The Secret to a Financially Secure Retirement and How to Manage the Emotional Rollercoaster of the Markets
November 10, 2014 | Your Finances
Tom Weilert, a wealth management advisor for Northwestern Mutual, often talks about a longstanding, retired client who came into his office in 1986. She was age 60, excited about retirement, nervous and scared all at the same time. She had spent 35 years saving for retirement, and she had the largest pile of money she had ever had in her life.
But she didn’t know how to turn it into dependable income for the rest of her life; protect against inflation and/or market down turns; protect her husband, whose health was not as good as hers; and address the long-term care concerns she had.
The Planning Process
Weilert sat down with her and walked her through the planning process, asking her about her hopes and dreams and a number of questions to address each of these issues. First, they determined the base income she wanted for the rest of her life and made sure she had a couple of years of cash available. Then they used 40 percent of her total retirement funds to buy an income annuity¹ that would last her entire lifetime. This, combined with her Social Security and a small pension plan her husband had, would provide a lifetime guaranteed base income. Following that, they used 10 percent of her funds to buy a life insurance policy to help her cover some legacy goals. Eventually they used cash value that the policy built to help plan for her potential long-term care needs. Then they were able to take the remaining 50 percent of the assets and continue long-term investments in the market to help offset inflationary concerns.
Every time the market had a volatile change and the news appeared to be bad, she would call Weilert like clockwork. The phone rang after bad news in 1987, 1992, 1998, 2001 and 2008. Each time, the conversation went something like this:
“Tom, I’m concerned about the market. Is my money okay?”
Weilert would then respond: “Can we review your plan, and could I ask you a couple of questions?
“Have your long-term goals, dreams and objectives changed?”
She answered, “No.”
“Was your Social Security check deposited into your checking account this month?”
“Yes, it was.”
“Okay, good. Did your pension check arrive in the mail?”
“Yes, it did.”
“Okay, good. Did you get your annuity check?”
“Yes, I did.”
“Excellent. And do you still have 1½ to 2 years of emergency funds in your savings account?
“Yes, I do.”
“Haven’t we taken money from your investments (i.e., the market) to replenish your cash account when the markets were good?”
“And, haven’t we let the investments ride through the cycle when the markets were off?”
She would say, “Yes, we have.”
Then Weilert would say, “Then your money is just fine!”
His client would respond, “Tom, don’t talk to your momma like that.”
Each time his mother called about a market dip or bad news in the press, he would remind her that she had planned for the possibility of those events and that her investment account might go down from time to time. But because she had a solid financial plan and a foundation of guaranteed, reliable income that would show up each month regardless of what was happening in the market, she had the ability to ride out those market dips.
For 27 years, Weilert fielded calls from his mom—and many other clients like her—whenever the market became volatile or there was bad news in the press. Despite their natural concern, Weilert could always remind his clients they’d planned for market downturns. Weilert’s mom often said that was the best part of her plan. She didn’t have to worry about what was happening in the markets because she had a steady and reliable base income to meet her expenses. She had growing cash value in her permanent life insurance policy in case she needed it; and her remaining assets were fully invested, enabling her to take advantage of the long-term growth potential that a well-rounded and diversified investment portfolio has historically offered.
When Mrs. Weilert passed away last year, her retirement income strategy succeeded in another important way: “The plan we set in motion nearly three decades ago ultimately enabled my mother to also meet her legacy goals,” said Weilert. “Her remaining assets are now being used to help her children and grandchildren fulfill their dreams for the future. I’d love to tell her one more time: ‘Yes mom, your money is just fine, and your legacy is intact.’”
¹Income annuities are contracts sold by life insurance companies and generally have no cash value, are non-refundable and cannot be withdrawn from. All guarantees associated with annuities and income plans are backed solely by the claims-paying ability of the issuer.
All investments carry some level of risk, including potential loss of principal