Why You Shouldn't Have a Dollar Amount Goal For Retirement

I'm pretty sure everyone has heard the retirement analogy of how much money you need to retire. As in, what is YOUR number for retirement? In other words, how much money (the actual dollar amount) do you need to retire with. I've always had a hard time wrapping my hands around this concept. To me, that number is totally contingent upon an unpredictable market. I'm sure that if you asked the average investor that question in 2006 you would have a much different response to an investor today. Today's investor seems to have become either complacent or numb to volatility, believing that the ups and downs in the market is a new norm. Since elements of the market are out of the investors control, not much time is spent worrying about it; out of sight, out of mind. This is especially true for those who plan to retire within the next 10 years. The truth is we don't know what lies around the corner, nor do many know how or when retirement is going to be possible. So what if, instead, you didn't have to worry about a number; only a guaranteed monthly income check down the road? Not a pension, rather a strategy like a liquid pension; if one were to exist.

I read a friend's book, “Savior Retirement”, that talks about a retired pilot, who knows regardless of market conditions there was going to be a check in his mailbox (before direct deposit was the norm) every month for the rest of his life. These were the good ol' days of working for one job for life, with a gold watch and a pension at the finish line. Today pilots do not have pensions, only 401ks to count on. Today it's more like “what is YOUR number going to be for retirement?”. That belief is a misconception. With the market being at the highest its ever been, you can exchange “what YOUR number is going to be” with a check to ensure your retirement will never be disturbed, regardless of what the market throws at us. A monthly payment you can turn off and on each month like a light switch while having access to your cash value simultaneously. So, how can you do this?

You can only accomplish lifetime income through fixed indexed annuities (FIA). These products are usually backed by multi-billion dollar insurance companies, many of which funded the pensions in the past. The difference being, pensions were funded by group annuities provided through an employer, whereas a FIA is an individual annuity funded by a lump sum payment. Only an FIA will provide a lifetime payment with all the flexibility a pension fails to provide. Monthly payments within an FIA can start on the first month or on the 10^th year. Typically, the longer you wait for a monthly check the higher the payment will be. FIA's are able to do this through Income Account Values (IAV) that grow at a predetermined interest rate. IAV's grow separate and independent of the cash value and serve as a formula to determine what the monthly payment will be down the road. The IAV makes sure that your monthly payment will be guaranteed regardless of how high or low the market may go. Bottom line, the IAV does not guarantee a lump sum payout, but instead a guaranteed monthly payment. A monthly payment that you can start and stop at your discretion while having access to the cash value. The balance being, the more cash you take out with a lump sum the lower your payment for life will be adjusted respectively.

Because of the disappearing act of the pension, investors are turning to the FIA to maintain their quality of life in retirement. Investors are turning their backs to how high they can grow their portfolio, rather focusing on how much monthly income they can count on for all their retirement needs. Investors are starting to realize that the roller coaster in the market over the last several years is likely to continue, making it impossible to determine the dollar amount they need in time to retire. They want to know what they can count on when the time comes for retirement. Furthermore, that their day to day obligations and quality of life in retirement will be there for life.

When considering an FIA to meet your retirement needs, it is important to discuss your options with a licensed professional who specializes in FIAs. There are to many instances where financial professionals make the wrong recommendation to the client, meaning the recommendation was not the best for the client's needs. There are a lot of moving parts, like how the cash value accumulates interest, that need to be addressed prior to the recommendation. With the right FIA you can guarantee a monthly check for life throughout your retirement that specifically meets your needs.

Why Underwriting Is Crucial for Life Insurance

Have you ever wondered how a death benefit is determined in a life 

insurance contract? Whether or not you choose a term life, whole life, or 

universal life insurance contract, every contract comes equipped with a tax free death benefit, otherwise known as a face amount. But how does the insurance company come up with the magic number for a death benefit? It's all based on mortality tables using the health and age of the proposed insured. Let's take a closer look at how insurance companies rate each policy and how underwriting determines the outcome.

We have all heard of the term underwriting. However, underwriting can be used to analyze either the health of a person or the justification of a financial transaction, like a home mortgage loan. For our purposes we will be concentrating on the underwriting of an individual for a life insurance policy. Once a person has done the adequate research to determine what type of policy would be the best fit, the underwriting process of gathering information follows the signed application. After the application, the insurance company will set up an appointment with the proposed inured (the person applying for insurance) with a para med (usually a mobile nurse or health careequivalent). The para med will take down vital statistics of the proposed insured, including a blood test and urine analysis. This information is then sent to a laboratory to be analyzed for the insurance company.

Outside of the initial physical of the para med, other information is also gathered to determine the face amount of the policy. The age and sex of the insured is considered. Additionally, past medical records will be summoned from the acting physician to be reviewed by the insurance company. The lifestyle of the proposed insured is also reviewed, as a motocross racer has a much higher chance of being killed on the job than a receptionist. Lastly, the insurance company must consider the financial state, or suitability, of the client to determine if the recommended policy will meet the client's needs.

Once all of this information is gathered for the insurance company, the underwriter will then analyze this information and come up with a tax free death benefit. The underwriter basically calculates all of the risk (chance of death) of the provided documentation against set mortality tables before an offer can be considered. Generally speaking, the mortality tables provide a societal average of what a reasonably healthy person will live to be. For example, females tend to live longer; therefore, on average the death benefit for a female is slightly higher than a male. Mortality tables provide the insurance company with a time line of profitability to make sure the death benefits they offer do not put them in the red over the long term. Because of this life insurance payouts are much higher today then they were 50 years ago, as people are living much longer; translating to higher profits for the insurance company.

Only when all of this information is analyzed can an offer from the insurance company be made. This is why it is important to speak to a reputable agent discussing the financial needs of your life insurance policy. If the wrong policy is recommended based on absent facts, the long term financial consequences could be severe. For example, a person who wants a higher death benefit would be better off with a whole life policy as opposed to a universal life policy which concentrates on cash value accumulation. Pertinent questions must be addressed upfront at the time of the application to adequately determine the right policy. Bottom line, underwriting is a proven method that can help the proposed insured come up with the appropriate face amount for their family's needs if properly addressed.