Control Your Retirement Destiny

In this episode, podcast host and author of “Control Your Retirement Destiny” Dana Anspach covers additional content from Chapter 7 of the 2nd edition of the book on “Pensions.” If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon. Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.   Chapter 7.5 – Podcast Script Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of Control Your Retirement Destiny, a book that covers all the decisions you need to make as you plan for a transition into retirement. This podcast covers a small part of the material in Chapter 7 on “Pensions.” We realize that, today, not everyone has pensions, but for those of you who do, you have some very important decisions to make. Let’s take a look at some of those decisions, and the errors you really must avoid.————— If you have a pension, count yourself lucky. This is a powerful benefit plan. There are many decisions that you have to make, and I want to talk about three of them today: Whether to take your plan as a lump sum or annuity.What age you should begin your pension.What survivor option to choose. Let’s look at the biggest mistakes people make in each of these areas. First, should you take your pension as a lump sum? Not all pensions offer this choice. Some require you take it out in the form of life-long monthly payments, which is referred to as taking the annuity option. Many pensions also give you the option of a one-time lump sum payment. Which is best for you? There is no way to know for sure without doing a mathematical analysis. You calculate what the monthly payments are worth based on your life expectancy and you compare that to the lump sum. In the majority of cases I see, and I’ve seen a lot of them, the monthly payment option is best. Why does it work that way? There are a lot of risks you take on when taking the lump sum. What if the portfolio earns less? What if someone cons you out of some of the money? What if you live longer than you expected? The pension plan handles these risks for you and there is a company called the Pension Benefit Guaranty Corporation that insures most pension benefits. When you take the lump sum, these risks are not covered. Many people take the lump sum, make poor investment choices, and run out of money. If they had taken the annuity choice, they would have had income for life. What if you meet an investment person that says they can earn you a much higher rate of return if you take the lump sum? Be skeptical. Be very, very skeptical. If you are tempted to believe them, go back and listen to Chapter 5, the podcast on “Investing”, and specifically, the section on “The Big Investment Lie”. Also consider their motives. Do they have a financial incentive to get you to take the lump sum? Hmmmm. You’ll also need to decide what age to take your pension. If you retire at 55, do you start the pension right away, or wait until age 60 or 65 to take it? This is another scenario that requires analysis. I’ve seen pensions where there was absolutely no benefit to waiting until a later age. And, I’ve seen pensions where it paid off to wait until age 65 to take benefits and in the meantime withdraw funds from other accounts. Another key decision you’ll make is what survivor option to choose. If you’re single, it’s likely you’ll choose the life-only option, which means the pension pays out as long as you are alive. You can often combine this with a ten year term certain option. This means if you were to pass before ten years had gone by, the payments would continue to a beneficiary until the full ten year term was reached. If married, it gets a bit more complicated. You can choose an option that pays 100% of the benefit to your partner when you pass, or 75%, or 50%, or none. Th

In this episode, podcast host and author of “Control Your Retirement Destiny” Dana Anspach covers Chapter 6 of the 2nd edition of the book titled, “Life and Disability Insurance.” If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon. Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.   Chapter 6 – Podcast Script Hi, I’m Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. I’m also the author of Control Your Retirement Destiny, a book that covers all the decisions you need to make as you plan for a transition into retirement. The book has incredibly thoughtful 5-stars reviews on Amazon. If you like what you hear today, go to Amazon and search for Control Your Retirement Destiny. Or, if you are looking for a customized plan, visit sensiblemoney.com to see how we can help. This podcast covers the material in Chapter 6, on life and disability insurance. Both types of insurance can protect you and your family against risks that can derail your retirement security. Today, I’ll be teaching you how to assess your insurance needs, and how those needs change over time. Let’s get started. ————— As a financial planner, I think of financial products as tools… perhaps in the same way a carpenter might view his or her own toolbox. You look at the job, you look at the tools, and you figure out which ones will help you most effectively do the job. Insurance is a financial tool. Unfortunately, many of us have an instant adverse reaction when we think about insurance, or even hear the word. I believe this happens because most of the time our experience with insurance is associated with either a salesperson trying to get us to buy more, or a benefit selection page where we feel like we are just guessing as to which options to pick. Overall, we don’t have very many positive experiences with insurance. That means you have to do a bit of a mental shift to begin thinking about it as a tool. For example, what if you begin thinking of insurance like a seat belt? Then, you view it as a safety feature. Hopefully you never need it, but, if you do, you’ll be glad you got in the habit of buckling in. Of course, it’s a bit more complicated than that - because the type of insurance you need changes as you age and as your financial situation evolves. Overall, though, both seat belts and insurance are there to protect you against a risk – a risk that you hope never materializes. Let’s discuss how to think about this type of risk. Any conversation about insurance should start by assessing your exposure to a financial hardship, as insurance is all about shifting risk. When you buy insurance, you choose to pay a known premium so that if a devastating event happens, the insurance company bears the bulk of the financial burden. Not all risks are equal. Take the common example of your home burning down. Although unlikely to happen, if it does burn down, the consequences are severe. Therefore, if you own a home, you carry homeowner’s insurance. You choose to pay a reasonable premium to minimize the financial impact of such an event. Contrast that with death. There is no argument that death is a high-probability event. There is no question of “if” it will happen – it’s only a matter of when. The severity of the financial impact, however, depends on where in your life cycle it occurs, and who is financially dependent on you at the time. If you’re young, and have a spouse and children, your premature death is likely to cause a big financial hardship for your family. But, if you are retired, and either single, or your spouse will have the same income and resources regardless of your death, then the financial impact of your death is minimal. Thus, in your younger years, particularly if you have dependents, death is a low probability but high severity event