Today, we will be talking about a winning retirement strategy. For retirement savings and investments, there are two main phases. However, most people are only familiar with the accumulation phase.
This is the phase that most families spend their time in. This is what their co-workers talk about. So when I talk to you about this phase, it would sound very familiar.
And when we get to the distribution phase, this is an area that a lot of families are not familiar with. So the accumulation phase is usually when you are in your 20s and 30s and early 40s. And the main goal is to maximize your money in your retirement account.
How do we do that? We're going to focus on getting the highest rate of return, having the lowest amount of fees on those accounts, and doing our best to minimize market loss. The types of...
Financial professionals that specialize in this area are financial advisors, financial planners, wealth managers, and investment advisors. And those are the go-to guys when we are in the accumulation phase. We do that on our end as well, so we can help you on the accumulation side.
Now, when we get to the distribution phase, this is when families are in their 40s, 50s, and 60s and beyond, the goals shift a little bit. The main goal is not to maximize the money in your retirement account because at this stage, you are going to be taking distributions and withdrawing money. The main goal is to maximize the money that is being deposited to your bank account and balance that against not running out of money. So that is going to be the focus because if you have $500,000, Obviously, the maximum that you can withdraw out of that account is $500,000. But that is not what the focus is going to be on, right?
You want to make sure that you are taking the highest amount possible, but also sustain the remaining amount for the rest of your retirement. On this end, the financial professional that can actually have a retirement strategy is the financial professional that you should be working with. Now, some financial advisors, planners, wealth managers, investment advisors have that strategy, but I would say from our experience, the vast majority of them do not because their main focus is on the accumulation side. And let's take a look at what ends up happening if you end up going into the distribution phase, but still work with the traditional advisors. So on the traditional advisor standpoint, they can't predict the future markets.
Nobody can. So what we've been running are over 5,000 simulations of historical returns called Monte Carlo analyses to predict the chances that your portfolio, your retirement portfolio, may run out if you have it in these types of accounts. And the chances are going to be determined by a percent.
of your withdrawal, not by a set number, because everybody has a different amount in their retirement account, right? Some might have $500,000, some might have $250,000, some might have over a million. And so these are by percentages.
So for example, it doesn't matter what amount you have, if you're taking 2% or 3% of your total retirement account, what are the chances that it may run out? in 25 to 30 years. So running these simulations, you'll get a ballpark of these numbers. So 2% is pretty healthy, meaning if you have $500,000, that's $10,000 per year, but maybe that's not enough, right?
And going forward, if you have 4%, for example, which is from $500,000, $20,000 per year. the chances of running out now increases to 16%. So ask yourself this question. Let's say that you were in the shoes of the financial advisor or wealth manager.
If you were taking or recommending the distributions from this strategy, what's the highest percent that you might recommend a family or a client to take? Just take a look at this chart here. And most financial advisors...
and wealth managers are classically trained to recommend no more than 4%. Nowadays, this is called a 4% rule. And nowadays, you'll see a lot of articles talking about how the 4% rule no longer works because people are living longer with the age of expectancy is increasing.
And so a lot of advisors nowadays are recommending, do not take out more. then three to 4% of your account on any given year. So from a 500,000 account, that's $20,000. Not sure if that's enough for retirement, right?
And however, they are trying to balance not running out of money versus taking out more money. So for example, if they were taking out 6%, which is 30,000 a year, there's a 65% chance of... running out of money.
If you were the actual family, what percent would you want of not running out of money? Do you want a 65% chance, 16%, three? How about zero, right? We never want to end up not having anything. They say the number one fear of a retiree is not dying.
The number one fear is running out of money and not knowing what to do next. So is this all we have? No.
That's why if you work with an advisor who actually has a retirement strategy for your retirement account, this is potentially what it may look like. Notice that there are higher percentages being able to take out a larger amount of your retirement account, but... also having a 0% chance of ever running out of that income. So even up to 7%, which is $35,000. And however, you can't take out a lot more, right?
So, but that is pretty high compared to the standard 3% to 4%, in which you still have a, if you take out 3% to 4% of your account, you still have 3% to 16% chance of running out of money. So how would you like to be able to... have a higher income stream for the rest of your life and also on top of that have guarantees that it will never run out and that is the difference between a traditional account and working with an advisor with a retirement strategy. Graphically I wanted to show you what this looks like so here is a traditional account without a retirement strategy and um We'll give you an example of a 50-year-old who has $500,000. And by the time they're 60, they're going to start taking out withdrawals, which is shown in red.
So at this point, they have close to about $800,000 and they're taking about $45,000 a year. And what's the general trend that you see in their account balance? Sometimes it goes up, but in general, the account will go down. At some point, let's take a look at this point here. $111,000 or about, and they're taking close to $88,000 a year now.
Maybe cost of inflation is going up, cost of living is going up. And so now, what do you think will happen next when you're at only $111,000 and annually you're taking close to $90,000 a year? It's going to run out soon. So when your account balance is zero, What do you think the withdrawals are now?
Zero. So this is a traditional brokerage account, a traditional wealth managed account. When you run out of money, then there's no more distributions. Compare this with a solution that has a true retirement strategy attached to it. So you'll notice that this case is very similar at the very beginning.
So 50-year-old have $500,000. We're going to grow that money before retirement. And by the time he's 60, then he's going to start taking out distributions, he or she.
And as he's taking out distributions, very similar starting point, about $800,000, going to take out close to $45,000 a year. The trend looks the same. The account starts to decrease.
And the withdrawals, right? So cost of living, inflation. That's going to look like it's going to run out soon again, right?
So 160 minus 90,000 a year. However, there's one difference. Even when the account balance is zero.
the withdrawals are still coming out annually for the client. Or most families elect to choose monthly payments because it's easier. So it'll be that amount divided by 12. So how does this work?
How does this work? And this product solution is called a modern annuity. There's a reason why we call it a modern annuity because there are really old versions of annuities.
that have high fees, that have very little flexibility, and that have no beneficiaries to the account. So those are still being sold nowadays, but on our end, we do not open those types of annuities for clients. We use a much more upgraded, modern version of an annuity, and I'm going to share with you how it works. So on a modern annuity, you'll have two columns.
The first column is called... the account value and let's just take five hundred thousand dollars for example on this side of the equation it's just like any other account you can invest as conservative moderate or as aggressive as you'd like it does not matter okay but of course if you invest aggressive and the market goes down quickly then you can lose and you can also gain the second Part of the equation is called an optional budget. So let's give you an example of an optional budget.
And this budget will depend upon your age, when you establish the account, a lot of different factors. But in this particular example, it's about 7% of that $500,000 account value. Okay, so 35,000 a year. There's one rule that you have to pay close attention to. As long as you don't take out more than your optional budget amount, you're guaranteed that lifetime income even when the account value is depleted.
So whether the market goes up, down, left, or right, and you're taking out $35,000 a year, and you stay within budget not taking out more than $35,000 a year, then even when the account value goes to zero, The company is still giving you $35,000 a year or close to $3,000 a month. I'm going to walk you through the difference between the modern annuity, how it works, and the traditional types. So as we go through life, we never know what's in plan for us, what's in store for us.
We don't know when we're going to die. We don't know we're going to live extremely long. So let me walk you through a few scenarios that may or may not happen during your retirement years.
So scenario one, I know it doesn't sound so good and nice to say, but it can happen. What if you die early? So let me walk you through an example. Let's say that we start with $500,000 and I'm just going to put 0% interest on the earnings to make the calculations a lot easier to follow along. But.
you can have earnings on these accounts. So assuming 0% earnings, after one year, you've taken out the $35,000, which is your optional budget. You're now down to $465,000. After another year, you've taken out another $35,000, okay?
And $35,000, now you're down to $430,000. So what happens if you die early? And you might be thinking, of course, the $430,000 goes to your beneficiary. And that's how the modern annuity works.
The remaining amount goes to the beneficiary. And I know what you're thinking. Isn't that how it's supposed to be? Well, the traditional type, the beneficiary gets zero.
So there's a big difference between the two, right? And that's also why traditional types of annuities have a bad rap. That's why when you Google annuities, there's a lot of... things out there that talk negatively about it because of those traditional types that some agents are still selling out there now let's walk you through scenario number two what happens if you don't die but also you don't live long so give you an example what if um god forbid you come down with a terminal type of illness and the doctor says you only have five years to live Okay, so same idea after two years, you've already taken out within budget $35,000 a year. So you're at $430,000 and you find out that you have less than five years to live.
Why would it make sense to continue $35,000 for life when life is only five years, right? Now, you can, you can, and then when you pass, the remaining will go to your beneficiaries, right? That's an option. However, here's the flexibility that I talked about.
Now you have access to your $430,000. So you can take out $100,000 and take a trip to Europe. You take out $50,000, give it to charity.
Take out a... another amount that you want to leave for your beneficiaries or your kids while they're alive. It doesn't matter.
You have the freedom and flexibility to do as you please. And last scenario. Oh, sorry. Before I get to the last scenario, I wanted to mention that for the traditional type, once you start that income stream, you do not have access to turn it off.
You do not have access to the remainder of your money. So Even if you only have five years to live, that $35,000 a year is going to pay only until you die. And when you die, no beneficiary. And so you're stuck with that stream if this was a traditional type. And scenario three, what happens if you live too long?
Okay, so at some point in the future, your account will go to zero. Okay, now, if you follow that optional budget, and there's a reason why we call it but optional because if you see, right, scenario two, you're not staying on budget. This amount will continue until death.
Okay, so you're never taking out $35,000 and then zero, does it not matter? You'll still get close to $3,000 a month for the rest of your life until you die. Last but not least, I'm going to walk you through an illustration. Okay, just an example. of a hypothetical client who has this type of account.
So you can kind of see the numbers of how this works. Okay, so going through the columns, the first column is the year, how long they've had the account. Number two is how old they are. The third column is the account balance. And you'll notice that they are starting their annual withdrawals right away, their optional budget right away.
They don't have to. The longer they delay, the number is going to be larger than it's 36,875 that you see. So let's say they defer a year or two, then it's going to be a higher amount, right?
So maybe it's 38,000 or 40,000. But this client had an immediate income need, so he's going to start really early. And as he's taking out annual withdrawals, if you see in this column here, you're going to notice that the account. value is going to decrease, even though there's some credited interest every single year.
On this example, there's a floor of 0%. So you can never get a negative year on this specific account. Okay, so some years are good, some years are bad, and then your account will bounce back in some years. And the last column is the death benefit, which matches the accumulation value, right? So at any point, if you were to pass away the remainder of the account balance, goes to your family or your beneficiaries, whoever you choose.
And again, that may sound standard, but that does not exist on a traditional account. If we go into the next screen where we're talking about years 16 and on, you'll notice that at some point the accumulation value will go to zero. Now, because this client never took out more than $36,875 a year, then that is guaranteed until death. Okay, so I know we only show to 30 years, but it will go to age of death, whether it's 100, whether it's 90, whether it's 110. Also, what's unique about this is you can also add a spouse to continue the annual withdrawals, but the amount will be lessened by about 10 to 20%, depending upon the company. All right.
And then you'll notice that we keep track of the cumulative withdrawals as well to highlight the point that no matter as long as you follow the optional budget, you're going to continuously take out all of these amounts all the way through life. All right. Now, one question that a lot of people have is thirty six thousand eight hundred seventy five is good. However, what about inflation? What about cost of living?
So here is a. Same modern annuity that has a different feature. It has an increasing income compared to a level income from the previous example. What you'll notice from the increasing income example is you'll start off at a lower point.
By the way, that still is close to 5.3% of your account balance of $500,000 starting point, which is still higher than the traditional recommendation of 3% to 4%. I just wanted to make a note of that. Okay, so even though it's lower than the level example, it's still higher than the traditional guys. And what you'll notice is... Almost everything that you see from the previous screens is similar where you have an account value, accumulation value.
You have some credited account interest rate on your account. You'll have your annual budget. But one difference, the annual budget potentially can increase every year.
So anytime there's a performance on your account, your annual optional budget will actually increase. either by that amount or a larger multiplied amount depending upon the company. So after 10 years, your optional budget has now increased to $42,608. After 15 years, over $52,000.
And again, death benefit, the remainder of the account value. And you'll notice that even when the account goes to zero, not only does the annual withdrawals continue because you're... staying within the optional annual budget, but it can still increase. And through time, you'll see that cumulative withdrawals is going to be really nice on the back end. And your annual or monthly amounts on the back end is very, very good.
So for a lot of people, they say, well, this makes sense, right? So why doesn't everybody put all their eggs in one basket with increasing? Well, it just depends, right? So what we do on our end is we design a plan that fits a person's financials because what if $26,000 was not enough for you at the very beginning?
Then we'll have to balance it out, right? So as a hypothetical example, sometimes we might have to do some type of splits, maybe $250,000 in a level, $250,000 in an increasing, or $100,000 in a level, $400,000 in an increasing. And that just really depends upon the family's need and how much income that they want to guarantee and to protect. So some final thoughts. If you have the opportunity to protect your monthly income during retirement to never run out, what is the minimum amount per month that you would like to have guaranteed?
Okay, that's the first question. And if we can put together a game plan to help you reach and protect your retirement goals that is better than what you currently have, is there any reason why you would not move forward with it? And last but not least, we'd love to kind of put together some numbers for you based upon all of the retirement assets and your full financial assets that we've done.
with your personal financial strategy. And what we're going to do is, based on the income that you just provided us, we will do our best to reach that. And if we can't reach that, we'll give you an alternative goal based upon your financials to share with you something that makes sense. All right, thank you very much.