When I came out of the NFL more than 25 years ago, some of my first clients were my former high school teachers in Skokie, Illinois. I told them: You gave me a great education, which gave me the ability to go to the Wharton School of Business. Then I was lucky enough to play for the Bears and Vikings over seven years. Now, if I can, I want to express my thanks as I launch my new career.
I was in for a surprise that helped shape the approach I’ve taken ever since. I went into conversations with my former teachers assuming they were underpaid and maybe even struggling a bit. It turned out their pay was solid—and their pension plan was amazing.
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Upon retirement, each teacher would receive an average of their last three years’ pay annually for life. They would also receive lifelong health insurance coverage.
Most people are afraid of outliving their savings. With a pension like this, that fear recedes. I saw how my teachers could sleep well at night, knowing the pension would be there. Now, 27 years later, this group is beginning to retire.
I’ve been honored to help them with asset allocation and many other aspects of planning over the years, but all this time, the pension has remained the most important factor.
I’ve come to believe that when it comes down to brass tacks, what most people want later in life is dignity. Yes, there are dreams for travel and desires to leave legacies. But dignity is the main thing: knowing, for example, there will be choices if long-term nursing care is needed. My father was a nursing home administrator. I know more than most the wide disparities that exist.
I saw how my teachers’ pension gave them confidence they could retire with dignity. Accordingly, I developed my planning philosophy of taking care of the “big blocks” first, then letting the little blocks fall into place.
Tips For Sleeping Well At Night
Over time, I’ve seen how this goes beyond retirement to a much bigger concept of financial independence. People differ in how long they want to work. They differ much less in their desire to sleep well at night.
From my perspective, these are the "big four" for achieving that confidence:
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Build A Pension
Most people don’t have a workplace pension. But that doesn’t mean they can’t similarly benefit from the confidence arising from having one. The idea is to build a stream of income a client can never outlive.
The only entity big and stable enough to make a guarantee about lifelong income is an insurance company. Typically, the most appropriate financial instrument is an annuity.
But not just any annuity. They come in all shapes and sizes. It’s essential to look for the best situation based on personal specifics. Be aware, too, that on average it takes years to get into the insurance company’s pocket, so to speak. There’s a cost to building your own pension. Those costs need careful consideration.
Of course, an annuity won’t be the source of all the income during retirement. There should be 401(k) or other retirement accounts to draw down as well. That brings us to the next big block.
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Deal With Inflation
Retiring doesn’t mean you just stop and take your money out and use it for a few years. Retiring requires planning for a long time horizon. And that means you need assets that will keep up with the market. You have to gain ground—otherwise, you lose ground to inflation.
An annuity, like a pension, is usually established with fixed dollar amounts. So, inflation means the value of that guaranteed income stream goes down over time. Income drawn from investment accounts needs to make up that value and, ideally, provide more in addition.
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Protect From Disaster
If I ask a working-age person what’s the worst thing that can happen financially, the answer is usually “if I die.” From a strictly financial perspective, that’s likely not the case.
The worst-case scenario is that something happens rendering you unable to work while also increasing—perhaps drastically—costs associated with your day-to-day life, such as ongoing nursing care.
This doesn’t mean skip life insurance—even once your kids are out of college. In my experience, people seem to die at the worst possible times…when the market is way down, for example, and taking out funds to cover cash costs is especially painful.
What it does mean is think about disability and long-term care insurance almost like an asset class. They must be in place to protect your family.
Once they are, you can invest your assets a bit more aggressively than you might otherwise feel comfortable. Over the long term, thanks to compounding, that can help your overall situation tremendously.
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Time Your Withdrawals
I’m not a proponent of market timing with respect to investing. But I am with respect to withdrawals.
Say you retired in the year 2000—the worst possible time to do so in recent history. You then experienced three down years in a row in the stock market. That’s bleak enough, but if you also dipped into those accounts during those years, you face a double whammy.
In that type of situation, it’s far better to have a year or more of emergency funds on hand and draw those down rather than take money out of the market. It’s important to have more than one bucket to draw from.
Closing Thought
I see my own work in a very straightforward way. It’s to help people sleep at night and make sure their families are protected. The specific tools to get there vary by situation. But in my experience, the general outline of what works for most people is surprisingly consistent.
About the Author
Brent Novoselsky, ChFC® is Vice President with Alera Group Wealth Services. He’s based in the northwest suburbs of Chicago.
“Alera Group Wealth Services” is a brand name utilized by Alera Group, Inc. and certain subsidiaries and affiliates (collectively “Alera”).
Certain individuals associated with Alera Group Wealth Services offer investment advisory services through Alera Investment Advisors, LLC; and are registered to offer securities through Triad Advisors, LLC, Member FINRA/SIPC.
Additional information about individuals registered with FINRA can be found on FINRA’s BrokerCheck. Triad Advisors LLC is separately owned and other entities and/or marketing names, products or services referenced here are independent of Triad Advisors.
