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.
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. The experience can often feel like traversing a very long and dangerous road where each future curve or hazard is unknown. Without a map or guide the twists and turns can be daunting.
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 being spiritually rooted and centered in contribution is at our core. Scripture provides direction with the simple passage, “if ye are prepared ye shall not fear.” Being prepared for economic risks can mitigate the fears associated with a myriad of retirement threats. 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. Again, the preparation phase is one of developing the financial strategies to mitigate them.
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.
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 eventually 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 the 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.”
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.
Americans are living longer. Gone are the days when you retire at 65 and then pass at 72. My own grandfather lived to 104! 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. Address this risk by having basic monthly living expenses protected by some sort of guaranteed lifetime income instrument. Structuring this type of retirement income as a portion of one’s total income helps mitigate this 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 advisable.
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.
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 guide us in unfamiliar territory. Engage a competent financial professional who has the heart of a teacher. At McKell Partners, we live in this space every day and love to pay it forward. Don’t hesitate to reach out if we can be of any assistance. Happy trails!
Mark McKell is the Managing Partner of McKell Partners, a full-service wealth management practice. Its mission is to “Help individuals and families experience financial peace so they can focus their lives on what matters most." Mark is focused on providing the personalized financial services retirees and pre-retirees need to combat the risks associated with retirement.
With a BS in Accounting from Brigham Young University, Mark has worked as a financial professional since 1985 and has acquired a depth and breadth of knowledge that comes from over three decades of experience in a variety of financial arenas. Those arenas range from public accounting with Ernst & Young to positions as a corporate controller, CFO, and CEO. In 2001, he decided to devote his experience and training to helping people with their personal financial goals.
Away from work, Mark is a dedicated family man and committed to his church, country and community. He and his wife, Susan, have been married for over 35 years, and have four married children including six wonderful grandchildren.
To learn more about McKell Partners and their services, simply visit mckellpartners.com. Visit Mark’s personal blog at markmckell.com where he shares his thoughts about what matter most.