Each time I meet with a new prospective client we do a number of exercises: reviewing wills and trusts (if they have them) to make sure they still conform with their posthumous and current wishes, looking at old insurance policies, an investment review and a host of others determined by the individual or couple I am meeting with. Cash flow, including income and expenses are usually at the top of the list. Our goal at the onset of our meeting is to determine if there is flat, positive or negative cash flow. Flat meaning that monthly it's basically money in and money out, positive meaning that there is money left over at the end of the month and negative... well this leads to the question "what wakes you up at 2 AM." Once one stops working income is usually based on 3 income sources: Social Security, a fixed pension payment, and income from IRA's or other retirement funds. Shifting to the new paradigm of retirement can be a financial shock, as the loss of wages at most times leads to a reduced income flow while the person or persons always imagined the retired life being full of fun and games, with enough funds to support it. Flat or negative cash flow tends to put a crimp in that lifestyle.
Upon further investigation however, I usually tend to ferret out funds the persons have that are not being used to create income: Savings, CD's stock accounts, or any number of variations. When I ask about these accounts, I get answers like "Oh that's for when I get older" (newsflash: read the date of birth on your driver's license!) or "that’s for an emergency" (again, newsflash: not having enough money at the end of the month for food can be considered an emergency by most). There seems to be a disconnect between having the lump sum of principal with the income it can potentially provide, which can literally mean the difference of making your monthly bills or not. This relates to a subject I have written about previously: the difference between the accumulation stage of your life, and the income stage of your life. The accumulation stage is from the time you begin working and saving, for those big things in your life: getting married, having children, buying a boat, college planning... anything it takes to have a sum of money to accomplish the goal, including retirement. The income stage is stage 2- utilizing the accumulation of your funds to create income to make the retirement state of your life fun and secure. Since the accumulation stage usually goes on for 45 years of so (starting around age 20 through normal retirement age 65) the switch to income seems foreign, an invasion of all that you saved, and to some extent a hoarding mentality ensues. Here's the big news guys- pay attention- THIS IS WHAT YOU HAVE BEEN SAVING FOR ALL THESE YEARS! Why do I call it dead money? Because although it may be fun or make you feel good to see the balance in your account, it does nothing to enhance your present quality of life. If reading your statement every month is your idea of a good time, so be it. I however, would prefer to turn that statement into an income source and enhance your quality of life- my idea of a good time. Don't need it? Spend it on your kids, take another vacation, and get yourself that special something you always wanted but could never bring yourself to buy. The investment community has changed over the past years, and there are more investment opportunities available than ever to give you options to create additional income sources.
Knowledge is power: do your homework. As they say, if it sounds too good to be true, it usually is. Be sure you are working with someone who you trust, is reputable and has been around the block once or twice as they say. Regardless of the income or investment program you may be considering, be sure you can sleep at night with it. As you know, I am a great believer in living life to its fullest- and you should too. While today's economy and market is not very favorable on interest rates of savings, CD's and bonds, it is more important than ever to consult with your investment professional and Certified Financial Plannerâ„¢ to find out how you may be able to enhance your income while staying within your risk tolerances. You did a fine job of accumulating your assets, sending your kids through school, and sacrificing all those years while you were squirreling money away. Now is the time to use it to your advantage to up your quality of life: and take dead money and turn it into income money.
