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The Pothole in Wealth Management -
Good Logic vs. Bad Logic

From the Desk of
Robert B. Ritter, Jr.
President, InsMark, Inc.

Release Date: January 2011

Note: This concept was first presented in Marketing Alert #217 (March 2009) and, because of its planning importance, we are updating it due to the new estate and gift tax law that became effective on January 1, 2011.

Matthew and Catherine Fox, ages 65 and 60, have a variety of liquid assets totaling a little over $5.3 million available to support their retirement income. Assume they want $200,000 a year in after tax retirement cash flow increasing by a 3.00% a year.

So where’s the pothole?

Imagine that it is the first day of the first month of their retirement. They need $16,667 ($200,000/12) for the first month. From which liquid asset should they take it – and does it make any difference? Without a specific evaluation, there is no way of knowing.

Most people fear running out of money more than any other financial issue, and to help alleviate this concern, the order in which a mix of liquid assets is accessed for cash flow should be prioritized in order to produce the highest possible long-range Net Worth. This is generally the most overlooked aspect of all wealth planning, and even the most sophisticated Monte Carlo simulations typically ignore this critical factor.

Click here for a PowerPoint presentation of The Pothole in Wealth Management -- Good Logic vs. Bad Logic that evaluates this issue. If it doesn’t launch, paste this URL into your browser: http://insmark.com/Shows/WAW/Good Logic vs Bad Logic.swf.

The presentation includes a unique comparison of “here’s what happens if you do this” vs. “here’s what happens if you do that”, and it provides important information on avoiding the “pothole”. The graphics in the study are from InsMark’s Wealthy and Wise^®, and licensees for this System are furnished a link to the electronic Workbook that produced them.

Those not licensed for Wealthy and Wise^® who want more information should contact 1-888-InsMark (467-6275). Institutional inquiries should go to David A. Grant, Senior VP - Sales, at 1-925-543-0513 or dag@insmark.com.

Important Note: The information in this article and any referred material is for educational purposes only. In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

IRS Circular 230 Disclosure

In order to comply with requirements imposed by the IRS which may apply to this document (including any attachments, enclosures, or referred material) as distributed or as re-circulated, please be advised that the material contained herein is not intended or written to be used, and it cannot be used, by anyone for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service under the Internal Revenue Code. In the event that this document (including any attachments, enclosures, or referred material) is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then, as required by the IRS, please be further advised that the material contained herein is written to support the promotions or marketing of the transactions or matters addressed by the material contained herein, and, based on the particular circumstances, you should seek advice from an independent tax advisor.