The passage of time represented by an hourglass.

The men in my family all seem to lose a step mentally starting in the late 60s and really fall apart by the mid- to late-70s. I watched my father go from a strong, hands-on, very sharp man who could do complex math in his head, to being unable to balance his checkbook in his 70s. I’ve now seen my oldest brother become a shell of himself mentally, both in terms of his personality changing (to the worse) and his mental acuity failing. “So what,” many ask, “isn’t that just a typical path for many as they age?”

As I’ve written, I am a financial do-it-yourself’er (DIYer). I maintain a network of professionals whom I call on frequently, like my CPA, insurance guy, estate attorney, and business attorney, but I’m the “quarterback” of the team. So the biggest concern that I have with DIY is what happens if the quarterback becomes impaired (or passes on) – what are solutions that will help my family manage finances under those conditions?

[Side note: I often laugh when I hear the conspiracy stories from the less-wealthy who believe that the wealthy “have people” who create wealth on autopilot – maybe if you can put together and manage a single family office that manages more than $100M portfolio (but even then, I think it is far-fetched) – and that is not true for most wealthy families. The best financial ideas that I’ve implemented for my family came from me. I struggle as I write this to even come up with one unique and meaningful suggestion that any financial professional has brought to me proactively. I believe that is because financial moves are so personalized and timing-specific that a professional trying to scale her/his business cannot provide that level of service customization to any client.]

The importance of cashflow in retirement to cover expenses cannot be overstated. The days of private sector company pensions providing a regular paycheck in retirement are gone. Of course, most of us count on Social Security(?) and it hopefully will provide some level of regular income, but it is not enough to cover all expenses for most households, so work has to be done to generate that incremental cashflow. For example, I have built a rolling bond ladder to cover 8 years of living expenses so a cash deposit gets dropped into our bank account every six months no matter what happens – but that takes effort to build and maintain. If I lose my mental acuity, I fear that this won’t happen, or worse, we’ll suffer financial losses from bad actors in my life.

To address this risk, I’ve purchased single-premium deferred annuities, a qualified longevity annuity contract (QLAC) in an IRA, and a charitable gift annuity (CGA) to complement our planned income from Social Security to cover our base living expenses after age 70. I have read many comments from people saying negative things about annuities, and rightfully so for the complex ones, but I believe minimal-feature/rider immediate or deferred annuities are easily understandable and measurable, and can be held in an IRA (QLAC) or directly by an individual or couple. A CGA is a great way to support a non-profit in which you believe and also provide some future regular income – although obviously a CGA is not as financially favorable when compared to buying a regular immediate or deferred annuity directly from an insurance company unless the upfront tax benefits of the donation of appreciated securities cover the income payment gap.

I also have noticed that many company pension program liabilities have been transferred to insurance companies, to provide annuitized payments to beneficiaries in place of company pension payments. So now most old private sector pensioners are paid benefits by insurance companies and not from prior employers. This shows that annuitization is being more widely adopted as a retirement income solution and should be considered by many individuals without pensions, including by aging old men with cognitive decline concerns!

I have discussed a very specific individual concern (losing mental acuity as I age) that may not resonate with all readers. However, there are many other situations in which single premium immediate or deferred annuities, CGAs, and QLACs may provide a good solution. For example, I tried to convince my elderly parents to buy an immediate annuity after selling their primary home to move in with my sister to maximize their income. They were concerned about giving up control of the money and maybe not being able to pass anything on to children. They ended up living a decade+ longer and ended up needing their children’s financial help later in life. If they had annuitized the house sale proceeds, they would’ve had a much higher standard of living in retirement and not had any need for financial help. They spoke a few times with me about what a mistake it was not to annuitize (of course, with the benefit of knowing that they would each live on for many more years where the pay-off was now clear).

I also believe that many retirees or future retirees do not have the knowledge required to generate tax-efficient cashflow from lump sum portfolios and that annuitizing all or a portion would improve and maximize retirement outcomes. I have spoken to many financial professionals who don’t know how to adequately help during retirement’s asset depletion and frankly, many don’t want to help because of declining fees from clients with declining assets under management. Further, immediate or deferred annuities don’t pay much in the way of commissions and so financial professionals don’t have any incentive to help retirees with those alternatives.

Finally, there is the situation where the quarterback passes on, and this may be a topic for a future post. In short, I have arranged for a fiduciary, full-featured custodian to help my spouse manage the finances if I pass on. It will cost quite a bit more in management fees, but likely worth it to get my spouse full up-to-speed on the regular work required.