Permission Slip for Retirement

Writing Your Own Retirement Permission Slip

As interest rates have dropped to historic lows and stayed there, some retirement planning benchmarks have lost their relevance. In this environment, many retirees find Certificates of Deposit don’t provide enough income, even if they are safe. And retirees who planned to “spend down” their assets using the “4 percent rule” are starting to worry about running out of money. The 4 percent rule is an assumption that retirees can safely draw down 4% of their retirement accumulation, plus a little more, each year to account for inflation. According to the 4 percent rule, first devised by William Bengen, a California financial planner, this format offers a reasonable expectation that retirees will not exhaust their funds for at least three decades, even if the actual returns from their retirement portfolio fluctuate over time. Several factors have upended the 4 percent rule. Low yields on the portion of the portfolio required to provide ongoing income have either meant more assets committed to income instruments, or required liquidation of principal. Either action leaves less for long-term investments that offer the promise of returns great enough to sustain a lifetime of distributions.

Closely connected to the issue of fewer funds available for long-term investment are the losses that many recent retirees sustained in the early years of their retirement. During accumulation, the sequence of gains or losses doesn’t impact the final accumulation; any order of identical gains and losses will produce the same result. But when one is withdrawing funds, losses sustained early in the sequence can decimate a portfolio’s ability to provide a lifetime income.

For those whose retirement plans are grounded in the 4 percent rule, the only fixes are working longer to increase the principal or planning to receive less income. These aren’t exactly win-win choices. But they do illustrate the potential shortcomings of trying to accomplish a secure retirement using just one format (a retirement plan).

Many times, coordinating several diverse assets can deliver better retirement results.

A prime example of this coordinating concept is making permanent life insurance part of one’s retirement plan.

In the 4 percent approach, the untouched principal serves as insurance for future income distributions. This creates an ongoing tension between enjoying today’s benefits and worrying about whether today’s enjoyment jeopardizes future solvency.

By contrast, having a true life insurance benefit in place allows for greater financial certainty. This certainty means retirees have the ability to use retirement assets in ways that would not be possible if the insurance did not exist. By providing a known amount of money for a certain event (death), the life insurance policy can deliver income tax free funds for inheritance, which means other accumulation accounts do not have to be conserved for this purpose. In the event of terminal or chronic illness, the cash value and a percentage of the death benefit may be accessed with a long term care rider. Again, this frees up more funds for income.

These strategies involving life insurance as a “last asset” make it possible to “spend down” other assets during one’s lifetime, thus maximizing their present financial value.

Because of the unique benefits of permanent life insurance in a comprehensive retirement and estate plan, financial professionals often refer to it as a “permission slip” because the life insurance allows for confident consumption of accumulated assets.The permission slip benefits of permanent life insurance are so expansive it is not uncommon for many individuals to obtain coverage in their 60s and 70s as they begin retirement. “I never thought I would be buying life insurance in retirement” is a common refrain. But waiting until just before retirement to obtain a permission slip has some hazards. Health and insurability are major concerns. Annual premiums will be significantly higher. A prudent approach is to establish a life insurance plan today that can be structured to meet tomorrow’s circumstances as well. If you want to fully enjoy the rewards of saving, make sure to include a permission slip.

Harry C. Brousaides, Jr.

160 Gould Street, Suite 310, Needham, MA 02494

Office: 781‐292‐3238 / Cell 508‐451‐5840

harry_brousaides@bulfinchgroup.com www.bulfinchgroup.com

Registered Representative of Park Avenue Securities LLC (PAS). Securities products and services offered through PAS. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of The Bulfinch Group, LLC. The Bulfinch Group, LLC is not licensed to sell insurance.

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