“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money.” – Anonymous
Hosting a radio talk show and taking calls from listeners with questions about money has taught me to listen more carefully for the question behind the question. For instance, a caller will ask a question such as, “Am I making a mistake to retire when I turn 62, or should I wait until I’m 65?”
What’s really going through the caller’s mind is, “I’m afraid I may run out of money. I have no guarantee. My money is in a retirement account that is tied to the stock market. What will happen to me if it takes another nosedive?”
When it comes to mapping out a financial future, many don’t seem to know exactly where they are going. When you ask them to color in the details and explain exactly how much income they expect to have coming in each month during their retirement – and exactly where that money will come from – they can’t tell you.
And yet, if asked, “Would you like to have a guaranteed lifetime income in retirement?” the resounding reply from most people would be: “Yes!”
One of the most critical topics that needs discussing, and yet one of the most ignored by most financial professionals, is how to create a lifetime-income strategy. This is partly the result of uneducated consumers who are not aware that such strategies exist.
Think of five buckets – specific purposes for your money that provide present and long-term financial health.
- Bucket No. 1 is immediate income. It represents money that starts in the first year of retirement and continues for the next five years. You and your financial advisor will establish a budget that’s right for you. The assets we place in this bucket meet the criteria of being reliable – a series of CDs, for example, with the maturity dates staggered the maturity dates. We could use a combination of CDs and bonds, or an immediate annuity.
- Bucket No. 2 is years six through 10. Another five-year bucket will generate the income while the bulk of your assets continue to grow as much as safely possible. As with the first bucket, there are a number of savings/investment vehicles we might use here, all based on individual circumstances.
- Bucket No. 3 is lifetime income. This bucket has been waiting until year 10 to do what we put it here for – generate a lifetime income. Here is where we scan the shelves of all the retirement programs out there for the best guarantees.
- Bucket No. 4 is emergency money. This money will earn interest until you need it. But it must be fully liquid.
- Bucket No. 5 is extra money. Now that all of your needs have been accounted for, both current and future, the rest of your assets go into this bucket. Risk is not so much a concern here because you are certain of an income that you cannot outlive.
Peter J. D’Arruda is the president and founding principal of North Carolina-based Capital Financial & Insurance LLC (www.capitalfinancialusa.com), and president of the International Association of Registered Financial Consultants. Known as “Coach Pete,” he has authored six books on finance, including his most recent, “7 Baby Steps to a Ridiculously Reliable Retirement Income.” He also hosts the nationally syndicated “Financial Safari” radio program.
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