Should Your Retirement... Crash?

 -       By Robert & Deanna Goldsmith

A financial and retirement crash, what? Have we totally flipped?  Well, not exactly!  You see, we are not inferring a stock market crash, nor are we suggesting you should wind up broke, but yes, we did say “crash.” However, what we are suggesting is a completely different sort of crash. 

The year 2005 saw the release of the controversial Academy Award-winning movie “CRASH.” And, while the premise behind this movie has nothing, absolutely nothing to do with our reference to it here, there is one important component to this movie that makes it relevant for you, and in particular, for your financial future.

The Opening

The movie opens with a “CRASH” (obviously, a brilliant title), a car accident where one car rear-ends another. The crash occurs at a crime scene investigation. The car that was rear-ended was driven by a police officer headed towards the scene. Of course, for dramatic effects, the plot thickens, but for that version, it’s best you watch the movie. For us, “Crash” has a different twist. 
The movie entwines multiple yet separate storylines, all seemingly unrelated with virtually nothing to do with one another. However, as the movie unfolds, we learn, that they all DO have something in common, something called “The End!” Whereas each storyline is but a chapter in a “Bigger Picture.” And, as we discover, if each separate scenario did not occur in the exact “sequence” they did, the crime, the investigation, and by default, the crash never happens, “The End” never materializes. That means every story and each character would have experienced a different outcome. Now, you’re probably thinking what does this movie have to do with your retirement? 

The Underlying Message

Just as the storylines in the movie are separate events entwined leading to the eventual conclusion--the crash, almost every aspect of your financial life should also be entwined, leading towards your desired outcome. However, unlike the movie where the ending only happened circumstantially, your retirement crash will only happen intentionally.  It can only be the result of a carefully planned, well organized, a combination of financial products designed to work as one cohesive unit, each playing a specific role in your plan.  “The End” results should provide greater control, flexibility, and most importantly, the maximum financial benefits you’re entitled to--your very own “crash!”  
Why That Retirement Crash Rarely Occurs? 

When a consumer purchases a financial product, they generally make their decision based solely on the product itself, what it “is” and what it is specifically designed for; life insurance for death protection, annuities for income, mutual funds for growth, etc. However, because so little is known about how some products may also work as a cog in their financial engine, many people make purchases unwittingly and without consideration of their overall value to a “plan,” a value beyond just its original purpose.

Actually, many products serve a purpose other than its original intents and financial products are no exception. For example; soda-water, a beverage, that can be used to remove a coffee stain. Baking soda intended for cooking but can be used to remove corrosion from a car battery. Or, how about a bed of rice to dry out a waterlogged cell phone. What is not common knowledge is how some financial products can serve a purpose beyond its original intent which can enhance the storyline of your retirement movie.

The Missing Ingredient- It’s “Coordination!”

The missing ingredient in most financial plans is what we call “coordination,” an intentional grouping of specific financial products correlated to work together... intentionally.  The objective: to have all of your products, savings, insurances, investments, etc., each with their own specific features and benefits playing a role in your coordinated financial plan because of their effect on the entire plan. 

Coordinating Your Retirement 

When planning for retirement, there are two halves to consider, the accumulation half, where you save and grow your money, and the distribution half, when you’re receiving your funds back as an income.  And, it’s important to have both halves coordinated from the start as they are not mutually exclusive.

Unfortunately, many people (even advisors) typically focus only on the first half without any consideration of the impact each product may have on the second half. The reason many plans can go awry.  

For example, the majority of retirement savings are locked into government-sponsored programs such as 401(k)’s, IRA’s and pensions (if you’re lucky enough to have one) and I get it, they are the most popular, most commonly promoted options. Add in the “presumed” immediate ability to save on your taxes today, and there is a perceived incentive to use them.  

However, what is often missed is, how will those plans affect your Social Security Benefits?  Or, how does Uncle Sam decide on how much of your money he wants from your savings during retirement? And, that’s just for starters. Here are some additional questions that you need to consider when planning your retirement.

1.    Can you avoid losing money to a stock market crash, before or during retirement?
2.    Where will all of your investing and planning lead you? 
3.    What income can you expect to attain during retirement? 
4.    Will your income be fixed, or can it be increasing helping to help offset inflation? 
5.    Will your assets and your income last throughout your lifetime? 
6.    Will you need to forfeit potential growth to receive the highest income from your savings? 
7.    What will happen to your estate if you or your spouse develops a critical or chronic illness?
8.    Can you afford the premiums to pay for an illness that may never occur? 
9.    Is life insurance necessary if you have accumulated substantial assets? 

I’ll answer number nine now. If you’re married and or wish to leave a legacy to your heirs... Life Insurance is not an option, it is mandatory! 

“Are We Communicating Yet?” 

So, will you be receiving the minimum or the maximum income distribution when you retire? Is your retirement plan discussing your potential outcome with your Uncle (Sam)?  Do you know if you will be in a higher or lower tax bracket than you are in today when you retire? Will your estate be subject to erosion due to fees, expenses, and the IRS when you pass on? 

Each and every one of these questions is why we’ve always maintained that one of the important principles to retirement planning is the coordination, every facet “talking” to the other. Your 401K, talking to your tax planner, who is talking to your healthcare, which is communicating with your insurance plans, and so on.   

The Final Sequence! 

And, last but not least, just as there were sequences to the storylines leading up to the crash, there are also, sequences in the distribution phase of your retirement called “The Sequence! (I know, just brilliant!).  So, how does the sequence affect your retirement? 

Frankly, there are at least two important areas where “sequence” plays a role during your distribution phase. Here’s the first one; “All financial plans are not created equal!” Especially, with how they are treated by the IRS. Has anyone ever explained to you how withdrawals from one account over another might increase or decrease your tax liability? There are advantages to the sequence of your withdrawals. However, many people take sporadic withdrawals from whichever account they choose without regard to the overall tax implications, and for that reason, it’s easy to mess things up. 

I know, this all sounds so complicated, well yeah, it is! You can’t just wing it on your own or with an unqualified advisor. Well, you can, but then you can’t complain when your results are less than what they could have been! That’s why you must have a knowledgeable, trusted professional in your corner. (By the way, I know a really, really good one).

The Epilogue 
Together, we have spent over 50 years in the financial and retirement planning arena working directly and indirectly with thousands of clients while mentoring hundreds of advisors nationwide. What we have learned from our experiences is just how little is really understood about the process of plan design, coordination, and product communication, the proverbial cliché of putting “Two plus Two plus Two” together!” In the end, it’s those separate storylines applied in the right sequence, used properly that can allow you to control the lifestyle you’re entitled to, your very own “CRASH.”   
The good news: Done right -- “You don’t have to be a millionaire to retire like one!”


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