Piloting Your Financial Aircraft

April 18, 2014

Toward the end of my two-year missionary experience in the Philippines some 30+ years ago, I became acquainted with several people at Philippine Airlines. I can’t recall exactly how it happened, but I got a chance to board a brand new Philippine Airlines 747 at the Manila International Airport. The plane arrived from the United States a day or so before. It was so new there was still plastic on the seats and protective covering and runners down the aisles. It had not yet taken its maiden flight, so they were making final preparations for its first passenger trip. In short, it still had that “new car” smell!

In a post 9/11 world our spontaneous private tour would never have been allowed. Oh, how times have changed! The culmination of the tour was an opportunity to sit in the main cockpit. What an amazing experience to sit in the pilot’s seat. It was an engineering masterpiece. I was overwhelmed with the number of gauges, levers, toggle switches and indicator lights that made up the controls of this huge aircraft.

At the main console I was shrouded by navigational equipment and controls. My mind wandered to the intense training and knowledge a pilot must acquire to safely fly such an enormous aircraft. I wondered what it would be like to be at its control. As I focused more clearly I was fascinated by the main dashboard in front of me. In this area there were just a few main gauges. No doubt these were the gauges that guided the most important functions of the plane.

As seniors chart an effective financial course, there are numerous financial gauges to observe and monitor. However, there are predominantly three central gauges that must be considered in piloting one’s financial life. These gauges are not mutually exclusive. Although separate, they must be evaluated as a whole since their characteristics are interrelated and thereby influence each other. The gauges are Living, Legacy and Long Term Care. Let’s discuss each one.

Living – The “Living Gauge” addresses the topic of retirement income. With the prospects of living upwards of 30+ years in retirement, the issue of running out of money is a common fear. Will you outlive your money or will your money outlive you? Are you taking more market risk than necessary which could erode important future income producing assets?

What about taxes and inflation? Have you planned for a future contingent income stream to combat these eroding factors? What about survivorship risk, meaning what happens to household income when a spouse passes? Social Security income drops as well as other income sources like a pension. Do you have a strategy to replace or offset lost income in this situation?

Legacy – How assets pass to our heirs is the number one question at my monthly educational seminars. This is the “Legacy Gauge.” Wills, Living Trusts, Financial & Healthcare Powers of Attorney and questions regarding Probate are important. I am working with a client presently whose brother passed away three months ago. No estate planning was performed. In short, he left his 78 year old sister a mess! It will likely take 18-24 months to sort out the details with the courts and various financial institutions. Unnecessary time and money could have been saved with proper planning.

Meaningful legacy strategies exist that can reposition assets to favor the next generation. For example, a 77 year-old female desired to pass on $450,000 to her heirs. Because of a structured guaranteed life insurance strategy, she only had to set aside $250,000 to produce the desired $450,000 tax free benefit to her two children. This planning efficiently freed up $200,000 in assets that could now be allocated to other Living or Long-Term Care needs!

Long-Term Care – The biggest financial risk most Americans face is the cost of Long-Term Convalescent Care. Paying attention to the “Long-Term Care Gauge” is essential to financial peace. Seniors want to be financially independent, especially when it comes to care. Unfortunately, most retirees believe that traditional long-term care insurance is the only answer. This is not true! There are other more viable asset-based approaches that can provide a significant increased level of long-term care protection. And if one does not need the care, an increased death benefit can go to heirs tax-free. Seniors need to learn about these other long-term care options.

For seniors, monitoring the gauges of Living, Legacy and Long-Term Care is essential to reaching one’s destination of a “happily ever after” retirement. As noted, these financial gauges are not mutually exclusive. One must seek appropriate guidance so the needs and demands of each area can be addressed through the execution of meaningful financial strategies. Effective preparation can allow one to sit back and enjoy the flight!