Live with a Lot, Die with a Little
Many of you have heard about the dual-income-no-kids (DINK) community. There is a growing population, gay and straight, single and married, who are opting to have a child-free life (except the occasional visits to our favorite nieces and nephews). They are wondering how to squeeze out every last dollar from their portfolio without the risk of running out. Yes, it’s time to address the needs of what I will call the “more-income-no-kids” community, otherwise known as MINK.
For the record, I understand that having kids, at least for the lucky ones, may be the most rewarding and awesome experience a person could have. They are essential for the survival of the planet and the growth of one’s investment portfolio. I love my niece and nephew as much as they love their favorite uncle (me, of course). My goal is to address the financial needs of couples and single adults who don’t have kids or dependents. The MINK crowd is more concerned with maximizing their income than with dying rich. Here’s one possible strategy for having the most fulfilling financial life in the post-work years.
The MINK Dilemma
Your stomach can’t handle another big recession so you have concerns over having your wealth subject to the market’s movements.
You want some kind of guaranteed income stream that can keep pace with the rising costs of your expenses (inflation).
You want to spend down your principal since leaving a big inheritance to someone else is not a top priority, but you don’t want to outlive your wealth.
- You have no kids to rescue you if you outlive your assets.
What’s a MINK to do?
Let’s assume that you have a $2 million investment portfolio as you enter your 7th decade of life.
Fixed annuities can be attractive to many retirees because they may allow you to convert assets into a type of “pension” income stream. An insurance company receives a lump sum of money from you and then pays you an agreed-upon annual amount for life. Imagine what it would cost for your basic needs (think food, medical, housing costs, etc). If your Social Security benefit is $3,000 per month and your total expense for “needs” is $6,000, you could buy an annuity that’s large enough to pay you the other $3,000 / month. When your portfolio is going through volatile times, you want to rest assured that you at least have enough income from the annuity and Social Security to keep the lights on. This may also prevent you from panicking and moving your portfolio to cash at the worst possible time.
If the annuity you just purchased cost you around $600,000, you’re now left with $1.4 million, which can be used to cover all of your other expenses (travel, charitable giving, entertainment, etc.). While financial planners continue to spar over what amount constitutes a “safe withdrawal” from one’s portfolio, let’s assume that 4% of the portfolio’s initial balance is reasonable – a draw of about $55,000 per year. You can raise that amount each year to keep pace with rising costs. Such a strategy requires a well-engineered and balanced portfolio.
Using Social Security and a small fixed annuity to cover your “needs” and your investment portfolio to cover your “wants” may allow you to spend more of your wealth during retirement without having to worry about running out of money. Please consult with your financial planner to see if this makes sense for you.
The opinions expressed are those of the author and are subject to change without notice in reaction to shifting market conditions. This blog is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.