Last week I started a two part column focusing on “The Seven Retirement Income Lies.”
So this week, I’ll finish out with the last four retirement lies.
4. You don’t need life insurance anymore.
Go find a widow (or widower) who received a large tax-free life insurance check from their deceased spouse and ask what they think of life insurance. Be prepared to hear a long and wonderful story about how much it meant.
Then, ask a CPA or estate planning attorney what they think about life insurance. Every top CPA and estate planning attorney that I know seems to adore it. By the way, this might be a good litmus test to see how good your accountant or estate attorney is.
So let’s use our common sense for a moment here. If your spouse dies, what financial asset could they leave that would be better than a big, fat, tax-free check? Answer: nothing.
Now, a follow-up question: when are you most likely to die; before retirement or after retirement?
And the final question; does it really make sense to get rid of your life insurance right before you would likely actually use it? I believe that in most situations, retirees with limited wealth should keep their life insurance policies. Of course if you knew when you would die it would make the planning part much easier.
5. You’re retired, therefore your money must be liquid.
We serve hundreds of families in our firm, and have yet to encounter the family who needed any significant liquidity from their retirement plans. People don’t seem to need large amounts of liquidity; they need regular, consistent income.
One of the times that you just might need some sizable liquidity is when you have healthcare concerns that lead to long-term care costs. This is why you should plan on having a long-term care policy or other investments that allow you your liquidity in the event of long-term care needs.
Remember, there is a cost of liquidity. When your accounts are liquid, you are probably either giving up safety or giving up growth potential. You can’t have it all.
6. Annuities are “bad.”
If anyone tells you any financial product is either “good” or “bad,” you want to run away from that person as fast as you can. Financial products are equivalent to tools in a toolbox. You wouldn’t, for example, want to put a nail in the wall with a saw. Obviously, you would use a hammer. That doesn’t make the saw or hammer “good” or “bad”. It’s simply a question of using the right tool for the job.
This idea that annuities are “bad” comes straight from Wall Street because when you put money in annuities, that money is not going to Wall Street. You can imagine how they feel about that.
Annuities are designed to provide guaranteed lifetime income. This is something that many retirees find important. As a result, it often makes sense for retirees to include annuities as a portion of their overall portfolio. But remember, it’s critically important to choose the right type of annuity for your goals.
7. The advisor who got you to retirement is the same advisor who can get you through retirement.
This is a particularly difficult area for many people. But the truth is that staying with the advisor who got you to retirement may very well lead to real trouble during your retirement. Why?
It’s because getting to retirement is all about focusing on growth and accumulation. Getting through retirement is about preservation and income. And managing a portfolio for growth and accumulation is child’s play compared to managing for preservation and income.
The advisor who got you to retirement may be good at growth and accumulation. However, preservation and income planning is its own specialty. Retirement represents a fundamental shift in your life. Doesn’t it make sense that your portfolio should also fundamentally shift to reflect that?
Again, this flies against Wall Street’s best interest because they make their money on growth and accumulation strategies and products. Preservation and income is a different ballgame, one in which they don’t play.