It was just over a month ago I was speaking on behalf of the Alliance for Lifetime Income in Del Mar, CA to 300 financial advisors. Right before I spoke, I listened to the head of their Wealth Management Division highlight last years 42% gain in their equity portfolio, he went on to highlight that all signs looked good for a repeat performance in 2020. Following such an optimistic forecast I mentioned that we were overdue for a correction and it might make sense to drag chips (take some money off the table and commit it to guaranteed source of protected lifetime income). I’d like to take credit for such an astute and timely call, but the reality is that nothing goes up forever and when individuals are greedy be fearful!
It’s all about INCOME
Last April I was hired by the Alliance to be a Senior Education Advisor and to speak to financial advisors about the importance of Protected Lifetime Income (PLI). PLI comes from 3 sources – PENSIONS, SOCIAL SECURITY and ANNUITIES. Now seeing that most individuals no longer have pensions, since many employers have switched to defined contribution plans (401k) that leaves only Social Security and Annuities.
Own the Base
Having spent 45 years in the Securities Industry and the last 20 totally dedicated to the Distribution and Income Phase of Retirement Planning (The Back 9) I’ve come to the realization that Maslow’s Hierarchy of Needs is an easy and understandable path to financial planning specifically during the income phase.
Needs – Wants – Wishes
The Financial Pyramid approach to Financial and Income Planning is an easy strategy to incorporate in that we divide expenses into 3 separate and unique categories
The NEEDS – what expenses do we absolutely, positively have to cover and we would use guaranteed sources of income to cover those expenses. Once those expenses are covered we can then move to the WANTS section of the pyramid. Investments that generate growth, dividends, interest, etc. would be used to cover one’s wants. I like to say here, that in good years you might book a trip to Europe and in bad years you might book a trip to a local state park. You cut back on these expenses where you have a certain amount of flexibility. Finally once you’ve covered Needs and Wants you can then deal with WISHES, which might entail gifts to family member, charities, etc.
Social Security Claiming
Since we know that whatever your Social Security benefits are at age 62 they are DOUBLE at age 70. Surprisingly less than 3% of individuals currently wait until 70 before claiming and almost 40% claim at age 62. If you are wanting to retire prior to age 70 you might take apart of your Investment Portfolio and use those dollars to create an 8 year guaranteed income bridge while you delay claiming Social Security. Using this approach will give you a much greater stream of guaranteed income to cover your NEEDS as you and your spouse move into your 70’s, 80’s 90’s and beyond.
Train Conductor – Staying Seated in Volatile Market
This is a simple approach that has stood the test of time, but still allows a great deal of flexibility as you plan for your retirement years. More importantly when we have volatile markets like we have today you are more likely not to run for the exits at the worst possible time, because you know your Needs are covered with Protected Lifetime Income!
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Having personally gone though the Crash of 87, The Technology Bubble in 2000, the Real Estate Crash in 2007 & 2008, I feel quite confident that we’ll survive the Coronavirus of 2020.