Category Archives: Holistic Financial Health

Holistic Financial Health (cont.) – Present Value and Leaving a Legacy

I ended my last post noting that when we consider the future and determine our personal rate of discount we should not limit ourselves to the “rest of our life”. In fact, if you are like most people you care a lot (though maybe not quite as much) about what happens after you leave this world. Except for the very wealthy, very few of us (and even fewer financial planners) really take a hard look at what this implies for how we should manage our financial life both before and after we retire.

As a practical matter, when it comes to financial decisions, what this means is that  not only should you consider those scenarios where you don’t exhaust all your assets, but you should also think about other financial steps that you can take to leave something behind. In addition to your house there are two other mechanisms for leaving a legacy that are worth mentioning now and will be explored more deeply in future posts. The first is Life Insurance which many financial planners will likely suggest should be part of your financial strategy. As powerful and effective as it can be (for protecting your family while working, for generating retirement income, and for leaving a legacy) Life Insurance products are very complex, and purchasing policies as well as managing them well can be a daunting task.

The second and less well known vehicle that can be used to both generate retirement income and leave a legacy is a Charitable Gift Annuity (“CGA”), which even though considered a “Planed Gift” by the philanthropic community, can also be considered as a (not so traditional) retirement planning tool. Steve Vernon as well as many others have explained how effective annuities in general can be in ensuring your financial health. See for example Steve’s post at  .

With respect to Charitable Gift Annuities, this link,   can give you some basic information on how CGA’s actually work, but for now just know that CGA’s operate like any other annuity that you might buy from an insurance company except that instead of allowing a big corporation to make money on your purchase, the “profits” on a CGA go to the Charity that you got it from. You can obtain a CGA from almost any large not-for-profit organization, University or Charity. I purchased one from my old school, but many people get them from large Charities whose mission they believe in.

In order to get a CGA you must first make sure the Charity of your choice has a CGA program. To find out, just call them up and ask for their “Planned Giving “ department. After you transfer funds to the organization you have chosen, they will provide you (based on a legally binding contract) a guaranteed stream of payments starting either now or at some specified date in the future and those payments will continue for the rest of your life. The only difference between this and an annuity purchased from an insurance company is that in addition to the guaranteed lifetime income you get, you also receive an immediate tax deduction for the Present Value of what the Charity expects to recover from the transfer after you die and all of the annuity payments had been made.

In essence, obtaining a CGA allows you to provide yourself guaranteed retirement income, leave a legacy and get an immediate tax deduction for the profits that otherwise would have gone to an insurance company had you bought a more “traditional” annuity. To my mind a CGA is a great way to invest your retirement savings in a vehicle that can play an integral role in your decumulation strategy while at the same time benefiting a cause you believe in.

Of course it is not quite that simple (e.g. CGA’s can be expensive and tricky to obtain), and we will delve into more of the details in a future post. If you can’t wait, you can always read Chapter 12 of “What’s Your Future Worth?” and get the full story of my CGA purchase and take on the world of Planned Giving. In that chapter, as well as throughout the book, the message is the same – ask the experts for help in imagining the future and evaluating what might occur (steps 2 and 3 of the Present Value process), but don’t ever let others set your personal rate of discount (step 4)  by telling you how much (or little) value to place on what you get/give today vs what comes your way tomorrow or even in the distant future when you are gone but the world is still spinning and those you care about are still  around.

That is what holistic financial health is all about.