Disciplined Pursuit of Enough – A Case Study

In my last blog, I argued the benefits of pursuing enough money, rather than always striving for more. In this blog, I hope to illustrate some of the benefits of this through a case study.  All names have been changed to protect the innocent (and very contented) couple.

Several years ago, I got a call from an old friend and colleague.  We will call him Mike.  Mike and his wife Michelle wanted to sit down and talk to me about their financial situation.  Mike and Michelle were retired and in their 60’s.

When we sat down together, they described a situation where they had done so many things correctly – they had saved diligently for retirement from a young age, had minimal debt and lived a reasonable lifestyle.  And yet, even with all of their savings, they had very little peace of mind.  Their history with money was an uneven path of pursuing different strategies, often influenced by the latest conversation with friends who were convinced that they had the right answers.  Mike and his friends would talk about what stocks to buy, debated the benefits of different types of insurance, and talked about how to pay less in taxes.  Mike and his friends were very financially savvy, but I could tell that these conversations were making Mike feel less sure about the right path rather than more confident.

Meanwhile, Michelle fretted.  She was financially savvy as well, but was the more conservative of the two, and hearing about Mike’s latest strategies from his buddies induced anxiety.  Mike and Michelle  had pensions and would soon be taking Social Security but she knew this wouldn’t be sufficient to cover their cost of living.  So, their savings were vital and how could she be sure that they would last, especially when Mike would constantly report to her the latest swings in the stock market? 

Normally, I am not a major proponent of annuities, but I believe they serve an important purpose in the right cases and I thought this might be one.  So, after analyzing their situation, I proposed an income annuity to supplement their pensions and Social Security.  I calculated how much of their savings would have to go to the annuity in order to meet their income needs, and found that they still had significant savings beyond that which would provide a cushion in case their income needs changed.  It was a strategy to give them enough, rather than more.

Initially, Mike and Michelle balked.  They had once owned an annuity and had let it lapse.  Mike had worked for an insurance company so he knew how much money the insurance companies made from annuities.  Clearly, the annuity was not a way to maximize their wealth which was initially hard to accept.  But gradually, they saw the annuity as a way to fill their need, to cover the expenses that were otherwise requiring a withdrawal from their lump sum savings.  Every month, they would now see income coming into their bank account that more than met their outflows for the first time since Mike stopped working.  So we pulled the trigger on the purchase of an annuity for each of them.

I meet with Mike and Michelle now every 3 months.  At each meeting, they tell me how happy they are to have the income from the annuity.  We still talk about how their investment portfolio is performing, but they no longer feel the pressure of the ups and downs of the market because they are no longer reliant on these savings to cover their expenses.  Instead, the savings are a long-term security blanket to cover unforeseen needs in the future, while the annuity provides what they need today.  Mike does not think about the stock market as much any more, and Michelle does not miss hearing about it.  Mike’s golf game is improving and their time is focused on seeing their kids and grandkids.  They are two of my happiest clients, and it’s not because of pursuing more, but because we pursued enough.

The strategies pursued here for Mike and Michelle, including the annuity, are not for everyone.  My goal is to develop a customized, unique strategy for each of my client’s unique circumstances.  There is no one road on the disciplined pursuit of enough.