Real World Financial Solutions
Semi-retired: hoping to stay that way
A semi-retired couple had growing concerns about the reduced value of their retirement accounts. Although they believe that their assets will grow over the long-term, they were concerned that the death of the income-earner may jeopardize the financial security of the widowed spouse until their assets recover. In addition, the widowed spouse would have to begin drawing more heavily on those retirement assets to sustain her lifestyle. The solution was for the couple to purchase a 10-year term insurance policy on the income-earning spouse to hedge against the risk of a premature death. They purchased enough insurance to simply cover the reduction in their retirement account values to shore up their income plans. The result is a greater sense of peace and a few more sleep-filled nights.
New babies warrant a plan review
The concept of buying more life insurance when a new baby arrives is probably not a mystery to you. As parents of three girls, we had the right amount of insurance in place to provide for them in the event of our demise. When we were blessed with twins (more girls!), the game suddenly changed. Here's why. Although three children are no doubt a challenge to raise, five children (one with special needs) becomes a huge burden to a family to take on in addition to their own children. We had to consider the cost of skilled nursing care, a new home, a small bus for transportation, and on and on. As a result, we chose to add more life insurance on my life and on my wife's life. Because the cost of term insurance has actually gone down in the past few years, we were able to add quite a bit of coverage for very little additional expense. Beyond insurance, an update to wills and trusts by an estate planning attorney means that we can safeguard the assets and the integrity of the family members left behind to care for our kids and all of that additional money. Of course, it may take a book deal and a TV show to pay for all of the college educations and weddings, but we'll have to work on that later.
Income that you won't outlive
There's no question that the economic woes of the past couple of years have forced us all to stop and question what we believe about risk and retirement. The elimination of most corporate pension plans means that we are on our own when it comes to putting together a sensible retirement income plan. A newly-retired couple was fortunate to have timed the market collapse really well and moved much of their investments into guaranteed funds prior to 2008. Although this allowed them to avoid significant market losses, they knew that they could not remain on the sidelines forever if they wished to keep pace with the likely inflation that will result from government monetary policy.
To reduce the complexity of their vast options, we chose to work backward. By asking the question "how much income do you need today to meet you basic monthly expenses?" we were able to plan the appropriate portion of their retirement assets required to generate sufficient guaranteed cash flow. This would allow them to know that their basic needs are met without having to worry about the fluctuations of the stock market. Because we knew this fundamental piece had been addressed properly, we were able to build from that foundation and move other assets back into the market with an investment advisor to help them hedge against the pace of inflation and the possible decline of their purchaing power. By choosing to use this method, they can have confidence that their lifestyle is protected and they can receive their fair share of the growth that the economy and the market will provide.
