Category Archives: Retirement Planning

Ideas to help preserve and grow your money

Medical Identity Theft Rising Fast

rolling-diceMy Comments: If ever there was a 21st century crime, this is it. We’ve all read about what happened to Target Stores and others where customer information was stolen. What we don’t often think about in this context are our own medical records, scattered across the health care landscape which we inhabit.

I’ve been aware of it’s significance since becoming aligned with a firm in Duval County called Caduceus Consulting. They’ve developed a professional liability policy that provides legal help for any physician or dentist exposed to a cyber threat. You can find an overview of it here:

The threat is real, and it can be expensive to remedy. Even if you only suspect a breach, EVERY possible patient whose name and records are in your records must be notified and advised. For the owners of a medical practice, to which law firm do you turn for help? Who has the technical undestanding and skills to help make the problem go away? Can you make it go away? How many thousands of dollars will it cost?

To the extent you are a physician or dentist in Florida, I have a very low cost solution to mitigate this threat to your future financial security.

Feb 25, 2015 | By Dan Cook

Medical identify theft increased by nearly 22 percent in 2014 compared to 2013. And this tough-to-contain realm of fraud will likely continue to grow due to conditions that have created fertile ground for this particular crime.

That’s one major takeaway from the fifth annual study of medical identity fraud released by the Ponemon Institute and the Medical Identity Theft Alliance, nonprofits dedicated to investigating the causes and ramifications of medical identify theft and finding ways to counter its spread.

The report does not take into account the Anthem hack, in which as many as 80 million consumers had their personal data stolen.

“Medical identity theft is costly and complex to resolve,” the groups’ study concludes. The study attempts to estimate that cost and outlines the reasons for its stubborn persistence.

Among the major outcomes of this study:
• Health care providers are not doing enough to secure patients’ medical records;
• Health care providers don’t respond in a consistent or timely manner when fraud is suspected or has occurred;
• Medical identify theft victims frequently don’t learn that their ID has been stolen until three months following the theft;
• Once they find out, it often takes months — and an average of 200 hours — to resolve a case;
• The cost to resolve the average incident is $13,500, a cost often paid by the victim;
• Many victims either don’t know who to report theft to, or are afraid to report it for a variety of reasons;
• Many victims report their identify was stolen by someone they knew, most likely a relative;
• Consumers and health care organizations believe the Patient Protection and Affordable Care Act has made medical identify theft more common due to insecure insurance websites;
• Theft generally occurs to access medical services and products, not to steal a patient’s identity for more general purposes.

The study’s authors said that, while such theft can’t be prevented, there are steps that can be taken to reduce its spread. They include:
• Monitoring of credit reports and billing statements for evidence of theft;
• Check in periodically with the primary care physician to ensure accuracy of medical records;
• When a consumer suspects identity theft, one should contact a professional identity protection provider for follow-up;
• Education of insured individuals about the risks of sharing medical identity information even with close relatives;
• Health care and other organizations that are responsible for securing patient information should have systems in place to authenticate all patients seeking services.

The full study, which is chock-a-block with details about this growing threat, can be found here

7 Social Security Mistakes to Avoid

SSA-image-2My Comments: Social Security payments are a critical financial component of many lives these days. When it began in 1935, there was much gnashing of teeth among the political parties since it represented a recognition by the government that some people needed help. This was in a world recovering from the Great Depression and watching the developing threat of Communism in the Soviet Union.

Today, many millions of us pay into the system monthly and many millions of us receive a check every month. Some of us, like a client of mine, has a permanent disability that he was born with and qualifies for help with living expenses. He has never been able to earn a living and few surviving family members to help him get by from day to day.

I readily admit to an element of socialism in this process. But I live in a world of rules imposed on us by society where society has deemed it to be in the best interest of the majority that those rules exist. Like making us all drive on one side of the road instead of at random. Think about that for a minute if you choose to believe that society should have no role to play in our lives or that socialism is inherently evil.

Okay, enough political chatter. Here’s useful information about claiming benefits from the SSA.

by John F. Wasik / FEB 17, 2015

Most clients get lost trying to navigate Social Security on their own. There are about 8,000 strategies available for couples and more than 2,700 separate rules on benefits, according to the Social Security Administration. Yet most couples don’t explore all the possibilities; as a result, they end up leaving an estimated $100,000 in benefits on the table, reports Financial Engines, an online money management firm.

For many advisors, talking to clients about Social Security often means having a brief conversation that ends with the traditional advice of “wait as long as you can until you file.” But Social Security, with its myriad filing-maximization strategies, should play a much larger role in a comprehensive planning discussion.

Consider these basic questions: How do you ensure a nonworking spouse reaps the highest possible payment? Should the higher earner wait until age 70 to receive payments? What’s the advantage of taking benefits at age 62? Should clients take benefits earlier if they are in poor health? How can divorcees claim a benefit based on an ex-spouse’s earnings?

Clearly, there are several right and wrong routes to maximizing Social Security benefits. Here are some of the most common mistakes and how advisors can address them.

1. Not planning for opportunity cost
What’s the cost of waiting to take Social Security? How will withdrawals from retirement funds impact clients’ portfolios?

Advisors need to understand how a Social Security claiming strategy will affect a client’s net worth, notes Ben Hockema, a CFP with Deerfield Financial Advisors in Park Ridge, Ill. “If you wait to take Social Security, that will mean withdrawing more money from a portfolio,” he says. “The Social Security decision involves trade-offs.”

Hockema runs Excel spreadsheets in conjunction with specialized Social Security software to show clients what opportunity costs look like in terms of lower portfolio values, displaying return assumptions with graphs.

Many financial advisors point out that the answer is not always to wait until 70 to take Social Security. You have to take a broader view.

2. Failure to consider family history
What are the client’s family circumstances? What do they expect in terms of life expectancy? Have other relatives been long-lived?

Even if answers are imprecise, the discussions can provide valuable insights into how to plan Social Security claiming, say advisors who are trained in these strategies. But it’s the advisor’s role to tease out that information, notes CFP Barry Kaplan, chief investment officer with Cambridge Wealth Counsel in Atlanta. “People often have no clue” about the best Social Security claiming strategies, Kaplan says. “It’s complicated.”

3. Not integrating tax planning

One key question to consider: What are the tax implications of a particular strategy, given that working clients will be taxed on Social Security payments?

Here’s how Social Security benefits taxation works: If your clients are married and filing jointly, and their income is between $32,000 and $44,000, then they may have to pay tax on half of their benefits. Above $44,000, up to 85% of the benefits can be taxed.

For those filing single returns, the range is from $25,000 to $34,000 for the 50% tax and 85% above $34,000. Be sure you can advise your clients on how to manage their income alongside their Social Security benefits.

4. Failing to ask about ex-spouses
Be sure to ask your clients about their marital history, understand what they qualify for and analyze how it will impact their cash flow. Was the client married long enough to qualify for spousal benefits? How much was the client’s ex making? Be sure to walk through different options with clients.

Kaplan offers the example of a 68-year-old woman who was twice divorced: “She was still working, and it had been 20 years since her last marriage,” Kaplan says. “I then discovered … a former spouse’s income that netted my client an immediate $6,216 — six months in arrears — and would result in an additional $1,036 per month until age 70, for a total [of] $30,000 in additional benefits.”

Kaplan’s divorced client was able to claim benefits based on her first spouse’s earnings, which boosted her monthly payment considerably.

5. Overlooking spousal options
A key question to ask: Does the “file and suspend” strategy make sense in your clients’ situation? In this case, the higher-earning spouse can file for benefits, then immediately suspend them, allowing the monthly benefit to continue to grow even if the other partner receives the spousal benefit.

The result: The lower-earning spouse can collect benefits while the higher-earning spouse waits until 70 to collect the highest possible payment.

6. Not taking advantage of new tools
Although specialized software packages can generate a range of benefit scenarios, only 13% of planners use subscription-based tools designed for Social Security maximization. (Most planners do have some comprehensive planning tools available, but they may not integrate Social Security scenarios.)

Most planners rely upon the free and often confusing calculators from the Social Security Administration, along with online calculators and general planning software, according to a survey by Practical Perspectives and GDC Research.

That’s despite the fact that only a quarter of planners “are comfortable enough to plan and recommend Social Security strategies to clients,” the survey noted.
A detailed conversation about Social Security may be even less likely to occur with high-net-worth clients, according to the survey.

When you approach Social Security with your clients, consider that there are multiple nuances within the system’s rules that few practitioners have studied, and these could result in higher payments. You may need some of the sophisticated tools now available.

7. Dismissing it altogether
There’s another reason clients — and often planners — don’t drill down into Social Security strategies: They don’t think it will be available in coming decades.

But don’t write it off altogether. The truth is that Social Security’s trust fund, the money held in reserve to pay for future retirees, is adequate to pay full benefits until 2033. If Congress does nothing to address the funding shortfall, the government will pay three-quarters of benefits until 2088.

And Social Security is one of the most successful and popular government programs in history, so it’s difficult to bet against its long-term survival.

David Blain, president of BlueSky Wealth Advisors in New Bern, N.C., suggests that, in addition to carefully reviewing benefit statements and earnings records, advisors should explore other aspects of Social Security, including spousal, death and survivor benefits.

“You need to take it seriously,” Blain says about integrating Social Security into a plan. “Clients may not understand it and think it’s not going to be there for them.”

John F. Wasik is the author of 14 books, including Keynes’s Way to Wealth. He is also a contributor to The New York Times and Morningstar.com.

Put Your Retirement Plan on Steroids

retirement_roadMy Comments: First, this assumes you have a retirement plan and that you have tried to answer the question “How Much Is Enough?”. Second, your answer to this question is still open to debate. And three, you actually have earned income that needs to be reported.

In a perfect world, we would have a way to set aside current income so that it was not treated as taxable income this year, would grow at a fast rate with the principal guaranteed, and when you were ready to spend it, there would still be no income taxes. You and I both know this is not going to happen.

But one way to get closer to this perfect world is known a cash balance pension plan. Or words to that effect. Read on to get a better understanding.

Frank Armstrong, III, CFP®, AIFA® | Friday, February 03, 2012

Would an extra $2.5 million come in handy at retirement? Would you like to defer taxes on over $200,000 of current income each year?

Whether you work in a solo practice or in a physician group practice (or some other similar work environment), you can turbo charge your retirement with a cash balance plan on top of your existing 401(k) plan.

Cash balance plans got a bad rap in 1999 when IBM terminated its traditional plan in favor of a cash balance plan that severely reduced benefits for a number of its long-term employees. The employee lawsuit went all the way to the Supreme Court, created an HR debacle and, in the process, generated lots of bad press. If that wasn’t bad enough, cash balance plans were in regulatory uncharted ground.

That’s not the case anymore. The regulatory issues have been resolved by the Pension Protection Act of 2006, and a typical cash balance/401(k) combo plan is a win-win for everybody.

Is this you?
You are at the top of your profession, in your peak earning years but are looking forward to eventually winding down and enjoying a more relaxed retirement lifestyle.

Your kids are through school, yours and their student loans are finally paid off, most of the big expenses are behind you, and you now have the ability to save more.

Unfortunately, when you look at your retirement accounts, you get an uneasy feeling that they may not support your lifestyle. Worse yet, at this rate, you are not likely to get there. Uncle Sam and his companion from your state government are deep in your pocket every year, and even though you have maxed out your 401(k) contribution, it’s just not enough.

Many Americans have hit a few bumps in the road. The financial meltdown of 2008 and 2009, a divorce, a few kids in grad school, a bad real estate deal, student loans, or just getting a late start on saving may put even high-income professionals behind in their retirement savings.

Two-and-a-half million dollars extra in your retirement piggy bank would help, especially if the account were tax deferred and creditor proof.

The solution
If the above professional sounds like you, then you may be the perfect candidate for a cash balance plan. Depending on your age a cash balance plan might allow you to put away an additional $200,000 each year into a tax deferred, qualified retirement plan. You can recover from a financial setback, or compress 25 years of savings into 10.

Simply put, a cash balance plan is a cousin of the defined benefit plan with more flexibility. In some respects it looks somewhat like a 401(k) that you probably already have. It’s an additional qualified plan which generally sits side by side with a profit sharing/401(k) plan. Because a cash balance plan is a type of defined benefit plan, it greatly favors its older and higher compensated participants. This makes it ideal for many professional practices.

Here is a quick view of the maximum contributions available with a combination of 401(k) and a cash balance plan. Of course, you could take any amount benefit level that meets your needs. And certainly not all participants will want to take the maximum. You can see that maximum contributions increase with age. But, the numbers really grab your attention when you pass age 50.

2012 tax deferral limitsLet’s take a second to discuss defined contribution and defined benefit plans in plain English:

• A defined contribution plan sets a formula based on compensation to determine the annual contribution for each participant’s account in the plan. Upon termination or retirement, the benefit is whatever value the account has attained. So, the final value is dependent on deposits, time, and rate of return. There is no guarantee of any particular benefit.

• On the other hand, a defined benefit plan sets a percentage of compensation as a benefit due at retirement, and then works backwards to determine annual contributions. The accrued vested benefit of contributions compounding at 5% is a guarantee by the plan and the plan sponsors, and in the event of a funding shortfall, the plan sponsor must make up the deficiency.

• While the cash balance plan is a defined benefit plan, the participant will see an account much like his/her 401(k) except that his/her contributions grow at a guaranteed 5%, and the participant does not exercise investment control. It’s all done for him/her.

• Defined contribution plans favor the younger worker because they have long time horizons for their deposits to grow. Younger workers with more time in the plan may attain higher account balances than their more highly compensated peers that have shorter time as participants. That’s good for workers with a long time horizon, but doesn’t address the problem of a worker with little time to go to retirement that needs a serious catch up program. You just can’t put away enough in a 401(k) in the next 10 or 15 years to solve a significant retirement shortfall.

• That’s where a well designed cash balance or defined benefit plan can save the day. If you are age 60, you can stash over $200,000-plus a year into your plan to accumulate an additional $2,500,000-plus at retirement. But, while it may look somewhat similar, it’s a completely different animal than a profit sharing/401(k). It’s the heavy duty, industrial strength catch up retirement plan for senior professionals.

Because most professionals and business owners have a fair understanding of a 401(k) but might never have encountered a cash balance plan, let’s go through some additional pros and cons.

• We target an exact amount at normal retirement date at a predetermined rate of return and then work backwards to calculate the annual deposit required to get to that amount. There is no reward for higher investment performance, but there is a penalty for a shortfall. Any shortfall must be made good by the plan sponsor. This calls for a very conservative asset allocation and investment policy, heavily or exclusively weighted to fixed income.

• Most plans — but not professionals — must pay an annual insurance cost to the Pension Benefit Guarantee Board (PBGC) for each participant to cover any shortfalls that the plan might have in the event of the failure of the plan sponsor. Even if you must pay it, the insurance cost is trivial in comparison to the potential tax savings and benefits. While PBGC insurance will cover much or all of the benefit of a rank and file worker it is capped at a low level so it will not cover a large part of the benefit for highly compensated professionals.

• Administrative costs which include actuarial certification of the plan are higher than a defined contribution plan, but again the costs are trivial when compared to the potential benefits.

• As few as 40% of the potential employees must participate, and there is a great deal of flexibility for professionals to opt out or take different levels of benefits. However, apportioning costs between professionals may have to be decided separately where benefit levels are significantly different.

• As a “qualified plan” certain testing requirements must be met. While these are designed to prevent discrimination, as a practical matter appropriate design may shift the vast majority of the benefits to the targeted professionals. In some cases the contribution to the defined contribution plan must be increased to allow the targeted professionals the maximum benefits. However, when looking at the combined plans most will see that the vast majority of the dollars spent will accrue to the targeted senior professionals.

• Like other qualified retirement plans, the funds are protected from creditors except for the two “super creditors”: a spouse or the IRS. In a litigious society, creditor proofing provides comfort to professionals that may feel targeted by the courts.

• Just as other qualified plans, the entire cost is tax deductible and tax deferred until distributed. At retirement, the proceeds may be rolled over in a lump sum to an IRA and the tax burden further deferred and spread over the remaining lives of the beneficiaries. Potentially these deferrals could extend to a third generation with appropriate estate planning.

Investment policy for cash balance plans

Investment policy for a cash balance plan is the inverse of that for a 401(k). The 401(k) plan maximizes benefits by maximizing rates of return on contributions over the career of the employee. The higher the balance of the plan, the higher the benefit. There is no downside to great performance.

The cash balance plan is an entirely different animal. The exact benefit is fixed in advance and excess funds are subject to an excise tax of 50%, while shortfalls must be made up by the sponsor. So, instead of a relative return policy we are all familiar with, we must adjust ourselves to an absolute return strategy. The investment policy has a one year time horizon. The best policy will generate exactly the target rate of return, no more, no less each year! Variations from target return on an annual basis can be very painful. So the funding mechanism relies not on equities to generate fat juicy returns, but a diversified bond portfolio generating as close to possible the exact target return with the smallest possible variation or risk.

Flexible design possibilities
Typically a cash balance plan will piggyback on top of a 401(k)/profit sharing plan. This arrangement greatly simplifies testing and offers extraordinarily flexible design possibilities.

No two law firms are alike. But, the cash balance plan may work equally well for a single practitioner, or a large, group practice.

As just one example a 300-person law firm with 50 partners might be able to benefit only the partners in the cash balance plan, while satisfying the cross testing requirements through a safe harbor 401(k) plan. Furthermore, some of those partners may opt out for all or part of their maximum possible benefit.

Summary
This quick, non-technical description is an informal introduction to this highly flexible retirement option. I’m not trying to turn you into an actuary, plan administrator, or investment adviser. Rather I’d like you to understand that there are some really powerful methods to augment a 401(k). While the rules are complex, the design possibilities are almost endless and a talented advisor may work economic miracles for you.

There is a chance that your practice may not benefit at all. Or, perhaps a traditional defined benefit plan will work better for you in your situation. However, most reputable investment advisors or pension design specialists will happily “run the numbers” for you with no obligation. When you see the costs and benefits laid out, you can determine if it’s right for you. And if it’s right for you, it could be the silver bullet that will save your retirement.

Military Retirement Faces Shake-up

FT 11FEB13My Comments: I did not serve in the military; I failed my draft physical way back in 1959. They gave me a 1-Y classification that said ‘only in case of national emergency’. I don’t think I was upset since by then I was a freshman at the University of Florida and VietNam was looming on the horizon.

All the same, I’m sensitive to those who did, especially all the millions who served and survived and spent years in the effort. And as someone now of an age when retirement is normal and expected, making sure the benefits for those who worked long hours for all of us is financially secure is important.

Here’s a short glimpse into what is going on. As a financial planner of many years, this makes sense to me.

Jan 28, 2015 | By Marlene Y. Satter

A long-awaited report on the military’s compensation system will include proposals for sweeping changes in how retirement is approached, the Military Times reported Wednesday.

The newspaper, citing anonymous sources familiar with the report, said its provisions will include a phase-out of the current system, which allows service members to collect a benefit immediately upon retirement after 20 years.

A hybrid system is set to be proposed as a replacement, one which will incorporate a smaller defined benefit plan, lump-sum payments and more cash-based benefits.

In addition, the new system would incorporate a 401(k)-type investment account as a significant portion of a service member’s retirement benefit.

The new plan would automatically enroll service members in the government’s Thrift Savings Plan, with service members being responsible for managing their own accounts.

Money in the TSP is not accessible without penalty until the participant turns 59½. Troops would be required to serve a minimum period of time before they are eligible for full ownership of the account, and the government would likely contribute a percentage of basic pay that could vary based on years of service and deployment status.

In addition to the 401(k)-type benefit, there would also continue to be a DB component to the plan, but the coming proposal is expected to make it more modest than at present and restrict its availability until age 60 or perhaps even later.

Such proposed changes not only would have to be approved by Congress, but would affect only new recruits. Currently serving military personnel would be grandfathered into the existing system.

The Military Times said companion proposals to change the health benefits offered by the military are also expected, although they would likely affect troops presently serving — should such proposals manage to pass Congress.

Guess Who’s Back? The Middle Class

My Comments: There is lots of handwringing about last Tuesdays election results. And lots of people looking for someone to blame if it didn’t meet hopes and expectations.

One of my long time concerns has been the growing inbalance between the haves and the have-nots. Statistically it’s very real with the middle class that evolved and grew after WW2 now faltering and fading. That has huge implications for all of us and the quality of our lives going forward.

This article has been on my post-it-someday list since this past summer. It suggests the middle class is making a comeback. What is so perverse for me about the election results is that while I understand why the “haves” are naturally Republican, I find it difficult to understand why so many of the “have-nots” vote Republican. They are the ones most likely to fall down the economic rabbit hole and yet they seem happy to do so.

posted by Jeffrey Dow Jones July 31,2014 in Cognitive Concord

This has been a very important week for economic data. I know everybody saw yesterday’s GDP report coming, but it’s great news nonetheless. It was a blowout, a 4% real increase in the second quarter.

There is no negative way to spin this one. Even personal consumption expenditures rose at a 2.5% rate. Housing bounced back in a big way, with a 7% increase in residential investment. The consumer is alive and well, and given the fact that inventories, durable goods, and other investment all shot much higher, the business world is betting he’ll stay healthy for a while longer.

What’s interesting is what happens when we marry that data to what we saw in the July consumer confidence report. Consumer confidence surged to yet another post-crisis high and is now officially back in the range that, before 2008, we would have called “normal”.
CONTINUE-READING

Markets Up or Down Next Five Years?

global investingMy Comments: Here’s another cautionary tale to put somewhere in a mental box to look at when you start thinking again about your financial reserves. That another crash will happen is almost certain. What is not certain is when it will happen, so all you can do is decide whether you want help to figure out a solution before it happens or whether you are willing to do it yourself. Either way is OK.

My recommendation is to get several opinions to get an idea how people solved the last crash, or allowed their money to go down the tubes and had to simply wait for it to recover. I have a personal solution that I can share with you but this is not the forum to get into details.

MarkHulbert / Aug 26, 2014

CHAPEL HILL, N.C. (MarketWatch) — At some point in the next five years, the U.S. stock market is likely to be more than 30% lower than where it stands today.

That is the frightening conclusion in a recent study by Swiss economic and financial consultancy Wellershoff & Partners. The company, whose chief executive is former UBS chief economist Klaus Wellershof, found a strikingly strong inverse correlation between the stock market’s valuation and its maximum drawdown over the subsequent five years.

The reason this finding is such bad news for U.S. stocks: As judged by the cyclically adjusted P/E (CAPE) ratio that is championed by recent Nobel laureate Robert Shiller, the U.S. stock market’s current valuation is at one of its highest levels in history. The latest CAPE reading is 25.69, which is 61% higher than its historical median of 15.95 (and 55% higher than the historical mean of 16.55).

Wellershoff & Partners found that, since 1900, the average five-year decline following CAPE levels as high as current readings is between 30% and 35%. In contrast, when the CAPE has been below 15, its average drop over five years was below 10%.

Furthermore, the study found that there is little basis in the historical record for thinking the market will somehow be able to sidestep a big decrease during the next five years: “Going back to 1900, there has been only one instance when the valuation levels we see today were not followed by drawdowns of 15% or more over the subsequent five to six years. Thus, at least for the U.S. market, it seems fair to say that the risk of losing capital is substantial.”

To be sure, this recent study is not the first to point out the bearish implications of the above-average CAPE level in the U.S. But what is unique is that it focuses not on overall returns but on drawdowns. That’s important because long-term averages mask how volatile the market may be along the way, which, in turn, is related to how likely it is that we’ll bail out of stocks at some point in the next few years. The bailout point is usually at the point of maximum loss.

Imagine, for example, that the stock market will provide an inflation-adjusted return of 1% to 2% annualized over the next decade. That’s consistent with some analyses of what today’s high CAPE reading means. While that return is mediocre, it may still be high enough to convince you that it’s worth remaining invested in stocks, especially given the bleak outlook for long-term bonds.

But what if, on the way to producing that modest longer-term return, the market at some point plunges 35%? Many investors would find that loss intolerable and, therefore, bail out of stocks — which means they would not participate in any subsequent recovery that produces the net longer-term return of 1% to 2% annualized.

Note carefully that this study, by focusing on a drawdown that may occur at some point over the next five years, sheds no light on when it might occur. But if the study’s conclusions are right, the bulls are playing a very high-risk game.

Do you really want to play that game with your retirement assets?

The 3 Stages of Retirement

retirementMy Comments: I recently wrote about where we are now in the overall market cycle and the likely chance of a major disruption that will effect your financial future. My post was titled “Are We There Yet?

Most of us have visions of a successful retirement. Of course, “success” is dependent on your life today, your health, and countless other variables. My role is to help anyone and everyone achieve a level of financial freedom that allows you to live your life free from financial fear. (a lot of efs there!)

Not matter how successful you are or were during the accumulation of money phase of your life, you are now, or at some time will be, in the distribution of money phase. For most of us, this requires a different mind set. That in turn requires a different set of financial tools to get you where you want to go.

What you choose to do with your life in retirement falls into what I think of as three distinct phases. How long they last is completely unknown, but they are likely to follow this sequence.

The first I call the Go-Go years. This is when you are newly retired and you have a bucket list of things you want to do, can probably afford to do, but may be afraid to do. You hold back to keep from jeopardizing your future years if history repeats itself and the markets go haywire for a while. (does anyone know the origin of the expression “haywire”?)

The second phase I call the Slow-Go years. This is when the mind and body starts to slow you down, whether you want it to or not. Hopefully by then you’ll have spent some time in the Go-Go years and are OK and recognize your limitations.

The last phase is the No-Go years. This is when you find going slow is too much and you need the help of others to get from one day to the next. It’s not a pleasant prospect. But I’ve never met an active 90 year old in the Slow-Go phase who was ready to call it quits. Quite the opposite.

But bad things happen to good people from time to time. How you manage the distribution of money phase of life will have a telling effect on the quality of your life in the Go-Go phase, the Slow-Go phase and the No-Go phase.

No matter how successful you were in the accumulation of money phase, you have to focus time and energy if you want a successful distribution of money phase. Some of this involves the recognition of what I call existential risk.

Existential risk, in my world, is a phrase to describe things that might or might not happen. No one expects our house to burn down or be destroyed by a hurricane, but we buy homeowners insurance. We might have a wreck and damage or total our car, so we buy auto insurance. Some of us buy life insurance so that if we die unexpectedly, there is cash to help our family get on with their lives. All along, we determine how much of a threat such an event will have on our lives and we allocate resources to protect ourselves.

Some of the existential risks of retirement are catastrophic illness, like a stroke, or chronic illness like dementia. As life expectancy increases, a newly talked about risk is longevity risk, which is running out of money. None of hope these things will happen, but it makes sense to at least recognize the possibility and perhaps reposition our money to offset some of the risk.

How fast you withdraw funds on a monthly basis from your accumulated funds is a largely arbitrary decision. It matters less if you have already dealt with the existential risks you might face. The financial planning community is arguing constantly about what annual rate of withdrawal is appropriate.

It depends on you. If you are willing to experience the pain of dramatic declines in value, then the rate at which you withdraw money will have to be less. That’s largely because if your accounts go down hard, you have less time to recover. Meantime, you might be sweating bullets, and that’s not usually a good thing.

If you take appropriate steps to protect yourself, then a larger withdrawal rate may be appropriate. That translates to a more satisfying experience during the Go-Go years, knowing you have taken steps to allow a smoother and later transition into the Slow-Go and No-Go years.

It’s up to you what you do. But I encourage you to believe acting sooner rather than later will be in your best interest.