Your greatest asset
“The question isn’t at what age I want to retire, it’s at what income.”
— George Foreman
Think for a moment about your biggest asset.
What is it that adds the greatest dollar amount to your personal balance sheet? Got it? What did you come up with? Your home? A luxury car? Maybe your 401k? These are typically the largest assets on an individual’s balance sheet, but all pale in comparison to the greatest financial asset of all — your income.
Your income provides for basic living expenses as well lifestyle spending and all savings and investments. Without it, there is very little that can be accomplished financially speaking.
There are many risks to our income both before and during retirement. According to the Social Security Administration, just over one in four of today’s 20 year-olds will become disabled before they retire. When asked, 64 percent of wage earners believe they have a 2 percent or less chance of being disabled for three months or more during their working career. This is obviously much less than the actual odds of around 30 percent. A much lower risk is the loss of income to defendants because of a premature death. While many have some form of life insurance to help cover this risk, most income earners are grossly under-insured to actually replace the loss of income to a spouse or children.
After retirement the stakes grow even higher as income is typically received through the liquidation of savings and pensions. While much attention and marketing is given to educating the public on “safe” investments for retirement, it is far more common to find retirees that are not getting ENOUGH growth from their money to provide an income for their expected lifetime. Here are some things to consider as you look to protect your greatest asset.
1. Establish an Emergency Fund. This is income protection 101. Store away three to six months of living expenses as a first line of defense should you find your income eliminated or decreased for any reason. Even if it only begins with saving a few bucks a month, this should be a primary goal.
2. Consider disability insurance. The odds of losing income to disability are far greater than any other risk including premature death. When looking at a policy, look for an “own occupation” policy that will pay out even if you are able to work in a different field with your disability.
3. Own some life insurance. As a general rule, term life insurance is the best choice for income replacement strategies. Consider a death benefit of at least 10 times your annual living expenses.
4. Consider annuities in retirement. While there are many pros and cons to consider when utilizing annuities in a plan, there is simply no better way to guarantee income than an immediate annuity or an annuity with a strong guaranteed income rider. Just be careful not to lock up too much wealth in these pseudo-liquid accounts.
5. If you are in retirement, be sure that your investments are not so conservative that you will deplete your assets prematurely. Growth is necessary even in retirement.
6. Maximize your Social Security income. Most people choose to receive Social Security at the earliest age possible. This is rarely the best choice. Married couples have hundreds of combinations that can be chosen when taking Social Security benefits with many resulting in double digit increases in retirement income. Visit socialsecuritytiming.com to learn more.
RC Arseneau is a Certified Financial Planner and lives with his family in Delaware. Please submit any questions or topic requests to AskRc@mail.com.
The information and opinions in this column are provided only for educational and entertainment purposes. Any reference to a financial product or strategy is not to be considered an endorsement or recommendation. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional financial, legal or tax advice. Investment Performance may vary due to timing and expenses. Rc recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.