Retirement Ahead

In Retirement, Average Returns Don’t Matter Any More

Too many working people keep doing the same thing they have always done when it comes to retirement. They keep checking returns to see how much they can accumulate when it comes time to retire. They want to attain the best average rate of return possible.  But think about how long they keep this up — if they work the average number of years most people do, that’s 40 years! They have grown accustomed to checking returns, writing down year-to-date growth, and so forth.  If they can get a 3 percent return, they want 5 percent.  If they get 5 percent they want 7 percent.  But everything changes when a person actually enters  retirementshutterstock_261713222 and is taking money out of their funds to live on.

Consider a retirement fund of $300,000. Let’s say a person we’ll call Mary begins taking money out of this fund, something into which she has been saving for 25 years. If she takes $1,000 a month, she will withdraw $12,000 a year. But in the sixth year, while she still has a balance of $234,520 (which includes $6,520 in interest) the market drops by 5 percent each of three years in a row.  Mary continues to withdraw a level $12,000 each year for those three years, leaving only $171,766 in her fund.  If the market gets back to the average 5 percent growth rate she is used to, Mary will run out of money three years prior to her plan, at year 22, instead of year 25. The point is, when a person retires and is withdrawing a level amount each year, the “average” rate of return doesn’t apply any longer. This will force a retired person to take less, just so they don’t run out of money sooner than they planned.

Now let’s move our attention to the goal of having retirement money last for 25 years and even longer.  What if you live 30 years after retirement and along the way you need hospice or long-shutterstock_83839663term care?  This could drain your money at the same time the market is going against you.  To summarize, a working person cannot keep calculating the average rate of return they think they will have in retirement because unseen forces will change what ultimately will be available in retirement.

Rather than being fixated on checking returns, a wise person who wants to plan a secure, predictable retirement, will need to plan one that includes more than just simple 401(k) or standard market investment vehicles. Retirement gets more secure and more predictable when other options are added, including real estate, precious collectibles, property rental, annuities, permanent life insurance, and so forth.  Simply trusting what your employer is telling you about how to prepare for retirement is foolish. Retirement calculators that can help you see what you need to do so that you will not outlive your money are essential. We have these calculators and the means to help you plan for retirement using spending control, debt payoff, long-term savings, and tax reduction tools. Retirement planning is so much more than just checking returns. It involves getting spending under control NOW, eliminating ALL bad debt within 9 years or less, tripling your retirement savings, and learning how to legally and ethically reduce your tax burden so you can put that saved money to work for you.

Call me to discuss how real retirement planning needs to happen: (801) 292-1099, ext. 2.

 

Yet It Is the Plan!

I love The Richest Man in Babylon, a book written many years ago by George S. Clason.  There are millions of copies in print.  It is a light easy read, but powerful in the financial wisdom it contains.  Some of my favorite vignettes from the story are Tablet No. III, IV and V. In these vignettes, the character “Dabisir”the-richest-man-in-babylon-review owes 10 debts (and maybe more) to friends and other vendors, for a total of 119 pieces of silver and 141 pieces of copper.  Now, this was a big problem for Dabisir because he had no capacity to pay the debts.  So what did he do?  He did what a lot of us do – he ran away from his obligations.  Of course this only made the situation worse. He couldn’t support his family and his wife had to go live with her father.

By and by Dabisir consulted with a wise man by the name of Mathon.  Mathon counseled him to do the following: of all the money he made (Dabisir sold camels for a living so he had a variable income) he was to pay 10 percent to himself, 20 percent to his creditors, and live on the remaining 70 percent. Now this plan was not well received by his creditors; they reviled Dabisir bitterly and left him in humiliation, all the while promising to make trouble for him.  However, some were willing to accept this payment plan, and thus Dabisir went on his way to do the best he could.

Things were not easy.  Sometimes his earnings were meager “but nevertheless my good wife and I have stood by the plan even though we have bought no new raiment and eaten little but herbs,” he says in the story. Other times were better. The creditors were honored with payment as promised, be it small or large, although they were not all happy about his arrangement with them.

And then the day finally came when Dabisir was able to pay the last of his debts, and celebrated the occasion as he reflected upon the actions of his creditors, some of whom begged for his forgiveness and others of whom complimented him on his success.  Dabisir also notes that the creditors were not the only ones to hold him in high regard:  “Many others speak deferentially to me.  My good wife looketh upon me with a light in her eyes that doth make a man have confidence in himself.”

Now, I have always imagined the potential for any man to feel puffed up with pride and self-satisfaction at this point.  However, Dabisir, at this moment of great pride, makes a powerful observation that applies to us all:  Yet it is the plan that hath made my success. It has enabled me to pay all my debts, and to jingle both gold and silver in my purse.  I do commend it to all who wish to get ahead.  For truly if it will enable an ex-slave to pay his debts, and have gold in his purse, will it not aid any man to find independence?  Nor am I, myself, finished with it, for I am convinced that if I follow it further it will make me rich among men.”

This book and its stories are the philosophical basis for the Money Mastery Personal Financial System.  The Money Mastery program becomes your “wise man” when you apply the wisdom of the advice within it. It is the system whereby the stories of this book can be realized in your own life. You too can have more money, and have money that will last you the rest of your life if you will learn the principles of proper spending, how to accelerate debt payoff such as Dabisir did, and manage to save money all at the same time!

For more information on the Money Mastery program and other personal financial matters, contact Alan at 801-292-1099.

More Wealth-building Options with Whole Life Insurance

“Life Bank” is another term for purchasing a properly structured whole life insurance policy that pays dividends from a mutual life insurance company.  Life Bank is the perfect tax-free financial option with great upside potential.  Consider the following:

  • Tax deferred growth
  • Tax-free distribution
  • Competitive rate of return
  • Lifetime tax-free income you can not outlive
  • Higher than normal contributions
  • Can be structured for tax-deductible contributions
  • Collateral opportunities
  • SAFE Harbor for money, not like FDIC insurance (465 banks failed in 2009 alone).
  • No-loss provision
  • Can design the policy to lock in your insurability to purchase more
  • Guaranteed loan provisions
  • Unstructured loan payments1207
  • Liquid at all times
  • Full use, can use the money without restrictions
  • Full control of deposits, withdrawals and loan repayments

Here’s an example of using Life Bank to purchase a $30,000 automobile.  You have three options in purchasing a car: cash, financing or Life Bank.

Cash:  Using cash means the money is gone to the seller.  Your loss of the use of the money means you lost the interest growth this money could have earned for you; instead, the seller is getting the benefit of your cash.

Financing:  Going the traditional bank/credit union route to finance the car means you pay out and lose forever the payments, which not only equal the base total of $30,000 but the additional interest you must pay the bank to finance the car, which comes to $3,968 in this example.  In addition, the car will only be worth $10,000 at the end of the loan.

Life Bank: Cash value come from policy and buys the car.  You pay the same as a loan from a bank or credit union but the $33,968 goes back to your living Life Bank.  Now the magic happens. One hundred percent of this money is now yours again.  In addition, you get interest paid on all the cash as if it never left the insurance policy. The insurance company charges you 5 percent for the loan, but currently pays 7.1 percent as a dividend.  You now have two wonderful benefits for using your Life Bank:  $38,501 more in your Life Bank policy and the value of the car at $10,000.

Why LeBron James Needs a Coach, and So Do You…

Does LeBron James need a coach?

By every measure, James is probably the best basketball player in the world right now.  But he has a coach.  Why does he need a coach and, by the way, why does anyone need a coach?  Why do professional golfers have a caddy – it’s not just to carry the bag! The answer is that no one ever wins a championship without a coach, no matter how talented they may be!

One of the most important games in life is winning a financial championship.  That championship is won by having a predictable, secure future, regardless of means and circumstances.   If you have income, then you are entitled to financial security.  Note, that I did not say sufficient income…all that is required to get out of debt, build a predictable retirement, and obtain financial security is an income of any size. The Money Mastery program shows you how to have wealth on ANY income.  The caveat here is to understand that more money doesn’t guarantee wealth — more money is only  better than less money if it is properly managed.  We have seen too many clients who make a lot of money but are out of control financially and usually out of control in other areas of their life as well.  On the other hand, we have been amazed at how those with a more limited income can do so well on so little!

10030

The way that many of these people succeed is by having the right perspective and options, which often comes only through a third-party, or in other words, a coach. A personal financial coach brings perspective and knowledge to your capabilities.  Sure, you may know how to shoot the ball and tally the score (financially speaking), but a coach can see opportunities from his or her perspective that you cannot see while you’re trying to dribble and shoot the ball.

Winning championships is all about not only having a coach but it’s also about teamwork as well.  Reconciling personalities, talents and circumstances (think spouse and family personalities, talents and circumstances) can result in you scoring more points than you can otherwise hope for. What you don’t know about the way you are managing your money in terms of these personalities and circumstances costs you a lot of dollars over your lifetime.

If you have not learned the basics, like controlling spending and getting out of debt, then it will be very hard for you to understand more advanced principles of wealth creation such as leverage where you are getting your dollars to do more than one thing at the same time.  Applying these kinds of principles, regardless of your income, creates wealth that you will never earn paying off mortgage debt your entire life or hoping to build a sizable retirement on a simple 401(k) program.  A good financial coach can teach you how to apply the basics and then teach perspective and options about accelerated wealth creation that you could never learn on your own.

Regardless of your annual income, you cannot afford to be without an experienced principle-based financial coach!  Your CPA assembles your after-the-fact historical numbers, a lawyer is no financial expert, and financial advisers just want your money to invest so he or she can make money, whether you do or not.

If you want to run more plays with your dollars and never run out of money then you need to have an accountability partner, a financial ally, a financial friend, one that you can count on over the long-term.  Applying the Money Mastery system together with the live coaching help you get when you become part of the online program will help ensure that you will come out a winner, regardless of your income.

For more information on the role of a financial coach in your life, contact alan@moneymastery.com


Get Out of the 401(k) Game

Let’s use the example of playing a professional football game with your family against the national champion football team, the New England Patriots.  Let’s assume that you were able to gather 11 of your family members for your team.  Let’s further assume you get to be the quarterback.  You have no experience whatsoever, nor any muscles.  Your equipment is haphazard and poor.  What chance do you have of winning this football game?  What chance do you have of staying alive?

Miraculously by half-time your team is ahead. You go to the locker room excited but pretty beat up.  As quarterback, you discuss your game plan for the second half, but remember the Patriots have 55 experienced players.  They started playing football in grade school, then college and now the pros.  They are angry that you are winning and highly motivated not to let a “rag-tag” team beat them.  They are exceptionally tall and the average weight of each player is 300 pounds. In addition, the Patriots now get to change the rules mid-game and not tell you about them.  Now what are your chances for winning?   For example, they change this rule:  they get 7, not 4 downs to make 5 yards for a first-and-ten. They only have to make 5 yards to get a new set of 7 downs.

10092

Ridiculous you say?  Consider that in real life, you have the same problem when you play financial games with banks, big investment advisers, bond issuers, mutual fund companies, foreign exchange traders and the like.  These large financial institutions have years of experience, talented attorneys, tax accountants, and a huge sales staff.  They can change the rules as they go along and not even bother to tell you.  In the same way as playing football against the Patriots, you are playing against talented financial pros who don’t like to see a rag-tag team like you win.  What are your chances of winning at any financial game?  Is it possible to even level the playing field?

Yes, you can simply choose not to play. You can leave the field and do your own thing any time you please. While most everyone seems to have a 401(k) and is doing what is traditionally expected to save for retirement, if you have consumer debt, like credit cards used foshutterstock_248620027r living purposes, it is rarely wise to invest money in traditional retirement programs until you have paid this debt off. That’s because you’re not likely to be spreading out your investments in your 401(k) in risky funds that have potential for larger returns — you’re likely invested in steady, moderate funds that provide lower returns. The return rate on these lower-risk investments can rarely keep up with the high interest rates you must pay on credit cards, so you’re not even breaking even let alone making any extra money!

There are other ways to keep control of your money and still learn how to create retirement income outside the standard “dump money in a 401(k)” method. Learn to think outside the box by doing the following:

  1. Create a spending plan so you can control your money.
  2. Take the surplus money you find by getting your spending under control and pay off consumer debts quickly.
  3. Once you have paid off credit cards and created surplus cash, then look into small investments that you control.

Here’s a good example of this three-step process:

Jane (name changed), one of my clients, got her spending under control using a spending plan, which allowed her to pay off three credit cards. This created a bit of a cash surplus that allowed her to open a small hair salon in her home.  She makes $22,000 a year working three days a week.  Overhead expenses are very low and she takes this money, net of taxes and saves it.  She has a goal to accumulate $80,000 and purchase a small condominium near her home and then receive rental income to fund her retirement.  This type of investment allows her a lot more personal control over what happens to her long-term savings than simply dumping all her money into mutual funds.

Here’s another example of an alternative way to create surplus and invest it for retirement:
Jeff (name changed) buys older automobiles and fixes them.  He is a good mechanic so he does all the work on the engine and transmission then hires another company to repair the interior. He makes on average $3,000 each time he turns out a car, and can do this part-time four times a year for an annual profit of $12,000.  His goal is to take this $12,000 and invest it in a new shop behind his home so he can do more classic automobile restoration when he retires.

Notice how Jane and Jeff are not on the playing field with large experienced financial institutions like mutual funds companies?  They are in control of their own financial world.

In conclusion, I have watched Jane and Jeff gain confidence in their ability to create surplus money, invest in themselves and forecast a better retirement income.  They are learning about running a small business, tracking expenses, reducing their tax burden, hiring employees and looking for more opportunities to invest their surplus money.  To me, this is fun, to be engaged in such a way that when you reach retirement you have options and more income.  Unfortunately most people feel they have to stay with the big board investments.  They don’t seem to look around and see what other opportunities are out there and become totally dependent upon the “market” or “investment advisers.”  It is always better to keep control of your own money and learn how to make it grow rather than turn it all over to others. Knowing that the big financial entities are always changing the rules on you can be a great incentive for simply leaving the game with some of your investment money and doing something different with it so that you can create a wonderful and predictable retirement.
Retirement Ahead

Insurance Companies: A Good Bet for Managing Retirement Income

Living a long life will compound some financial problems.  When you live to age 90+,  you are exposed to inflation and/or deflation on your retirement money all those extra years.  Living a long life means you will be drawing down on your savings for a lot longer.  I have been helping people plan for retirement for over 45 years noColorful doorsw.  I have seen success and I have seen failure.  What I have seen that works best in dealing with longevity issues in retirement is placing some of retirement funds in a permanent life insurance policy with a financially strong mutual life insurance company. These policies not only cover your family when you die, but they also build cash value. Because insurance companies are in the business of spreading the risks out over hundreds of thousands of people, they can offer guarantees you can not ever get with mutual funds. Your investment is not subject to market losses like mutual funds, you will receive guaranteed growth year after year, and you can have access to your cash at any time without any penalties or interest.

In addition to these benefits and the fact that insurance companies are financially strong, there is an advantage that I believe is the most significant you get by placing some retirement money in whole life insurance: Insurance companies are on both sides of the risk. If someone dies young then the insurance company doesn’t have to pay money out for very long and if someone lives to age 100, the company will spread the money out to these folks from those who die in their early years. This makes it possible for them to manage both sides of retirement perfectly.  No other industry can dream of doing this.

This type of income management thus becomes less about a rate-of-return and all about managing longevity. It provides you with less risk and eliminates the worry that you will outlive your retirement funds or that the economy will derail your retirement plans, making it possible to more fully enjoy your later years.

If you have not considered purchasing permanent life insurance, now is the time to do so before you get any older. Call 888-292-1099 with questions.

Consider Real Estate

Why You Should Consider Real Estate Investing

There are two very important reasons why you should consider real estate as a means to put your cash surplus in motion to create more:

1. Real estate is a valuable commodity.

The great Will Rogers once said: “Buy real estate, they ain’t makin’ any more of it.” He was right. Land is a limited resource and because it’s limited, by its very nature it is inherently valuable. Remember, anybody who has wealth owns property!

Invest in Real Estate2. Real estate has more benefits than any other type of investment.

Real estate has a unique ability to produce benefits unmatched by any other type of investment. They include:

 

  • Cash flow
  • Tax benefits
  • Equity build up
  • Appreciation in value
  • More secure than other investments
  • Offers unique control, due to outright ownership, which influences the value of the investment.