Question: I always thought that if I could retire with $1 million I would be set. Now that I’m almost there, I can tell I’m not as secure as I thought I would be. In fact, I don’t know if I would feel much different if I had twice as much money. Could I have done something different?
Answer: Last week we asked the question “Is bigger really better?”
It didn’t take long to realize that just because you have a big number (i.e., a large amount of money), it does not necessarily follow that everything is fine. We saw that bigger doesn’t always mean better.
If my goal is to live in a 5000 square foot house, I may be surprised when I realize I spent everything to buy that house, but left nothing for furnishings or air conditioning units. I would have been much happier in a smaller house, furnished to my liking, with air conditioners that can relieve the summer’s heat.
I believe traditional financial planning approaches focus too much on the size of the “house” and not enough on the “interior comfort” once you are in the house. In other words, it isn’t enough to focus on wealth accumulation alone. You must also pay attention to your ability to preserve and enjoy your wealth.
As we examined last week, wealth can be eroded during the accumulation phase as well as during the distribution (or retirement) phase. Lots of things can erode your wealth. A partial list of wealth eroders includes: financial market fluctuations, investor dysfunction, tax law changes, inflation, planned obsolescence, technology change, college education spending, law suits, overspending, misuse of debt, medical expenses, disability and premature death.
And that’s where the idea of benefits come in. A benefit is anything that keeps you from having to spend your assets.
Some examples of common benefits might include: pension benefits, tax benefits, risk reduction benefits, healthcare benefits, liability benefits, disability benefits and death benefits.
To go back to our house example, a benefit is akin to the air conditioning and furnishings of a house – it enables you to enjoy the whole package more completely.
When you are experiencing the worries and concerns that wealth eroding factors can bring into your life, you are obviously not able to enjoy your wealth as fully as you would like.
A well designed personal benefits strategy can protect your wealth from the impact of these eroding factors.
Don’t make wealth your only financial goal.
Aim for a balance of wealth…with benefits.