At Coordinated Wealth Management, we believe there are three primary areas of risk that every individual needs to address. They are investment risk, mortality/morbidity risk and longevity risk. We explore each of these types of risk below.
• Investment Risk
Risk is a major consideration in the design of all investment portfolios. This risk can be broken down and evaluated in the following areas. First, risk capacity is your financial ability to sustain market downturns without jeopardizing your plan or the ability to meet obligations. Second, risk tolerance is your ability to mentally, emotionally and psychologically withstand down markets without selling. Third, the need for risk is simply the amount of risk needed in order to achieve your asset growth goals. Each of these should be carefully considered and weighted in developing an investment portfolio.
• Mortality/Morbidity Risk
Mortality risk is the risk of not having enough capital to provide for your financial needs in the event of your death. These would include capital for income, debt repayment, taxes and business needs. Life insurance can provide this needed capital. Today’s market offers many types of life insurance contracts. The guarantees and sustainability of these products vary greatly. Products should be evaluated carefully so that you know your policy will be in-force when you need it. Many “Permanent Life Policies” in-force today may be in jeopardy of lapsing. Have you audited your life insurance lately?
Morbidity risk is the financial risk that comes with a disability or need for long-term care. These risks may be self-insured or provided through traditional insurance products. We can help guide you through the process of determining your exposure to these risks and the best way to provide for those needs should they arise.
• Longevity Risk
Longevity risk is the risk of out-living your money. Improvements continue to be made in modern medicine and people are living longer than ever. A couple that has reached the age of 65 has a 50% chance that one of them will live to age 90 and a 31% chance to age 95. With this increased potential life span comes the risk of out-living your retirement nest egg. In many cases, income annuities or “private pensions” can be used to provide an income stream you cannot out-live. A well crafted plan will not only provide lifetime income, but can protect and increase legacy assets.