Ideas in the Wild: Michael Lynch is Teaching People How to Enjoy a Long, Healthy Retirement On Their Own Terms

Americans today face retirement with a mix of hope and trepidation. Hope — that their health will hold out long enough to let them do what they want for decades. And trepidation — that they might not have enough wealth to fund it.

But creating a viable, sustainable retirement plan is easier than most people think. In It’s All About the Income, award-winning financial planner and bestselling author Michael Lynch lays out a simple, straightforward system that anyone can use to determine when they really have enough money to call it quits.

In the book, Michael shares how to turn those savings into a steady stream of reliable, inflation-adjusted income, and offers a way for anyone to enjoy a long, healthy retirement on their own terms. I recently caught up with Michael to learn more about why he wrote the book and the ideas he shares with readers.

Why did you write this book?

When you start to approach retirement, there’s one big question you ask yourself: do I have enough? This book will provide you with the tools and know-how to answer this question definitively.

But that’s not why I wrote it.

Once you have enough, then what? Assets are fun to look at, play with, and brag about, but we live on income. I wrote this book based on 20 years of practical experience helping hundreds of Americans turn their assets into sustainable real income. This is where the action is and where honest mistakes — both conceptual and practical — can cost you dearly.

This book will teach you how to avoid these mistakes, especially the biggest mistake of all: contracting “principal myopia.” That’s a common disease that infects Americans as they approach retirement.

This disease causes investors and some advisors to focus exclusively on the risk of seeing the paper value of principal drop, if only for a month, quarter, or year. The reaction is to transfer to “safe” investments — anything with a fixed return: CDs, government bonds, bond-based mutual funds, fixed annuities. Unfortunately, the result can be real financial pain.

Relying on fixed assets in a world of increasing prices, if you’re lucky enough to live a long life, is a path to certain misery. I wrote this book to give you a systematic antidote to this terrible curse. Enjoy and profit from it.

What’s an idea you share that really excites you?

Most of us have internalized a formula for financial success:

• Get a good job and keep it. (Check. Still a good idea.)
• Spend less than you earn. (Check. Nothing is possible if you don’t do this.)
• Invest the money in a safe place. (Trouble ahead. We need an updated definition of safety.)
• Live off the interest, and never touch the principal. (Definitely throw on the scrap heap. Replacement: live on the returns and grow the principal.)

The bottom line is that we need a new definition of safety for retirement income. Look, I get it: the money you need in two weeks for the utility bill, in two months for your property taxes, and even in two years to purchase a motor home is only safe if the principal is protected.

But for your long-term retirement income that may need to last 10, 20, or even 30 years, safety has nothing to do with principal protection. Instead, it has everything to do with inflation-adjusted income.

In other words, you don’t need guaranteed principal. That’s just what purveyors of low-return banking and insurance products want you to believe. You don’t need guaranteed income. That’s what purveyors of depreciating products such as fixed-income annuities tout. Instead, what you really need to sail comfortably through your golden years is inflation-adjusted or “real” income.

That’s right. Safety is contextual and means you need a dollar to be an actual dollar when you need to spend it.

How will following your advice improve your readers’ lives?

When the world changes, successful people change with it. Safety for your grandparents meant piling up stable currency, reinvesting the income until retirement, and then using the income to support a modest retirement lifestyle for a much shorter time than you can expect.

These days, though, this formula leads to financial misery. It places your retirement income, the very thing you need to be stable, at the mercy of extremely volatile (and now extremely low) interest rates. At the very time in life when you don’t want to have to change course, you are faced with a brutal choice: invest in what you consider riskier investments, consume your principal, or downshift to a diminished life.

However, when one door closes, another usually opens. This holds true of retirement income. Although interest rates have collapsed and formerly safe financial instruments have turned quite risky, there has been an explosion of effective financial products from which you can build a customized, robust system to support years of inflation-adjusted retirement income.

Banks and brokerages offer principal-protected, fully liquid assets. Asset managers and investment companies provide convenient access to low-cost bundled investments such as mutual funds and exchange traded funds.

Insurance companies continue to innovate in their domain of expertise: contracts to generate nominal income protected for a lifetime. Independent financial planners stand ready to use these tools to build your retirement income house with brick, not straw or even wood.

The key is using these tools to build a robust, customized retirement income system, addressing each need with a tool designed to meet it, and managing the whole so you can adapt again when the world changes. That’s exactly what this book teaches you to do.

These systems may not give you everything you want all the time. But they will get you what you need: a lifetime of real retirement income. And, with a little luck, you’ll even have something to pass down to the next generation if you wish.