15– Would You Operate on Yourself?
If you needed life-saving surgery to correct a major medical problem, would you, and could you,
operate on yourself (Figure 15-1)? Of course not! Not even if you were a world-class surgeon!
Figure 15-1
If your health were in jeopardy, you would turn to someone you could trust. If we go back to the idea
of operating on yourself, of course you would not do this and instead would find a great doctor you
could trust to help you through the entire process. You would want the doctor to
x
perform a thorough examination of your health, to find out what is good and what is bad;
x
ask you a lot of questions;
x
find out what you want to happen from the process;
x
do a great deal of research and planning;
x
consult with other doctors and/or professionals;
x
have a tremendous amount of experience in your specific affliction (no rookies!);
x
exhibit a high rate of success through a large number of his/her clients still living);
x
explain the entire process to you;
x
answer every question you have, even multiple times;
x
put his or her recommendations in writing in a way you can understand;
x
have professional staff to service your nonsurgical needs;
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x
perform the surgery using only top-of-the-line components;
x
follow up with you frequently after the surgery; and
x
be accessible for the rest of your life after the surgery.
Your health is extremely important, so you use professionals to deliver services to keep your body
healthy. You should not diagnose yourself or prescribe yourself medicine, and you definitely should not
operate on yourself.
Well, wouldn’t you agree that money and finances are pretty important also? We have seen a large
number of retirees who have tried unsuccessfully, and continue to try unsuccessfully, to do their
retirement income planning themselves. What we have found is that these do-it-yourselfers—retirees
who are do-it-yourself investors—for the most part have done a good job at accumulating assets but
as a group have failed miserably at income distribution planning. Think about it, though: This is not
their fault. No one has taught them how to maximize their income. No one taught them they could
establish a contract that guarantees income for life. No one has taught them how to make sure that
income for their spouse is guaranteed for life. No one taught them how to understand how income
taxes really work and how their income will be taxed. No one taught them that there are two separate
and distinct phases of planning for retirement—an accumulation phase and an income distribution
phase—and no one taught them that these phases are polar opposites.
What someone did teach these retirees was the first phase of retirement planning, which is how to
accumulate assets and, once they are accumulated, how to grow them. The do-it-yourselfers we have
met have done a decent job following the lessons that they have been taught, including how to
1. invest for the long term;
2. ride out the volatility;
3. stay invested so the losses will be recovered; and
4. not take any money out of the account.
These rules are reasonable when people are working, when continuing to contribute additional money
to their accounts consistently, and don’t need guaranteed lifetime incomes. Basically, this philosophy is
great for people who are not retired. If they are retired and need or want income, this approach does
not work too well, we have found.
The do-it-yourselfers have not been successful creating plans that will provide them maximum incomes
guaranteed for as long they live without getting hurt by taxes while still leaving their beneficiaries
some money.
Do-it-yourselfers often are individuals who enjoy and even need the excitement that investing in the
market brings to their lives. Now that they are retired, instead of going to work every day, they turn
their attention to trying to manage their portfolios every day. Many seem to need and almost crave the
ups and the painfully living through the downs of the volatile markets. As you have probably guessed it,
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or have lived through or are living through, almost all of the do-it-yourselfers we have met are men.
We have found, and psychology tells us, that this behavior is another form of hunting, or providing for
the family. These do-it-yourselfers want to provide for their families, and they trust themselves to do
so at a higher level than they trust anyone else.
We believe that many of the do-it-yourselfers enjoy the rush that the market highs and lows can
provide, and that some even use the market as a social activity, where they share the joys of gains, the
pain of losses, and the thrill of the ride with other like-minded, excitement-seeking do-it-yourselfer
retirees.
By focusing on the activity of asset accumulation rather than on the plan of maximizing lifetime
income, most do-it-yourself investors fail to establish
x goals,
x objectives,
x timeframes, and
x written plans.
If one investor works with an advisor and makes decisions based on goals, objectives, timeframes, and
a written plan, and a second investor who is a do-it-yourselfer makes decisions without establishing
goals, objectives, timeframes, and a written plan, who do you think has more risk? We think the
investor not using these four tools has a great deal more risk and creates significantly more risk to his
or her the long-term financial success. Very close to the importance of managing your health is
managing your money.
When we ask do-it-yourselfers what they want their money to do, they will typically respond that they
want a specific portfolio value or a specific annual rate of return. Although these two responses are
acceptable while accumulating assets, they don’t make sense during retirement income distribution.
When we get either of these two responses, we proceed by asking a lot of questions.
x If a do-it-yourselfer responds that he wants a specific portfolio value, or a specific annual rate
of return, we ask why.
Typically, we receive no answer. A do-it-yourselfer just uses this as the goal even though the
goal has nothing to do with maximizing financial success during retirement.
x
We then ask to see the do-it-yourselfer’s written plan for exactly how the portfolio was
managed in the past and an accurate accounting of the results. It doesn’t matter who is
managing the portfolio—this documentation is critical for success.
Typically, the do-it-yourselfer can show us how the portfolio has performed. If it is a good
performer, he is proud, and if it is a bad performer, there may be a few excuses made. In all
cases, however, there is never, ever, ever a written plan on how the portfolio was
managed in the past.
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x
We then ask to see the written plan for exactly how the portfolio will be managed in the future:
what are the goals, what is the risk, when does liquidation or new purchases occur? Why will
each asset be bought or sold?
Typically, do-it-yourselfers can’t answer these questions, nor provide us with a written plan.
In all cases, there is never, ever, ever a written plan on how the portfolio will be managed
in the future.
x
We ask if the spouse who isn’t managing the assets fully understands the current do-it-yourself
plan.
The typical response is that the spouse has no clue about the do-it-yourselfer’s plan or
about what the spouse who is managing the assets is actually doing.
x
We ask what a specific portfolio value or a specific annual rate of return will do for them and
their family.
Typically, there is no answer. A do-it-yourselfer sets an asset-value goal or a rate-of-return
goal but never sets an income goal tied to a written income plan.
x
We ask whether they will start taking consistent income from the portfolio once they hit that
value or return.
Typical answers are “maybe,” “not sure,” and “it will be a good time to review then.”
x
We ask them if they have set a time period to attain the portfolio value goal or rate of return.
We remind them of the 4,913 Days of Nothing.
The typical answer is that they are hoping for the period to be 12 months, or 2 years, or
maybe 5 years. They can’t say for sure, because they don’t know for sure.
Then we ask the most important question of all: Will attaining their specific portfolio value
goal or a specific annual rate of return provide them maximum annual income and give
guaranteed lifetime income for them and their spouses?
The typical answer is no, it won’t.
Although these questions might be uncomfortable for a lot of do-it-yourselfers, they are imperative to be
asked and answered for the benefit of the do-it-yourselfer and his or her spouse. For all do-it-yourselfers
and spouses out there, we have a prescription for you to maximize your probabilities for a successful
retirement in maximizing your income immediately and receiving guaranteed lifetime income:
x
Find an advisor who specializes in retirement income-distribution planning, not just assetaccumulation planning.
x
Make sure the advisor is very knowledgeable in fixed annuities, fixed indexed annuities, income
riders, guaranteed minimum withdrawal benefits, and single and joint guaranteed lifetime
income.
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x
Make sure the advisor is knowledgeable about RMDs (required minimum distributions).
x
Make sure the advisor is knowledgeable in planning for transfer of your assets to your
beneficiaries on an income tax-efficient basis.
x
Make sure you find an advisor whom you like and trust.
x
Verify that the advisor understands all of the topics we discuss in this book.
x
Provide the advisor all the information about your assets, debts, income sources, income needs,
beneficiaries, and your goals and dreams.
x
Have the advisor create a written plan for you that provides maximum income guaranteed for as
long as you live, and for as long as your spouse lives, if you are married.
x
Have the advisor create a written plan for you that estimates your income taxes based on your
increased income.
x
Have the advisor provide a full written disclosure on the plan(s) you will implement, including
advantages and disadvantages, fees, surrender charges, access, financial product specifics, and
liquidity.
x
Have the advisor provide a detailed written step-by-step version of your plan so you will
understand what and why you are doing everything today, so you can remember three years
from now what you did and why you did it, and so you can still remember it ten years from now.
x
Meet with the advisor at least annually to review your plan.
Now, even if you are a die-hard do-it-yourselfer, wouldn’t a plan as described above make you feel
comfortable? And wouldn’t a plan as described above make your spouse feel comfortable? We believe
the reasons a lot of retirees have not adopted a plan is that the planning steps recommended above are
rarely completed by the majority of financial advisors. It takes a tremendous amount of time, effort,
knowledge, and experience to provide this type of comprehensive income plan to a retiree, but we
believe all clients deserve it and that it is acceptable for you to demand it.
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