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.

Posted by RC Arseneau on Feb 5 2013. You can follow any responses to this entry through the RSS Feed. Comments can be made below.