The excitement grew as we were about to board the Incredible Hulk Coaster. Suddenly, the roar of the cars and the howls of the riders hushed as the coaster shut down. “I don’t want to go on this ride… get me out of here now!” the young lady shrieked as her car readied on the launch platform. A ride with top speeds of 67 mph, high G turns, and seven inversions is a thrill to some. Others will disagree. I understand. And while I may enjoy a moment of thrill on an amusement ride, it’s certainly not the ride I want for my life, business, or retirement portfolio.
Ever find yourself in a place you didn’t want to be? How do you make decisions in a world of uncertainty? The most important question to ask is “What’s important about ___ to you?” Insert the word “money” for financial planning issues and discuss it with your family and advisors. Go far enough, you’ll build a hierarchy of values and needs. Generally the base is security (not living underneath a bridge with the trolls), upward to control and flexibility (doing what you want) and independence (not being a burden), and then achievement (satisfaction, making a difference and giving).
It drills down to the “whys,” and once they’re on the table, the “hows” come abundantly clear as friction – the force that makes the apparently easy thing difficult – fades away. It’ll help you build solid strategies that can better weather the strain of temporary disappointment or setbacks, and have the courage to change course as your world changes.
Some reflections on questions that have come my way:
Should I buy more years of service? It depends. Some government employees, teachers, etc. have the option of purchasing “service credit” to increase their future pensions. There’s usually a maximum you can buy and the “cost” is compensation-dependent. It’s a trade-off – giving up assets today for a promise to pay. Financial issues include affordability; assumptions regarding investment returns, longevity and inflation; taxes; and estate planning (survivor benefits). Often, deferred compensation or other qualifying retirement accounts are used to fund the purchase, and sooner-than-latter may make sense (more expensive as compensation increases). Emotional issues include control, flexibility, security (e.g. Detroit employees ought to be concerned), and a smaller balance sheet. Get information from your employer and talk to your advisors.
I’m close to retiring; do I renew a life policy that I don’t think I need? Perhaps. Four reasons for life insurance are income protection, debts (including unfunded obligations such as college funding), taxes and business needs (buy/sell, keyman, etc.). You may have others. Generally income protection declines as you approach retirement. The other needs may or may not decline based on your situation. Insurance planning is multi-dimensional (amount needed, insurability, taxes, etc.) so have discussions with advisors including your estate planning and insurance teams. And don’t forget to review ownership and beneficiary designations.
And I’ll close with a recent global poll by deVere Group (UK-based advisory group) that focused on the questions does money bring happiness and how much makes one “wealthy.” The majority (80%) responded “yes” to the first question. The amounts varied on the wealth question by region – $2.8 million in Hong Kong, $2.6M in the UAE, and about $1.35M in both the US and UK. It highlights that “wealth” is a subjective and largely relative issue. “What’s important about money to you?”