What does financial balance in retirement look like?
First, it's important to recognize that most balance sheets aren't depleted in retirement because of underperformance – it typically happens because of unnecessary exposure to risk. So, Rule #1 is to manage retirement risks – having a strategy for the personal risks (living too long, dying too soon, getting sick along the way) and the broader economic risks (market volatility, income taxes, inflation). We spoke about 5 specific risks in a prior post.
With a strategy to address these risks, consider that Rule #2 is not about asset allocation, but Cash Flow Allocation – ensuring we have a balance between guaranteed income (like Social Security, Pensions, and Annuities) to cover essential expenses and non-guaranteed income to cover additional discretionary expenses from sources like investments and retirement accounts.
Rule #3 is to maintain sufficient true liquidity at all times; this will make it easier to engineer things like guaranteed income, or to reduce the risk required to produce variable income. True liquidity is found in things like checking and savings accounts, money market accounts, CDs, and the cash value of some life insurance policies; it is not necessarily relied on to produce ongoing cash flow.
Finally, Rule #4 is to make every effort to minimize income taxes in retirement by taking advantage of tax efficiencies.
Need to take a closer look at how your balance sheet is positioned to “follow the rules” laid out above? Reach out to us…we’ll be glad to help you gauge your retirement readiness.
This material is intended for general use. By providing this content Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity.
The primary feature of whole life insurance is the death benefit. All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.