The Triple Crown of Retirement Planning

 

by Barry Unterbrink

I am thinking of the Kentucky Derby race this Saturday, so let’s relate the retirement planning process to horse racing. They do have some aspects in common to learn from.

Successful horse racing takes preparation, good nourishment, medical attention, and lots of training. Horses have to be trainable quickly since their racing lives are short, compared with the timeframe that we humans have for generating peak income for use in retirement planning.

Some horses catch on and earn handsome money for their owners; some are ornery and don’t catch on much at all. A few can’t make it around the track and don’t finish their races. 

Race horses start generating income as two-year-olds, the equivalent of an early teenager for us.

For some of the best horses, the biggest chance to race for big money and prestige are in the following year. The Triple Crown races: Kentucky Derby, Preakness Stakes and Belmont Stakes are only for 3-year-olds.

It is a period when humans are in college or are just starting their careers.

Soon, life stages for horses and humans become similar.

When a male thoroughbred horse reaches age 6, it is the equivalent of a 40-year-old human. Most of the best ones have been retired to stud (breed). Many of their owners already have substantial wealth - often through inheritance. Like the rest of us, they are looking for safe ways to preserve and grow their assets for them and the next generation.

However, many horses in that age range are geldings and they are running in claiming  races where the purses often are less than $20,000. The Triple Crown races pay $600,000 to $1.8 million to the winner.

Many of us suffer layoffs and other career setbacks in our 40s and 50s like raising a family, divorce, caring for our parents, etc. The resulting declines in pay and potential savings can be like moving from stakes races to claiming races.

The lesson here is the importance of getting an early start and a plan on prudent retirement planning. 

I’ll lay out three general areas that I think are needed to accomplish the Triple Crown of Retirement Planning. My next post in a couple weeks will then expound on the merits of each area and the strategies in more detail.

The individual nuances of a specific plan will most often result in different dollars in each strategy, but the frame-work will be the same. You decide if it makes sense for your important retirement money. I think it does for the majority of my clients.

1>    Cover your basic living expenses in retirement with a GUARANTEED source of income. By doing this, if the other two strategies don’t perform as planned, you’re not in deep trouble with your basic living expenses.

1. Guranteed Income for Life
a. Social Security is a guaranteed income each month until you die, so that would qualify.
b. A company pension is also guaranteed income for you and/or your spouse; that fits the bill.
c. An lifetime income annuity will work also, funded with either qualified or after-tax money. It guarantees an income you cannot outlive.

Note: An IRA or 401k or similar account invested in the markets does not qualify here, unless it provides a guaranteed income.

2>   2. Variable Portfolio – this is a brokerage account, IRA or other securities account – that invests in stocks, bonds, and some alternative assets like Gold and commodities. It can fluctuate up and down with the economy and supply/demand; and hopefully grows in value over time. You need this portfolio to grow your money, since the mostly ‘fixed’ payouts from the first strategy may lose purchasing power due to rising prices (inflation) in later years. 

Y  You can also take money to spend (income) from this portfolio it your budget needs it beyond the fixed account payouts in #1, but extra caution is advised! Any money taken will affect your future growth of that money; the very thing that you DON’T want to happen. I have been using a quite effective, low-cost variable portfolio since 2011 with client accounts that can earn more and offset inflation. Ask me about that.

Here’s a video link of two investors whose retirements worked out very differently based on their retirement dates. Please play it.
See: https://truchoicefinancial.com/Videos/SequenceOfReturnsRisk

3>    3. Health Care: It’s the third leg of our Triple Crown retirement plan. This third leg is the hardest to handicap, like the final race of the Triple Crown – the Belmont Stakes. That race is the longest of the three, at 1-1/2 miles.

Health Care costs could well be the longest, prolonged cost that you least expect. It puts forth a very uncertain outcome. Outside of the Medicare system, other health care costs could well throw your retirement money and possibly a big part of your estate into a state of chaos and loss. Long Term Care could prove to be very expensive.

Some facts on Long Term Care (LTC)
1.  70% of us over 65 will need some form of LTC during our lifetimes.
2.  LTC costs are rising each year by 3% to 5%.
3.  Medicare covers just the first 100 days of LTC, or skilled nursing care, NOT custodial care like bathing, dressing, and transferring.

Personal note: I can tell you what LTC costs are today in South Florida. My father entered an assisted living facility in January due to a stroke; private room: $5,000 a month. A family friend is in the same type of facility in Hollywood; semi-private room; $2,300 a month. Luckily, Mom and Dad both have LTC policies that will cover most of their room and board expenses for 4 years if needed.

Question: Could your finances handle that type of cost if you were to need LTC? If you are married, consider double that if you both need care.

Fortunately, plans exist today that are VERY affordable, and give you great leverage of your health-care dollars; and even a benefit of cash value if you never use the LTC. I feel very passionate about this topic that does not get much positive press due to lack of information.  I made my own application last week – at age 63, for a long term care plan that will pay me cash each month if I need it, and a benefit to my heirs if I don't use it.

There are plans that are stand-alone and combination plans available. Beyond your mid-late 60's, many are not available, even if you are in good health. 

I hope you have gleened some useful points made here on both retirement planning and health care planning that you should consider discussing with your family and financial advisor.

They work hand-in-hand as they have the capability to guarantee an income (#1), Grow your estate (#2), and then preserve your money and estate for your loved ones. (#3).

The Triple Crown of both horse racing and retirement planning are very worthwhile and rewarding pursuits, for both equines, their owners, and us two legged humans.

Reach out to me should you desire additional information or to meet; watch this blog for updates.

~Barry

P.S. The Kentucky Derby will be run this Saturday, May 1^st at about 7:00 PM EDT. Check your T.V. providers for the broadcast schedules.

*The Triple Crown has been won just 13 times in the past 146 years. To win it, your horse has to win three races, across three racetracks and three distances. On average, the horse must run faster than about 33-35 other horses in the three races combined!