Of course, everyone knows the biggest fear that retirees have: dying broke.

According to the accounting firm of Ernst & Young and the Center for Retirement Research at Boston College, a household relying on income from Social Security and from $300,000 or less in savings has a 90% of going broke.

How does this happen? According to the research it is a combination of things, but mostly it boils down to unexpected expenses and increasing income on depreciating assets. That is just a fancy way of saying that every time you need money above income, you reduce your assets. And, every time you reduce your assets, you reduce your income because there are fewer assets available to produce income.

Now, here is the big question: is there anything that can be done about this? The answer is YES. It can often be as simple as taking a portion of the existing assets and turning them into lifetime guaranteed income to supplement the Social Security income. When sufficient assets are devoted to producing income, the need to tap into other assets is greatly reduced. We have seen from experience that the odds of going broke can be flipped to a 90% chance of never going broke rather than a 90% chance of outliving assets.

There are only two places you can go in the United States to get income that is guaranteed to be payable for your lifetime.

One is Social Security provided by the U.S. government, and the other is legal reserve insurance companies.

Social Security is guaranteed only to the extent Congress keeps it’s word on the guarantees. We have already seen the promise that Social Security would be a separate trust fund broken and we have seen the promise that Social Security income would never be taxed broken. It is a hard fact that the rules can be changed any time Congress wants to change the rules. Insurance companies, on the other hand, have to honor the terms of the contract they make with you -they are not free to change things the way Congress can.

Those are the two choices. Nothing else can guarantee a stream of income that will live as long as you do. Stocks, bonds, CDs, mutual funds, or anything else you can name cannot provide lifetime income on a guaranteed basis.

Guaranteed lifetime income from an insurance company -what we call a private pension, is also the perfect supplement to Social Security. If SS income is not, or will not, be enough for you to live on, then a private pension is the answer to increasing lifetime income. It is very simple to calculate exactly how much income you can receive lifetime for an amount of money put into a private pension. Plus, there are numerous other advantages, like safety, creditor protection, predictable growth, and tax deferral.

Going after investment returns is the wrong way to look at retirement investing. Returns mean nothing.

Everyone seems to be looking for getting 7% “return” on their money. Here is why returns mean nothing, and let’s look at an actual case we have:
Bob and Sue had $1 million in their retirement portfolio. In good years they had a 7% return, which they felt good about. They felt especially good since they were taking out 5% per year for income -about $50,000 per year.

And then 2007/2008 hit and the investments that were giving them a 7% return were now worth about $500,000. Now, what do you suppose happens when you keep taking $50,000 out of investments that are now worth $500,000? That’s right, you’re taking a withdrawal of 10% per year which is a recipe for going broke -and doing it fast.

Of course, Bob and Sue could also reduce their income to $25,000 which would bring them back to a 5% withdrawal. By the way, how did Bob and Sue come up with the 5% withdrawal rate in the first place? Because their broker told them it was a safe rate and that their nest egg would still grow safely at a 5% withdrawal rate. Study after study has shown that a 5% withdrawal rate has a 30% chance of leaving you broke during retirement.

Wouldn’t it make more sense to have a guaranteed return of income of 5% of your investments rather than any withdrawal rate that may or may not work? Of course it would -especially if the guarantee was lifetime for both spouses.

That is why we say that a return rate is meaningless as long as the return is calculated against an asset that can shrink or even disappear. What you really want in retirement is cash flow -income- not return. It is income that allows you to live the lifestyle you want to live in retirement.

Our own prediction is for a flat, stagnant market in this decade with inflation starting to become a serious problem in the next few years. If that turns out to be true, return rates are going to become even more meaningless than they are now.

Depending on age and other circumstances, we have been able to get a 6% guaranteed return of income for our clients from their investments. Call and ask me how.

The outcome of good retirement planning is income.

Four Mistakes Women Make Managing Their Money.

Most of the time, you manage your money successfully, handling your day-to-day finances and saving and investing for the future. But nobody’s perfect. Even if you’ve made some of the following money mistakes, there’s plenty you can do to get your finances back on track.

Mistake #1: Ignoring your credit rating

One of the most common mistakes women make is not establishing a solid credit history. Having a good credit history will give you more–and often better–financial options. Lenders will review your credit history when deciding whether to extend you credit. If your credit history is good, you may be offered credit at more advantageous terms, potentially saving you hundreds or even thousands of dollars in interest. And here’s some extra incentive: prospective employers or landlords may check your credit history before offering you a job or renting you a home. Here are some ways you can help keep your credit history healthy:

• Regularly check your credit history. You’re entitled to a free credit report once a year from each of the three major credit reporting bureaus. To request your report, call 877-322-8228 or visit www.annualcreditreport.com.
• Don’t cosign loans or sign joint credit applications without understanding the consequences. You will be legally obligated to repay the debt, and any late payments may hurt your credit rating.
• If you struggle with debt, don’t wait to take action. Call your creditors. They may be better able to work with you before you get too far behind. Ignoring the situation will make things worse.

Mistake #2: Saving for your child’s education–but not your own retirement

As a parent, you may feel it’s your obligation to pay for all or part of your child’s college education, and you may put off saving for retirement until you’ve done so. While it’s natural to want to put your child’s needs first, you don’t want to sacrifice your own financial security. Your children have many options for financing college, and many years to pay for it. On the other hand, you can’t borrow money for retirement, and with a limited number of years to save, it’s hard to make up for lost time. Make saving for retirement your priority, and save for college when your budget allows.

Mistake #3: Underestimating the need for life insurance

Like many women, you may not have enough life insurance. If you’re staying home to raise your family or if you have a part-time job outside the home, you may think that you don’t need it, based on your income. But you’re contributing a lot to your family’s finances, even if you’re not the primary breadwinner. The services you provide for your family are invaluable. If you were to die, would your family members be able to afford college or continue to save for retirement? Would they have enough to cover ordinary living expenses? Life insurance can help protect your family’s finances even after you’re gone.

Mistake #4: Not planning for a long retirement

The good news is that retirement is likely to last 20 to 30 years, but that’s also the bad news–if you’re not prepared. Outliving your retirement income is one of the biggest risks you face. According to recent statistics, a woman who reaches age 65 can expect to live until at least age 85 (with many women living longer). (Source: National Center for Health Statistics, Volume 56, Number 16.) Yet because women typically spend less time in the workforce and may earn less than their male counterparts, their retirement savings and benefits are often shortchanged.

So what can you do to make sure you’ll have enough income to last throughout retirement? Here are some suggestions:

• Set a realistic retirement savings goal, save as much as you can, and keep track of your progress.
• If you’re married, plan for retirement with your spouse. It’s especially important to account for your joint life expectancies and ensure that you have a steady stream of lifetime income.
• Find out how much you can expect to receive from Social Security, and what you can do to maximize your benefits.
• Consider buying long-term care insurance to help protect your retirement savings from the high cost of long-term care. And because women are often the primary caregivers for a loved one, consider coverage for family members as well.
• Take into account the higher taxes you will likely have to pay. We see this almost every day. Most women do not plan for the fact that they will be filing singly, not jointly. This can instantly bump you to a higher bracket.

The biggest threat to a successful retirement is income drawdown -increasing income on a depreciating asset.

It is easier to explain the income drawdown concept with some examples. Suppose you have $350,000 in savings and you will soon have Social Security rolling in. Suppose further that your financial advisor has told you that you can safely take 5% per year from your investments without a problem and that with a 5% rate of withdrawal, your investments will continue to grow to cover inflation. Sound familiar so far?

So, let’s assume that you will have (or currently have) $1,400 a month in Social Security. Let’s assume further that you are planning on taking 5% from your investments each year to give you an additional $1,458 a month income ($350,000 x 5% = $1,458/mo). The income you are planning on having will therefore total $2,858 per month.

Now, let’s assume for a moment that we have 2001 where the market dropped 40% or 2008 where it dropped nearly as much. Now your investments are worth much less and you are faced with now having income based on 5% of a much lower figure. You now must either take less income or tap into your principal to bring your income back to where it was. If you do tap into your assets to make up for lost income, you now have even fewer assets and even more of an income problem. You can easily see how this can result in a downward spiral.

Besides market risk, how about all the other unexpected expenses that can come along that your income stream cannot handle? What about the cost of long-term care or other non-covered medical expenses? What if you get sued? What if your mother-in-law has to come live with you, or for that matter your newly-divorced daughter? The list of maybes is endless, but you have the idea by now. The fact is, your income is tied to planning for the best case scenario, not the worst case. That is why so many people die broke.

Any retirement plan that depends on assumptions that are beyond your control is in danger of failing.

Depending on market type investments to provide your income in retirement is bound to fail, at least to some extent. If you look at market returns over the last fifty years, there are several periods where the market either declined or did nothing for as long as 18 years. How do you know that will not happen during your retirement years? Coincidentally, the average period of retirement is also 18 years according to the Census Bureau.