Build a Pyramid for a Healthy Retirement

As a physician, you're most likely well acquaintedwith the Food Guide Pyramid,the USDA's five-category guide of foodchoices that helps people select and maintaina healthy diet. Proper diet, as you know, is a keyelement for a healthy lifestyle.

Financial Pyramid

Getting people to eat right can be a challenge.On the financial side, convincing people to save andplan for retirement can be just as daunting. In fact,many Americans do a fairly poor job of planning fortheir retirement, often complaining that it's just toocomplicated for them to bother with.

To combat that attitude, the National Associationfor Variable Annuities (NAVA; www.navanet.org) hasdeveloped an easy-to-understand, flexible approach toretirement planning based on the Food Guide Pyramid:the Four Retirement Food Groups. The hope isthat applying the food group concept to financial fitnesswill encourage individuals to seek the help oftheir financial advisors and begin developing balancedstrategies for a secure retirement.

Retirement Groups

Of course, given that retirement objectives, availableresources, and other factors are unique to every individualor family, NAVA recommends that individuals consultwith a professional retirement advisor. The following arethe various levels of the Four Retirement Food Groups:

• Level 1: Guaranteed income. This is the base of theretirement pyramid, encompassing Social Security bene-fits, pensions, and annuities. It's the part that should berelied upon most for maintaining your standard of livingin retirement and ensuring that you do not outlive yourretirement income. In recent years, however, there hasbeen a declining reliance on pensions and Social Securitybenefits. This has placed greater importance on annuityproducts as a source of guaranteed retirement income.

• Level 2: Long-term assets. This second level—comprised of real estate, 401(k)s, IRAs, and deferredannuities—can help you build equity in your future.These assets offer valuable benefits for prospectiveretirees. For example, some long-term assets, particularlyreal estate in many parts of the country, can also providea significant hedge against inflation. Retirees canchoose to downsize, taking advantage of lifetime capitalgains exclusions to sell their home and purchase a smallerone suited to their needs.

Fixed and variable annuities can also be part of yourinvestment portfolio within this group. Variable annuitiesprovide flexibility in investment options as well as inthe amount, timing, and withdrawal of investments.

• Level 3: Insurance. In this level, the focus is on beingready for the reality of your retirement. That meanshealth, life, and long-term care insurance. Unfortunately,many Americans underestimate the need for these formsof insurance, and the reality is that Medicare is rarelyadequate to cover medical bills in retirement.

As a physician, you're aware that many retireesrequire increasingly expensive long-term care duringtheir golden years. For most people, the majority of theirlifetime health care expenses come during the final yearsof their lives. This can quickly wipe out savings, investments,and other assets if not planned for.

Offload the risks of retirement, such as poor healthand the possibility of outliving your retirementresources, to a reputable insurance company. You maysleep better with that peace of mind.

• Level 4: Investments. If you want to make yourretirement years truly golden, you probably should notrely on personal savings and other investments to providethe bulk of your retirement income needs. The reasons aretwofold. First, extended economic and market downturnscan seriously deplete even the most conservatively investedassets. Second, Americans are living longer, therebyincreasing the chance of outliving retirement assets.

NAVA suggests that savings and investments beused primarily for discretionary spending, with basicincome needs ensured through guaranteed incomeproducts as the base of your retirement pyramid.Doing so will provide you with a solid foundationthat will enable you to fully enjoy the fruits of yourretirement years.