Pension Obligations | Wisdom, Wealth, and Wellness

Jonathan Satovsky
CFP®, ChFC®, CIMA®, CPWA®, CDFA®, DACFP

Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management. And on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about pension obligations.

In the original desire to be able to care for people as they age, many corporations used to provide what are called defined benefit plans. When you finish working, you get a percentage of your final average salary in compensation for life. Well, when life expectancy was 62, that wasn’t very difficult to meet, but as life expectancy continues to rise, those obligations are extraordinarily challenging for most institutions to make. So, many people changed this formula to put the burden on the employee to save in their 401(k) or 403(b), or other types of pension schemes, where they had to control their own savings rate and investment choices during their lifetime and throughout retirement.

I spoke to someone today on the same notion about the idea and he said it’s all about cash flow. I just need cash flow. Well, let’s just reframe that a bit. You could have cash flow from an investment. If you live on all the cash flow, you’re not taking into account inflation, taxes, good times and bad times, cuts and dividends, and the like. So, I want to reframe a formula for everyone to reverse engineer the idea that you want to accumulate enough financial assets to be able to maintain a 2 to 3% spend rate. And that gives you the bandwidth to cover taxes, inflation, as well as the hidden cancer of the 1 to 6% behavioral errors that people make year in and year out.

Let me say it again. 2 to 3% for spending, 1 to 2% for taxes, 3 to 4% for inflation, and 1 to 6% accounted for behavioral errors. If you do that, you’ll have sustainable finance on your path to Wisdom, Wealth, and Wellness—cash flow or no cash flow—structurally for your own psychological safety.

Have a great day.

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Video Recorded April 10, 2023
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Disclosures

This blog post is not intended to be, nor should it be construed or used as, an offer to sell, or a solicitation or offer to buy any securities or interests in any strategy offered by Satovsky Asset Management, LLC (“SAM”). SAM is a registered investment advisor with the Securities and Exchange Commission – for more information see www.adviserinfo.sec.gov. Please remember that different types of investments involve varying degrees of risk, and that past performance is not indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the strategies recommended or undertaken by SAM) will be profitable. Market index information shown herein is included to show relative market performance for the periods indicated and not as standards of comparison. The market volatility, liquidity and other characteristics of SAM’s portfolio composition are materially different from the securities listed on public market indices. Market index information was compiled from sources that SAM believes to be reliable. No representation of guarantee is made hereby with respect of the accuracy or completeness or such data. Opinions are as of date of video and are subject to change. A copy of SAM’s current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. SAM undertakes no duty to update information presented herein.

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