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Not Matching Guaranteed Income With Known Expenses

Not Matching Guaranteed Income with Known Expenses

Being exposed to market volatility is not bad if you have matched your portfolio to the time period you are investing for. When your 30 years old, do you care if your investment portfolio goes down 25% in one year? Perhaps not if that is invested to fund your retirement in 30 years’ time. If you are 65 years old and are looking to move into a comfortable retirement, then a 25% decrease would be very scary.

As we indicated above, being scared leads to selling at the wrong time and not buying in again. Thus, taking big losses and missing out on big gains.

The top way to reduce financial stress and enjoy a safe, secure retirement is to march your known expenses with sources of income.

Start with non-discretionary expenses

Your non-discretionary expenses are those you must pay every month, quarter, or year. They are things like mortgage or rent, utilities, phone, cars, and debt service. Some may consider hobbies, kids, or grandchildren as non-discretionary expenses.

By matching guaranteed income with non-discretionary expenses, you can remove the emotional stress of market ups and downs.

Top sources of guaranteed income:

  • Social Security Income
  • Private pension plan payments
  • Insurance company annuity payments

Next, evaluate discretionary expenses

Once you have your basic needs covered with guaranteed income, you can evaluate other expenses and income. Discretionary expenses are partly in the eye of the holder. Is golf a discretionary expense or a non-discretionary expense? That will depend on you. Same with things like traveling, family, education for kids and grandkids. Obviously, things like luxuries, art collecting, yachts and exotic cars are discretionary, but all the rest is subject to your personal situation

Financing for discretionary expenses.

The more important the expense is to your enjoyment of daily life, the more important it is to finance those expenses with guaranteed income. Using financial vehicles like insurance policies, annuities, rental income and dividend income are very popular as they are either guaranteed or quite stable.

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