Financial security during retirement is no guarantee. In fact, Outliving Your Money is the #1 fear among retirees. Not far behind are the fears of Losing Principal, High Health Care Costs, and Higher Taxes. Most people, including many financial advisors, do not know that each of these fears can be replaced with guarantees and control. This book shows you how. What would it be worth to eliminate these fears and not have to worry about uncertainty? You can guarantee financial security during retirement.

Fear Free Retirement

Enjoy Financial Peace of MindBy Richard E. Gearhart Sheilah Bower Steve Lawson

AuthorHouse

Copyright © 2011 Richard E. Gearhart
All right reserved.
ISBN: 978-1-4567-3118-2

Contents

Introduction................................................................ixSection 1: Eliminate Your Fear of Outliving Your Money......................1Chapter 1: The Right Tool for the Job.......................................3Chapter 2: Net and Gross Income.............................................5Chapter 3: Assumptions......................................................7Chapter 4: Retirement Income Options........................................11Chapter 5: Guaranteed Income Stream.........................................15Chapter 6: Annuities........................................................19Section 2: Eliminate Your Fear of Losing Principal..........................23Chapter 7: "What Financial Recovery?".......................................25Chapter 8: Market Options...................................................29Chapter 9: Insurance Companies..............................................41Chapter 10: Comparisons.....................................................47Section 3: Eliminate Your Fear of High Healthcare Costs.....................51Chapter 11: Healthcare is Freakishly Expensive..............................53Chapter 12: Reduce Your Risk................................................55Chapter 13: Insure Yourself.................................................59Chapter 14: Manage Health Risk..............................................63Chapter 15: Long Term Care..................................................65Section 4: Eliminate Your Fear of Paying High Taxes.........................69Chapter 16: Tax Introduction................................................71Chapter 17: Impact of Taxes.................................................73Chapter 18: Timing of taxes.................................................77Chapter 19: Options.........................................................81Conclusion..................................................................85Endnotes....................................................................91

Chapter One

The amount of money needed for a financially secure retirement depends largely on your lifestyle, health, and how long you will be retired. One of the most important elements in a successful retirement plan is having an adequate cash flow. People can be misled into thinking that the best way to achieve this is by squirrelling away huge sums of money in their savings account. Investment firms even air television ads that shout "the bigger, the better" regarding your bank balance on the day you retire. While having a large nest egg is beneficial, by itself it cannot guarantee you will not outlive your money.

Even though many investment companies and financial advisors stress the importance of a huge pile of money at retirement, there are three main flaws in their logic. The first flaw occurs when advisors assume there's only "one right tool for the job." The second flaw dismisses the important difference between net income and gross income when planning for the future. The third involves assumptions. Let me explain how these three flaws affect future retirement goals.

Flaw #1: "There's Only One Right Tool for the Job"

Have you ever purchased a car? Were you looking for the fastest car on the street, the one that could drive off-road the best, or the one with the best gas mileage? It would be great if one car could be the best at all of them, but you know that is not the case.

The Corvette is sleek and fast. The low profile and road-hugging body that make it fast are the very features that make it horrible to drive off-road. The higher wheel base of a Jeep makes it much better for traveling off-road and the wider body makes it more stable. Those same qualities make it less aerodynamic and not as fast. Corvettes have a lot of power to go fast and Jeeps have a lot of power for hauling. However, that power comes at a price. Neither is as fuel-efficient as a Toyota Prius.

What's the point of all of this? Financial products are often referred to as financial vehicles because they hold your money. Some financial vehicles are designed for growth, some are designed for an exciting ride (if you like roller coasters) and others are designed for distribution. In other words, the very features that make a mutual fund exciting are the exact features that make it a poor vehicle for distribution. On the other hand, there are specific financial vehicles that are designed only for distribution.

You can try to dress up a Jeep with a sport package and turbo charge it, but it still won't go faster than the Corvette. Of course the Jeep salesman will gloss over that fact while reminding you of the Jeep's off-road capabilities and how well it handles in snow. That is what most financial advisors tell you at retirement. There are many other options not available from your advisor so he quickly redirects you to a different feature (we'll explain why in the next chapter). Suffice it to say there are products that can guarantee you will never outlive them and these are often the right tool for the job. I will discuss these in detail in Chapter Six.

In the next two chapters, I will explain the other two flaws in the logic behind needing that huge pile of money at retirement: dismissing the difference between net and gross income, and assumptions.

Chapter Two

Flaw #2: Dismissing the Difference between Net and Gross Income

The second flaw comes from how we look at the difference between net and gross income: Assume you compare two financial vehicles as potential retirement income options. They can both generate an income of $4,000 per month. One of them is tax free and you get to spend all $4,000. With the other one you have to pay taxes of 15%, leaving you with just $3,400 per month. Are the two vehicles equal?

What if we combine this with the right tool mentioned above? Two financial vehicles can both produce $4,000 per month. Vehicle #1 has no taxes and Vehicle #2 is taxed at 15%. In addition, Vehicle #1 guarantees that $4,000 (with occasional increases) for as long as you live while Vehicle #2 should be able to pay you for 20 years. Depending on how the market performs, that could be shorter or longer. Which vehicle makes the most sense as a retirement vehicle?

All things considered, Vehicle #1 is obviously a much more desirable retirement vehicle. As a matter of fact, maximizing your retirement net income for life should be a much higher priority than maximizing the pile of money you have the day you retire. I have seen people retire with $400,000 in Vehicle #1 who had a greater guaranteed monthly income than people who retired at the same time with $700,000 in Vehicle #2.

If my $400,000 can outperform your $700,000, if it meets or exceeds all of my monthly expenses, is the actual number my most important concern? Or is it more important to meet all of my expenses and know that I'll never run out of money?

Let's think of it another way: Assume your expenses are $3,500 per month. Option A can guarantee a net income of $4,000 per month for as long as you live (and it will adjust for inflation.) Option B can pay you $4,000 gross each month, leaving you with $3,400 after taxes. And there's no guarantee that $3,400 will last as long as you do. So...