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My study of endowment funds has helped me to form a strategy that can help you manage your portfolio and make it produce a life income. Knowing what endowment funds do to ensure a future cash flow and still allow you to spend today can help you make sense of investing. Did you know that most colleges and churches have between 4 percent and 5 percent annual withdrawal rates even if they are earning 15 percent to 20 percent annually? Even if they have a negative return they still spend between 4 per-cent and 5 percent of the portfolio, hoping for better returns the next year. Remember that 5 percent of a growing account becomes a larger amount each year. This larger income can offset inflation! As well, after several good years they may have an exceptional withdrawal. (The wealth effect we hear about is the spending of gains made in stocks rather than spending income.) In this manner they do not dictate to the portfolio what it must return, but allow the portfolio to deliver what it can and, naturally, when it can. The variability of returns does not bother the CFO of an endowment fund.

Like the endowment or foundation, the retiree withdraws money in a rather odd manner. Retirees spend what they are not sure of earning and may not earn that year. This situation is different from when the person was a worker. With steady pay, a worker can spend money before he or she earns it, knowing how much is coming in. On this premise, banks will loan money to a young working person with few assets but potential income. Retirees spend money no matter what they earn. This constant drain is a major investment problem that clients want professionals to contend with. It is a mathematical problem, which people like me love to solve—one of the small joys of our business. Face it: the rule you will learn to live with is that you will spend money whether you make it or not.

There is a psychological advantage to being a worker with a paycheck. No matter what happens to the stock market, you still have a job. A retiree once told me, “Now that I’m not working, I’m concerned about the market every day.” That may be the reason so many people find it difficult to retire and then wait for that withdrawal check to come in. It may be for this reason that many workers migrate to the larger, nationally known investment firms, believing that these firms offer dependable income and security. But these investment firms are just as likely to do as good or as poor a job as independents or sole advisors. I believe it is not so much the firm, but the process and the person you work with and the relationship you develop that will lead you to feel secure. We will discuss in a later chapter how to find an advisor and monitor your account once you have one. If you have a financial advisor, you can gain much insight into the services he or she should provide, some of which is behind the scenes but important to know.

Another important factor for insurance planning is your risk of needing long-term care. Under the current government budget restraints, we now are required to pay for our care in nursing homes or for in-home care for as long as we are able to. In general, the government wants us to spend down our wealth to certain limits before Medicaid will pay for our care. There is nothing wrong with that, but if you want to be sure of leaving a substantial amount of assets to your spouse or children or a charity, then life insurance is one way of replacing lost money due to a catastrophic illness. That is, if you are forced to spend money for health care, a life insurance policy can replace some or all of the assets that may be spent before you die.

Clients Ralph (sixty-seven) and Eve (sixty) had enough 401(k) money to care for a major illness that could wind up landing him or her in a nursing home for a few years. However, they feared a prolonged illness could entirely deplete their principal and other assets. Rather than purchasing long-term care to cover the cost of a nursing home, Ralph bought a $150,000 life insurance policy in order to guarantee his children would have an inheritance. Since they each have children from prior marriages, Eve pur-chased $200,000 of protection. Listing their children as owners on the con-tracts made sure that upon their death the proceeds of each policy would go to the children free of income tax and without estate taxes. Smart planning techniques can create and transfer wealth from one generation to the next, saving taxes to boot.

Another way to protect your assets from the spend-down provision con-nected with Medicaid is to purchase long-term care insurance. Both life and long-term care insurance may cost less before you retire. It is even possible that you can get group rates on these policies, which may be less than individual rates. But it is wise to get quotes from companies besides your company group administrator. When I wanted to add life insurance protection at age fifty-one, I found an individual term insurance policy that cost me less than my corporate group policy. Was I surprised! I had been convinced that company-offered products were always less expensive. The fact that a group is a “captured” society affects group insurance rates, raising them or lowering them. By contrast, individual rates are set in a more competitive insurance environment with more people insured, possibly reducing premiums below what groups offer.

Some expenses may be cut after retirement. Disability insurance, for one, may no longer be needed, since it is intended to replace income lost from an injury related to work. When transitioning to retirement, you may save money by letting the coverage lapse, unless you feel you are going to work at another career; if so, then see whether the coverage can be moved from a group to an individual. Some can and some cannot. When you are no longer employed, Social Security tax will disappear and contributions to your 401(k) or TSA will disappear, too. The extra money saved from no longer buying lunch or paying to travel to and from work can be diverted toward extra insurance.

It would be great to suddenly receive $60,000,000, wouldn’t it?

Or would it?
Do you have any idea what suddenly getting $60,000,000 would feel like to you?
Would you rate the experience as a 1 or 10 for you? Is this really you? Does it seem realfor you or is it a scene in a movie, something out of a book for you?
Be careful if you said “10.”
False “10’s” are imaginary experiences that you rate a perfect “10” and that seem outrageously wonderful—too wonderful, in fact.

When you really look at your feelings about them, what they describe doesn’t seem to have much to do with you. They are too fantastic or you don’t feel connected with them.

For example, suppose you are now earning $60,000 per year and you come up with a Metastory that depicts you suddenly earning $60 million per year.

You probably have no real idea of what earning $60 million would be like. It’s easy to think of the positive things such wealth would bring, but you’ve probably never considered the many negatives and what you’d have to do to earn $60 million. Or how you would manage that amount of money if you did make it. (For example, many lottery winners end up bankrupt.)

In other words, you probably don’t connect with the reality of earning $60 million. You have a nagging feeling that something’s not right—a sign of conflict.

But if you change your Metastory to doubling or tripling your current income, it would probably be much easier to imagine what you would be doing and what your life would be like.

Doubling or tripling your income would probably be an appropriate “perfect” Metastory, but earning $60 million per year is probably not realistic enough to work for you—yet .

If, however, you really do want to earn $60 million a year, you can probably get there in smaller steps. Each step will be extremely ambitious, but still reasonable. (Though, when you look at what you would lose by changing your lifestyle so drastically, you may decide it’s not what you want.)

How do you tell if you’re on track with your desires?

Here’s a tip:

You’re on solid ground as long as the seemingly impossible elements include an intuitive feeling that they are reasonable and “right for you.”

If a “10” Target seems absolutely perfect for you at this time in your life, don’t reject it just because you’ve never before achieved this result.

After all, maybe $60,000,000 is right for you at this time. I can’t judge that for you.
Just remember that any objective as challenging as doubling or tripling your income ——
or even much, much more—will almost certainly require the Super Achievement
techniques for its accomplishment.

The good news is the Metastory is the basic building block of both the Basic
Achievement and Super Achievement techniques, so you’re learning a tool you’ll need
to create the results you want.

Either way, you win!

There are some easy calculations you can do to determine the face amount of the insurance you may need to buy. It is a good idea to do this calcula-tion before retirement for several reasons.

1.If you are working, you may be able to pay higher premiums whileyou have a paycheck and then scale down the premiums after youretire. There are insurance policies, such as universal life, that allowfor great flexibility in when and how much you pay in premiums.Paying more now hurts less than paying more later.

2.You may be able to buy insurance at a group rate and then convert it to an individual policy at the same rate once you leave your job. Or you may have an individual policy aside from work that can be used to develop future income. You may want to add more face amount of coverage without canceling the old policy.

3.Because you are younger than you will be tomorrow, you may not get a better rating if you wait several years to buy additional coverage.

With a little imagination and planning, you may significantly improve your financial outlook. For example, one can replace income lost due to early death using life insurance proceeds. Let’s suppose Barbara, Joe’s spouse, wants to buy an insurance policy on her husband’s life so that she could replace $656 in monthly income if he passes away at age sixty-four (or older). Without the extra Social Security check, Barbara would not feel secure. Suppose Joe does pass on soon after he reaches sixty-four, when Barbara is sixty-five. The $656 per month equals $7,872 per year that will be sorely missed. At today’s annuity rate, Barbara could get $656 per month for life by buying a $100,000 life insurance policy now and converting it to an annuity income at Joe’s death.