Source: U.S. SUN
I read an interesting article the other day in regards to Lottery Winners, did you know that 90% of Winners take the lump sum vs the monthly installments / 30 year annuity? Taking the lump sum basically reduces the publicized Jackpot by 50% or more, but then you have to pay income taxes on the 50% that you received, so a $2 Million lottery prize could net an individual $650,000 – $700,000 or less based upon state and local income taxes. Besides that, we’ve all heard and read the horror stories (see attachment) and experiences of many lottery winners. 70% of those who take the lump sum will lo
se it all within a few years and according to CNBC winners are more likely to file for bankruptcy within 3 – 5 years than the Average American?
Many spend recklessly, many make foolish investment decisions, many can’t say NO to financial requests from family, friends and others, etc. etc. It all comes down to being unprepared to make wise financial planning decisions! Our schools have done a horrible job of teaching and preparing students in regards to financial education and issues they’ll have to deal with daily for decades to come, upon graduating from high schools and colleges.
WHAT IF……….
Back when George W Bush was President, and the solvency of Social Security was being discussed there was a proposal to privatize Social Security and allow American workers to invest and manage their own Social Security accounts. I wonder how that would have worked out had it passed? Having spent almost 50 years in the securities industry and trained and spoken to thousands of financial advisors and their clients over the years, I’d be willing to bet that the results wouldn’t have been very good and might mirror the experiences of lottery winners for most people.
Personal Responsibility
The Good News is that with a defined contribution plan we get to manage the money, we can allocate the funds where we think we’ll have the greatest returns, we get to take the money out at retirement to use to pay our bills and our lifestyle choices. If we don’t use it all, we get to designate who gets what’s left upon our demise.
The Bad News is that we have to accept the PERSONAL RESPONSIBILITY not to screw it up, not only during the Accumulation Phase, but more importantly during the Distribution or Income Phase! I’ve often said “that ours is the only industry within the United States, that when we have a sale, nobody wants it!” The great majority of investors BUY at the TOP (GREED) and then Panic SELL at the LOW (FEAR)! The wisdom of Warren Buffet and other sage investors is “being fearful when others are greedy and greedy when others are fearful!” It sounds easy, but it is extremely difficult to have the discipline to buck the crowd and live by his advice and to have the patience to ride out market cycles.
The Beauty of Social Security
Yesterday I spoke at the TXCPA San Antonio Member Appreciation event and mentioned that Social Security is a PENSION. A pension that will pay you and your spouse a monthly guaranteed check with an annual cost of living adjustment for the rest of your lives. Since most American’s work in the private sector, they do not have access to a defined benefit plan or pension plan, instead they have a defined contribution plan which would be similar to a 401(k) plan or an IRA. The knowledge to KNOW that you and your spouse will receive a monthly check for life is a liberating and comfortable feeling. It should be used as the FOUNDATION for a well managed diversified income strategy.
If a 70 year old couple receives $6,000 per month from Social Security, it would take a lump sum of approximately $825,000 deposited into an immediate annuity to generate that monthly check, that does not include any adjustments for Cost of Living. I was unable to generate an annuity with an Cost of Living Adjustment, but I would conservatively guess it would require over $1 Million.
The 3 Truths of Life
- The Only Certainty is Uncertainty
- Life’s Not Fair
- You Have to Play the Hand Your Dealt
The biggest risk in retirement is not dying too soon, it’s living too long! Most people greatly underestimate their life expectancy
The beauty of Social Security is the certainty of receiving a monthly check, without regard to interest rates, the stock market, the economy or LIVING TOO LONG! It’s about the Peace of Mind you’ll have as being a part of your overall retirement income plan. My passion / calling is to help and assist American’s in making the right decision as it relates to claiming benefits. As always, I’m here for you!
