Investment Management
Maximize Your Retirement Income
Traditional financial planning has failed to help people maximize their retirement income. The common approach to investment management is to accumulate as much money as possible and then to live off the interest of your nest egg while hoping for the best. This is called the ‘interest only’ approach and relies on withdrawing a “safe” amount of money from your nest egg each year, typically 3-4%. The interest-only approach is heavy on hope and light on certainty leaving you in a precarious position to live out your golden years in ambiguity.
Before you can maximize your retirement income, you must address the risks facing you in retirement. Some of these risks include outliving your money, long-term care expenses, market volatility, taxes, and inflation. While many of these risks are present before you retire, their impact is amplified over the course of a 30-40 year retirement. Understanding the impacts of these risks and the pitfalls of an interest-only retirement income strategy allows you to create a different approach to maximize your retirement income.
Questions to Consider
Before we continue, consider the following questions:
NEST EGG
How large does my nest egg need to be to cover my expense based on a 3-4% interest only strategy? To calculate, divide your annual expenses by 0.03 or 0.04. Am I on track to achieve this?
VOLATILITY
How do I feel about market volatility impacting my retirement cash flow? Am I in a position to spend less if the market is down?
RISKS
What have I done to protect against the risks I face in retirement? What additional risks do I face? Will I be financially responsible for anyone other than myself?
An Alternative Approach
The traditional interest-only approach to retirement income has several shortcomings – minimal income, tax inefficiency, lack of liquidity, and persistent market risk. To maximize your retirement income, you must use an alternative approach that addresses these.
What if you could spend a portion of your hard-earned money instead of simply collecting interest from it? This creates more income because you are withdrawing principal and interest. Your taxes would be the same as or less than the interest-only strategy because principal withdrawals are tax-free. Since you are withdrawing principal each year, your taxable interest will decrease, creating a natural hedge against rising taxes and inflation.
What’s the downside? You run out of money at some point by spending principal and interest, so you must have another bucket of money available to pick up the slack when this one is emptied.
MAXIMIZE YOUR RETIREMENT INCOME
Refilling The Bucket
Any deferred, liquid asset could be used to replenish the bucket of money spent down in retirement, but whole life insurance is often an excellent choice for a number of reasons:
Liquidity
Permanent life insurance like whole life accumulates a cash value that can be accessed at any time, for any reason via tax-free loans or withdrawals.
Tax Efficiency
Properly structured whole life insurance policies accumulate cash value that grows tax-free and can be accessed tax-free via loans or withdrawals.
No Market Risk
The growth of cash value in a whole life policy is not tied to risky investments in the market.
Guaranteed Growth
The cash value of a whole life policy grows based on contractual guarantees and will not decrease in value-creating stability.
Enhanced Protection
All whole life policies provide a guaranteed death benefit that can be used to take care of a surviving spouse. Additionally, many offer riders that allow early access to the death benefit to pay for long term care or medical expenses for the terminally ill.
Retirement Planning With Entrusted Capital
Retirement has changed over the past 40 years. People are living longer and healthier lives meaning 30-40 year retirements are common. The absence of traditional pension plans for most workers and the uncertainty of social security has placed the onus of preparing for retirement squarely on you. It’s a daunting task and failure is simply not an option. Our advisors are here to help with a proven process designed to maximize your retirement income.
We start by understanding where you are today and what you hope for in retirement. We’ll show what your retirement income plan looks like based on traditional planning methods and your current trajectory. Together, we will identify shortcomings, and we’ll help you build a strategy to realize the retirement of your dreams. We’ll lean on four decades of experience building retirement income strategies that maximize income, minimize taxes, and protect against risks.
Next Steps
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