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The ALM Difference

Ah, the oldest question in the world: “How are you different?”

We approach retirement in a very different way then the financial planning community does. In fact, we approach it like an insurance company does…such as the company whose life insurance policy you may have bought.

To us, there’s two parts to the equation: assets and liabilities. The assets are your home, cash, investments (such as stocks and bonds), loans to friends (who hopefully will pay them back) and maybe you cars. Add them all up, that is your asset number.

Your liabilities are your credit cards, mortgage monies you’ve borrowed from friends, any back taxes or payments plus, a discounted amount of money for your retirement, which you haven’t funded. That last one is the tricky one. Let’s leave inflation aside for a minute. If you live to be 90 years old, and you are sixty now, then you need thirty years of income. This is liability A.

So take your monthly paycheck (we are keeping this simple), and multiply it by 12 and then multiply it again by 30. That is how much money you need at the current income level. Now, do the same thing with your monthly savings, from now until you retire, but subtract it out from that number. Make sure your monthly savings includes the principal portion of your mortgage payment.

Add these numbers together will give you your total liabilities (we will get into discounting later). Add Liability A and B; this is your liability number.
Your net worth is what is left after you subtract the total liabilities from the assets. 99% of the time, this number is negative. Why?

The number is negative for two reasons. First, most people haven’t saved up enough money. Second, we did not reduce the liabilities by the fact that the retirement income payments are not all due now. This is more complicated and it is better to use a calculator to do it. However, for the current boomer generation, they will not have paid off their home mortgage until they are in their 80’s. So there is some offset between not having to pay out the retirement income now and having to pay our mortgage interest.

We help you to understand these calculations, in person with your own individual numbers. We educate you on how to earn cash income during the retirement phase, so that you don’t outlive your money. We call this “sustainable income.”

This is why we say at ALM: “Our Mission is Sustainable Income™

If you would like to use our free tools, click here.