Can you remember a time when you were truly fearful?
I remember one night as a child of about 11 years old, getting a phone call from a neighbor late one night with some terrifying news. At the time, my Dad was the youth church leader of a very large congregation and so he was often gone on Saturday evenings supervising youth events. My Mother would often go with him. On this particular Saturday night, they were at a large youth dance of 300-400 teenagers. My sister went with them for the first time having just turned 14. She had always baby sat me and my two younger brothers when ever my parents were away.
This evening was the first time I had been asked to baby sit my younger brothers. Lying in bed around 10pm the phone rang. It was my neighbor, Mr. Carter. We lived in a rural area with very few neighbors. We had seven acres of land that surrounded our home and two neighbors that were close by… Mr. Carter said, “I just got a call from the Sheriff. There is an escaped convict in the area. Don’t turn on your lights, but go around and make sure all of the doors and windows are locked.” And then he hung up the phone.
I remember standing there speechless hearing the dial tone after he hung up. Ah, my heart began to race. I was all alone. My brothers were sleeping. I didn’t think it was a good thing to wake them. I remember grabbing my baseball bat and making the slow fearful journey around my large one story dark house making sure every window and door was locked. I was terrified! Every sound seemed to signal an intruder. What was I to do?
About half way through my pacing I heard the sound of a helicopter overhead. It sounded as though it was right above the house. You can imagine the sound and is reverberated through the roof. I crawled over to the window only to see a spotlight shining down on our front lawn from the helicopter, no doubt searching for this person. The light moved back and forth, over the top of the house, across the front yard and then to the back. My worst fear was that this individual was going to break into the house for refuge and cause me harm…
Needless to say, I was terrified. This was the first time in my life I remember being truly scared. The adrenaline was pumping, my nerves were on edge and every sense and anxiety was alert. I will never forget this experience. Well, yes, they did catch him that night. And yes, we were okay, but this was an experience I will never forget.
We all experience fear in different ways and it can come in all shapes and sizes. I have cliff jumped on many summer vacations at Lake Powell, Arizona. What an incredible place! Standing at the top of a 30-40’ cliff and jumping into the water below. Now, that’s a different kind of fear and exhilaration! Certainly, all of us have stepped off the edge of a curb on a busy downtown street and felt the fear of a large truck or bus racing by as our stomach leap into our chest. That feeling of our lives in a “close call situation” can be most fearful.
In our financial lives fear can manifest its self as well. Losing a job, having bills you can’t pay, a foreclosure or repossession, a business failure, a bankruptcy or mounting medical bills that cannot be met. Even worse, having a loved one need long term care and watching your hard-earned estate liquidated over time on your way to indigent care through State Medicaid. I have seen families experience this and it is not only financially devastating, but emotionally exhausting.
As a young man, I spent two years in the Philippines as a missionary. My three sons also served church missions around the world and so spiritual principles and contribution is at our core. Scripture provides much advice about our financial lives, but the simple passage, “if ye are prepared ye shall not fear” is illustrative here. Being prepared for economic risks can mitigate the fear associated with these threats and can help us sleep peacefully.
As you enter pre-retirement the game begins to change. Retirees are faced with a variety of economic risks they may find unfamiliar. If these risks are not identified, quantified and prepared for, they can produce significant financial fear and angst. The preparation phase is one of developing the financial strategies to mitigate them. Like a spare tire in the trunk or my baseball bat that I was hoping to weld at a no doubt much stronger escaped convict, financial strategies serve to combat the economic risks we fact. For this writing I will set the strategy conversation aside.
Consider six economic risks faced in retirement.
Market Risk – As we enter retirement our time frames shorten. Our ability to rebound from a significant market loss becomes more difficult. Imagine retiring in 2007 without having assets positioned properly in the market. If you are withdrawing living expenses from a market based account in retirement, then Sequencing of Returns and Withdrawal Rate Risk must be understood and addressed. Working with a financial professional focused on retirement income strategies can be most helpful in this regard, especially in tailoring a specific strategy for you.
Survivorship Risk – What happens to your income when a spouse passes? There may be reductions in pension income and most certainly Social Security. In short, when a spouse passes you lose the smaller Social Security check. Devising a financial strategy in the present to replace this eventual lost income would be advisable, wouldn’t it?
Long Term Care Risk – As noted earlier, the costs of a potential long-term care event could be devastating to an estate. The average length of care in a nursing facility is about three years and four years if receiving care at home (Source: U.S. Department of Health and Human Services. “Who Needs Care?” 24 June 2016).
Google, “Genworth Financial Cost of Care Survey” to determine costs of care in your area. Simply enter your zip code and see the costs. You can even project future costs based on inflation. There are a variety of strategies to mitigate these risks. To learn more read this article I published entitled, “The One Incident That Could Change Your Entire Future.”
Inflation Risk – As we get older, we all understand inflation. I am in my mid 50’s and the first tank of gas I bought when I was 16 years old was 49 cents a gallon. Those were the days! Inflation decreases our purchasing power. Living potentially 25-30+ years into retirement without addressing this risk can be worrisome.
Longevity Risk – Americans are living longer. Gone are the days when you retire at 65 and then pass at 72. My own grandfather just turned 103! I have clients who are well into their 80’s that say, “Mark, we never thought we would live this long” and yet they are living vibrant lives. Running out of money is the number one fear in retirement. Increased mortality bolsters longevity risk. It is advisable to address this risk by having at least your basic monthly living expenses covered by some sort of guaranteed lifetime income instrument. Structuring this type of retirement income as a portion of one’s total income is a top priority with our clients.
Legacy Risk – Providing for an intelligent transfer of assets at one’s passing is a worthy goal. Our objective is to keep the money in the family. Wouldn’t you agree? Remember, different asset classes pass to the next generation differently with respect to taxes. Learning the nuances here and then matching them to your goals and objectives is key. The use of wills, living trusts and power of attorney documents both for medical and financial purposes are applicable here.
There are other economic risks, but engage these as a start. Remember, developing effective financial strategies to mitigate these risks is essential to financial peace and being free of worrisome fear.
Why is it that we tend to procrastinate financial preparation for some of the most consequential aspects of life? I believe the reason is often a lack of education and having someone to help us navigate unfamiliar territory. Engage a competent financial professional who has the heart of a teacher to help you. At McKell Partners, we live in this space every day and love to pay it forward. Don’t hesitate to reach out to us if we can be of any assistance. Happy trails!