It’s a fact that many individuals and families who have worked hard, saved and invested their whole lives end up in poverty during their golden years. While many individuals associate retirement planning primarily with setting up and funding retirement accounts like 401(k)s and IRAs, it’s crucial to understand that these accounts alone cannot guarantee a comfortable retirement.
The Retirement Dilemma
The reason behind this dilemma is that with retirement accounts alone, only about 4% of the total amount you have saved over a lifetime can safely be withdrawn per year as income (based on the money having to last on average 20 years). Since the average pre-retiree has between $250,000 and $1,000,000 in their portfolio by age 65, the typical income for a retiree would be $10,000 – $40,000 per year. Add $28,000 for the average annual social security payment and that total comes to $38,000 – $68,000 per year. Surviving at the lower end of this range is difficult in most of Florida’s cities, especially in urban areas like Miami and Orlando.
The question is, after working, saving and investing your whole life how can you do better than surviving on $40,000 – $70,000 a year in retirement?
The Solution
The answer to the question of how to get more for your savings and investments in retirement comes from changing the composition of your retirement portfolio. Many people have portfolios made up entirely of stocks, bonds and real estate — all assets that are correlated to the market. When the market does well, these assets tend to grow in value. However, when the market is weak or there is a recession, you can lose money in these investments. The uncertainty and ups and downs of the market are the reason why only 4% of your nest egg can safely be withdrawn per year when you only have only market correlated assets.
The key to making your portfolio yield more wealth for you in retirement is to build in some guaranteed income that is not linked to market fluctuations. This guaranteed income comes from assets that are not correlated to the market. These uncorrelated assets include permanent cash value life insurance, annuities and long term care insurance. Based on actuarial science, and backed by some of the most financially secure companies in the world, these assets have paid out incomes year after year through the Great Depression, both world wars and countless recessions. By leveraging these uncorrelated assets, you can safely increase the annual withdrawal rate from the recommended 4% to 6%, 8% or even more depending on your age and the amount of investments and savings you have already been able to put away.
Because actuarian science typically rewards healthier and younger clients, the further away you are from retirement, the more affordable it is to acquire certain non-correlated assets like cash value life insurance. In addition, there will be more time to build up cash values and take advantage of compound interest in both your correlated and uncorrelated assets. Therefore, while people in their 50s and 60s can benefit from a consultation, those who are in their 40s, 30s or younger stand to benefit the most overtime from making this change in their portfolio.
