Episode 17: How To Find The Purpose of Your Money in Retirement

Reading Time: 7 minutes

One big mistake in retirement planning is not giving your money a clear job. Many people save for years, but when they reach retirement, they don’t have a plan for their money. They’ve got a big pile of savings with no real purpose. This approach can lead to problems because they expect this undirected money to cover everything: income, growth, leaving something for the kids, and being there for emergencies.

Think of it this way: using your retirement funds without a specific plan is like a ship sailing without a destination. That ship needs to be heading somewhere specific, or it should be securely anchored. If it’s just drifting, it’s at the mercy of the tides and the weather.

So, it’s crucial to start asking yourself some important questions to define what you want your money to do. These questions are the first step in giving your retirement funds a clear purpose, ensuring they work for you in the best way possible.

Question 1: How Much Income Do I Need and Want?

This is the starting line for every retirement plan. Knowing the difference between your needs and wants is critical. Your ‘need’ is about covering the essentials—housing, food, healthcare, and keeping the lights on. Your ‘want’ is about the lifestyle you aspire to have in retirement—travel, hobbies, and maybe spoiling the grandkids.

To get this right, we begin with a simple yet thorough review of your current expenses and project them into your retirement years, adjusting for inflation and changing lifestyle choices. This isn’t about pinching pennies or sacrificing the joys of retirement. Instead, it’s about creating a strategy that ensures you have enough income to cover your basics and enjoy the extras without worry.

One tool we often turn to for securing your ‘needs’ is an income annuity. It’s a straightforward, reliable way to guarantee you’ll have money coming in for as long as you live. You put in a certain amount, and in return, you get a steady paycheck for life. It’s about turning a portion of your savings into a predictable income stream, much like your paycheck during your working years.

And this isn’t just something I recommend because it sounds good. The value of an income annuity in a retirement plan is well-documented and supported by countless retirement economists. They agree that the guaranteed income from an annuity can play a crucial role in a well-rounded retirement strategy.

And that’s not Marty’s opinion. That’s the consensus between all the economists who study retirement.

Question 2: How Money Much Can I Risk For Long-Term Growth?

This question is all about balancing your need for growth with the reality of market risk. After we’ve secured your income for essentials and a bit of what makes life enjoyable, it’s time to look at what’s left and decide how much of it can work harder for you, aiming for growth over the long haul.

Understanding risk tolerance is key here. It’s not just about how much you’re willing to see your account balance fluctuate; it’s about knowing how much risk you can actually afford to take without jeopardizing your essential income needs. This is where we talk about the portion of your savings that you’re comfortable having exposed to market ups and downs, with the potential for higher returns.

For many, the answer ties back into the foundation we’ve built with guaranteed income sources, like social security or a pension. These are your financial bedrock, ensuring you can cover your needs regardless of how your growth-focused investments perform. For some, rental real estate might play a role in this equation, offering both income and potential appreciation.

It’s about creating a diversified portfolio where your growth investments have room to breathe and work for you, knowing that your essentials are already taken care of. This strategy lets you pursue growth with confidence, aiming to increase your wealth over time without losing sleep over short-term market swings.

Now that could be social security, it could be a pension, it could be rental real estate.

Question 3: How Much Money Should I Leave as a Legacy?

This is a question that goes beyond finances; it touches on your values and what you want to leave behind for your loved ones or favorite charities. Leaving a legacy is about making a meaningful impact that continues after you’re gone. But, it’s crucial to balance this desire with the reality of your retirement needs. The goal is to ensure you live your retirement years to the fullest without compromising your financial security.

Start by determining a specific amount you wish to leave behind. This could be a sum of money, property, or a combination of assets. It’s also important to have open conversations with your family or beneficiaries about your intentions. This clarity can help manage expectations and plan more effectively.

For those looking to leave a financial legacy, life insurance is an incredibly efficient tool. It allows you to provide a significant tax-free benefit to your beneficiaries, often for a fraction of the value of the policy. This approach ensures that your loved ones are taken care of without dipping into the assets you need for retirement.

But what if life insurance isn’t an option for you? That’s where certain types of annuities come in. Some annuities are designed with legacy planning in mind, offering a guaranteed death benefit that can grow at a predetermined rate each year. This feature provides a way to leave behind a substantial sum, regardless of market conditions or how long you live.

Because you can buy tax-free death benefit for pennies on the dollar, and if you cannot qualify for life insurance, then there are annuities that will grow the guaranteed death benefit at a guaranteed rate every year.

Question 4: How Much Do I Want in an Emergency Fund?

his is a question that hits at the heart of financial preparedness. An emergency fund isn’t just a good idea; it’s your financial safety net. It’s about having ready access to funds when life throws you a curveball, be it unexpected medical bills, home repairs, or even navigating through tough economic times without tapping into your retirement savings prematurely.

Determining the right amount for your emergency fund involves a look at your monthly expenses and imagining what kind of financial surprises could realistically arise. While conventional wisdom suggests having three to six months’ worth of living expenses saved, I encourage you to think about what makes you feel secure.

Remember, the purpose of this fund is liquidity and stability, not growth. That’s why I recommend keeping your emergency fund in places where your principal is protected and the money is easily accessible. Traditional savings accounts are a go-to, but they’re not the only option. Money market accounts, for instance, might offer slightly better interest rates while still providing the safety and accessibility you need.

Question 5: How Much Do I Want To Give To Charity?

Giving to charity isn’t just an act of generosity; it’s a strategic component of comprehensive retirement planning. It reflects the values you hold dear and the impact you wish to make beyond your own financial needs. But incorporating charitable giving into your retirement plan requires thoughtful consideration to ensure it aligns with your overall financial goals and doesn’t compromise your retirement lifestyle.

The amount you decide to give should resonate with your desire to contribute to causes important to you, balanced against your need to maintain financial stability throughout retirement. It’s about finding that sweet spot where you can make meaningful contributions without jeopardizing your own financial future.

Strategically, there are tax-efficient ways to give that can benefit both you and your chosen charities. For instance, Qualified Charitable Distributions (QCDs) from your IRA can satisfy your Required Minimum Distributions (RMDs) while reducing your taxable income. Another avenue is utilizing a Charitable Remainder Trust (CRT), which can provide you with income during your lifetime and benefit your chosen charity thereafter.

Choosing the best method for charitable giving from your retirement funds depends on your specific financial situation, your tax obligations, and your charitable goals. This is where specialized advice comes into play.

Question 6: How will I pay for long-term care?

This question is critical and often overlooked until it’s too late. Long-term care encompasses a range of services and support you might need to meet your personal care needs over an extended period. Whether it’s in-home care, assisted living, or a nursing home, the costs can be significant and are not typically covered by traditional health insurance or Medicare.

Addressing long-term care is about safeguarding your retirement savings from unforeseen medical expenses that could otherwise deplete your financial resources. It’s not just about you; it’s also about alleviating the potential burden on your family. The key is to plan ahead.

There are several strategies to consider for covering long-term care costs. Long-term care insurance is one option, providing a daily amount towards care for a set period. Another strategy involves hybrid products, like certain life insurance policies with long-term care riders, which allow you to use some of the death benefit for long-term care costs.

The choice of strategy depends on your individual circumstances, including your health, age, and financial situation. It’s important to evaluate these options early, as the cost and availability of long-term care insurance can vary greatly depending on age and health status.

I understand that navigating long-term care planning can be complex. That’s why I’ve dedicated a section on my website to this very topic, offering a range of resources to help you understand your options and make informed decisions.

Get The Long-Term Care Insurance Guide Here

Question 7: How Much Inflation Do I Want To Prepare For?

Inflation is the silent thief that can erode your purchasing power over time, especially during retirement. It’s not a question of if inflation will affect your retirement savings, but by how much. Planning for inflation means ensuring that the money you save today will still hold its value and purchasing power in the future, allowing you to maintain your desired lifestyle without compromise.

Understanding and planning for inflation requires a strategic approach to your investment portfolio. It’s about balancing the need for security with investments that have the potential to outpace inflation over the long term, such as stocks or real estate. However, this doesn’t mean chasing high returns without regard for risk. It’s about thoughtful asset allocation and diversification to protect against the volatility of the market while seeking growth.

Another aspect of planning for inflation involves reviewing and possibly adjusting your withdrawal rate from your retirement accounts. A fixed withdrawal strategy might not suffice as inflation changes the cost of living. Adjusting your spending patterns and withdrawal rates can help your savings last longer and keep pace with inflation.

Inflation planning also extends to considering the types of accounts you’re saving in. For example, Roth IRAs and Roth 401(k)s offer tax-free withdrawals in retirement, which can be advantageous in a higher-tax and higher-inflation future environment.

In essence, preparing for inflation in retirement planning is about staying flexible and responsive to economic conditions. It involves making informed decisions about your investments, spending, and saving strategies to ensure your retirement funds can support you throughout your golden years.

But if you have a purpose to your money, it’s something that can be planned for.

In the podcast episode, I go deeper into how I go about finding the true answers to these questions. Make sure to give it a watch or listen to help yourself begin to understand the purpose of your money

If you have any questions about this process, or would like my help turning your answers into a strategy, make sure to schedule a call by scheduling a time on my calendar.

Episode 17: How To Find The Purpose of Your Money in Retirement


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