It’s genuinely difficult for the average consumer to understand all of the details involved in making smart choices with one’s money during the retirement planning process. Over time, I have tried to articulate and address
“retirement risk”. I have expressed
concerns about the various risk factors
such as longevity, medical expenses, investments and the death of a spouse
as, which can be real deal-breakers at retirement.
Yet, many well-intentioned advisors
and professionals never get it right.
It’s not just about a product; it’s about your particular situation. The
advice you get is, in part, determined
by your ability to explain what you
truly need. I thought I would give you a snapshot of a case study, which illustrates how we apply logic to solve problems and potential problems.
The Profile of Client X
This client came in recently. She has approximately $700,000 worth of mutual funds, variable annuities, EE bonds, fixed annuities, cash and checking accounts as well as a small life insurance policy. Her home is paid for and there are no debts.
The client is living on a modest social security check and a small pension left to her by her late husband. The client also has a son and a daughter. She wants to protect herself and her children from Medicaid spend-down.
Additionally, she has IRA monies and wants to protect that as well. She now understands that those funds are 100% taxable and, should she pre-decease before spending all of her IRA monies, they would be passed to her children, albeit as additional taxable income (which may cause them to have increased tax liabilities).
What Can She Do?
During this case review, I determined fairly quickly that the family needed to update their legal documents. We worked with a local attorney to establish trust documents, updated the will and made sure that the new trustee (her son) had the ability through Durable Powers of Attorney (financial and medical) to step in and “act” if my client could not, due to cognitive disabilities. Her late husband handled all of the investments and she really wasn’t sure what to do with them. I suggested a Fixed Index Annuity that offered principal protection and increasing withdrawal payments (contractually guaranteed to increase). She was relieved, as now she could begin to focus on matters that are near and dear to her heart, instead of worrying about having enough money to live on.
I also suggested a new type of life insurance policy that is geared to pay for “living benefits” such as long-term care and critical illnesses that would not necessarily be paid for by her traditional Medicare insurance. I put $200,000 of her monies into a single premium life insurance policy with no sales loads. This created a $450,000 tax-free death benefit.
Secondly, if she needs her cash, it’s liquid to her with NO surrender charges. She can also use 95% of the policy’s face value for long-term care or for critical care (cancer, heart attack or stroke). Additionally, she knows that her cash value is growing without risk of market fluctuations since her monies are not in the stock market. This program gives her a true sense of freedom and independence.
I also had her tax return reviewed by our tax professional, just to make sure she was doing all that could be done to assist her with lowering costs that affect her budget. Lastly, she knows we are only a few miles from her so if she has any questions or concerns, we are right down the street.
Time and space will not allow me to continue with all of this case study, but I think you’re getting the gist of this article. Make sure your advisor is looking after you and taking a look at the 30,000-foot overview (the big picture) so you’re not leaving out key planning issues that should be considered.
As always, if there is anything we can do to help, stop by for that cup of coffee—I know you’ll be glad you did!
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