In the arts, one of my favorite phrases is Sturm und Drang - Storm and Stress. The use of it in music weaves in drama and tension. During the Age of Enlightenment, it endeavored to capture the fact that one cannot simply base their life decisions on rational and empirical evidence. The fact is that life has emotional extremes, whether they are caused by internal or external motives. Life is complex, there is both upheaval and tranquility.
When dealing with life's extremes, how one will react is unpredictable. Everyone is different. Some people react very rationally, maybe they pause and reflect, perhaps for so long that they are moved to inaction and the moment seemingly passes. Others react all too quickly, and perhaps make rash decisions that they later regret. Knowing this is human nature, a thoughtful financial planner will structure their client recommendations such that flexibility and the ability to weather life's ups and downs are woven into their plan, ideally creating three distinct pools of money that a client can access given their needs in their income-earning years and in retirement:
The Fixed Pool
The Fixed Pool are those sources of money that will pay your fixed expenses, your monthly bills, those items that won't change. In one's working years, this pool may be funded by maintaining a steady stream of income and ensuring that there are enough accessible savings to cover these expenses when there is a break in income for whatever reason. In retirement, this is generally funded by things like social security, Required Minimum Distributions, or established withdrawals from retirement accounts.
The Freedom Pool
The Freedom Pool are those sources of money that will allow you the flexibility to do the things you want to do as well as compensate either planned or unplanned large costs such as a down payment on a home, unexpected travel or time away from work, or in retirement, the many fun things we each dream of doing. This pool may be funded by an open investment account or a tax-free retirement accounts such as Roth IRAs.
The Finish Well Pool
The Finish Well Pool provides flexibility for the stage of life most people rarely wish to think about but a thoughtful financial planner always does - Old Age. This is the stage after retirement, when hopefully we've thrown all the parties, gone on all the trips, and made all the updates to the house we wanted to. This is the stage where we probably sleep a lot and ideally smile a lot too in reflecting upon the great life we've had. This is where the money lives that will counter the effects of inflation over the course of our lives, provide for our legacy goals and cover advanced medical costs so that we are comfortable and have dignity in our final days. One of the ways to fund this pool is via a well-structured cash value life insurance policy that has had enough time to grow and been in place long enough to have real and significant value at this stage in life. These policies may be complex, but they are integral to a sound financial strategy and worthy of a conversation with your financial planner.