need for your retirement paycheck and your retirement paycheck. Having good soil in a great plot of land is akin to knowing your financial baseline and is key to a bountiful crop. Protecting your crop is equally important. Be sure to protect your retirement harvest from predators, such as inflation, market volatility, long-term care, and taxes. You don't want to spend time accumulating and then see your crop evaporate because you didn't protect it!
Seed two: Take inventory of your current resources:
Investible assets
Discretionary income
Time
Investible assets would include IRA, Roth IRA, Brokerage Accounts, Money Market/Savings Accounts, and other investment assets such as real estate, businesses, and promissory notes. These assets can be redeployed or reallocated to better support the retirement harvest you desire.
Discretionary income is the amount of money remaining after paying all of your nondiscretionary expenses such as housing, electric, food etc.… The good news is that your discretionary income is completely under your control and can be increased in two ways. First you can increase your income, or you can decrease your expenses.
Build your Mindful Money Map, a tool to help you balance lifestyle, wealth preservation, and wealth building. The Mindful Money Map utilizes your current resources—income (guaranteed and hopeful), expenses (required and desired), reserves, and insurance—and allocates them according to your needs. By knowing cash requirements, reserves, and insurance specific to your needs, you can allocate cash flow with forethought and flow your money on autopilot.
Seed three: Use the right tool to achieve your goal most efficiently and effectively. You wouldn't use a garden hose to harvest your bounty, but that doesn't mean the garden hose is a bad garden tool. It just means that your garden needs different tools to harvest rather than grow. One of the biggest challenges to the distribution of your savings or creating a retirement paycheck is using the same tool that was used to grow your money.
Begin saving a regular amount of money that will provide a guaranteed paycheck and playcheck. Many fixed-indexed annuities can provide you with the exact amount of money you will need to contribute to an IRA with mathematical certainty at the age you determine you want to start your paychecks and/or playchecks. You may have more money, but you'll never have less. Even Macy's recognizes the value of annuities to pay pension benefits to their employees. On July 31, Macy's Inc., New York, purchased a group annuity contract to transfer $256 million in pension plan assets.
There are some annuity haters…you will hear "Annuities are lousy investments" and you will be surprised to read, I agree for this reason, insurance products like annuities are not investments they are insurance that provide protection against outliving your money. Saying an annuity is a bad product without considering the problem it is solving is just like saying the garden hose is a bad tool for your crop just because you need a different tool to harvest.
Let's consider an example from our practice, Mr. & Mrs. LateBloomers. They put 4 children through college, one of them through medical school. Needless to say, they didn't start saving until their mid-fifties. After determining their desired retirement paychecks and playchecks, they discovered that they would need an additional $2k per month in paychecks to supplement their social security and pension payments and would like to have an additional $1k per month for their playchecks available to begin at their full retirement age of sixty-seven.
They then took inventory of their current resources and found they each had old 401k accounts that could be repositioned. His total available was $219,000 and her available total was $111,000. His current income went primarily toward their current living expenses while she had discretionary income of over $7k per year. They also would have approximately 12 years to plant the right seeds, protect and grow their retirement crops, before beginning to harvest in their golden years.
We recommended two different tools to help them achieve their goals. For his 401k, we completed a tax-free transfer to an IRA and used a Fixed Indexed Annuity with a Guaranteed Income Rider. This product allowed us to predict with mathematical certainty their future retirement paycheck for any future age. His initial premium of $219,000 would result in a lifetime guaranteed income for as long as either of them was alive of $2,000 per month. This product also guaranteed other aspects that were important to the LateBloomers. First, they were guaranteed that every dollar contributed and all the interest credited would be paid to them or their beneficiary. If they passed prior to exhausting their account value, all remaining balance will pass probate free to their beneficiary. And even if they exhaust their account value, their paycheck continues as long as either is alive. Second, they are guaranteed the right to change their mind at any time and walk away with the remaining account balance.
For her 401k, we completed a tax-free transfer to an IRA and used a fixed-indexed annuity with a Benefits Pool. This product allowed us to project an additional withdrawal benefit with the potential to grow faster while still providing a minimum guaranteed growth. Her initial premium of $111,000 plus her annual contributions of $7,000 would provide a guaranteed paycheck of at least $1,000 per month. This would be the worst-case scenario. If the product performed based on history, the playchecks would be over $2,500 per month!
The LateBloomers were able to reposition their resources and develop a plan with mathematical certainty to guarantee their paychecks and paychecks for the rest of their lives. Not only were they guaranteed to never outlive their money but the tools they used protected their money from predators like inflation and taxes and insured an easy transition to their beneficiaries without having to go through probate.
You may have done a great job growing your retirement harvest, or you may be a late bloomer, but wherever you are, you can begin planting your retirement seeds and protecting your harvest to yield the bounty that will nourish you in your retirement years. You'll want to consider financial products that are purpose-driven and address liquidity, growth, income, and protection. Take the time to determine your baseline needs and be open to using the proper tools to protect your money. Put together a plan that protects you from losing a paycheck and/or playcheck, has inflation protection, tax mitigation, and even long-term care benefits so you can see your retirement bloom!
