Get Your Retirement Income On Track
What is the underlying premise for all long-term savings? Why are we giving up current enjoyment of our income? The answer is to have an income stream in retirement. It makes sense to learn how retirement income streams work economically and define how to allocate your savings today. The sooner you get on an efficient path, the greater the impact you have on your retirement income streams. Let Destination Retirement help today.
Michael helps people achieve a higher and more predictable retirement income stream using his proprietary economic based process. As a Retirement Income Certified Professional® from the American College of Financial Services®, Michael effectively manages the transition from asset accumulation during a client’s working years to asset distribution in retirement. RICP® enables Michael to demonstrate tremendous value by delivering smart strategies for creating secure, sustainable income for a client’s retirement.
IN THE MEDIA
Mike Seibert on Retirement
Four Stage of Investments in Retirement
Four Stages of Taxes in Retirement
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Learn About Planning
Product vs. Strategy
The key is to have the skill and technique to combine different products together to create efficiency. We all have a finite amount of money to work with so we have to be as efficient as possible to create the highest and most reliable income stream in retirement by utilizing our Two Economic Powers® approach.
A Thought on Retirement
Longevity and Distribution Rates
The Two Main Retirement Income Problems
Longevity
We do not know how long we are going to live. If we knew this, then retirement planning would be easy. By simply dividing the number of years into the total amount of retirement assets, you would find your retirement income. So, do you plan for the best or the worst-case scenario? Whichever you plan for, does that increase or decrease your distribution rate?
Distribution Rates
Determine a distribution rate before knowing the rate of return of our Retirement Assets in any given year.
Most traditional retirement plans show a constant rate of return vs. variable return. How do Retirement Assets react to fluctuating rate of returns? We have no idea what our sequence of returns will be the day we retire. What if your portfolio loses 10-15% in a given year, what is your plan of action for the following year?
Let’s Talk Twos
Two Economics Powers® Approach
Investments and Actuarial Science
The key is diversifying where you put your retirement savings. Using these TWO POWERS together can create higher retirement income streams. In doing this, you will create a situation with multiple savings sources. This allows you to withdraw yearly income from different areas in your retirement years from a more stable savings base.
Most people used to get both powers by default through defined benefit pension plans. As defined contribution plans such as the 401(k) and 403(b) became more popular, very few people continued to have the security of a pension plan. It is no longer your employer’s responsibility to fund your retirement. Very little education has been given to individuals regarding what they must do to provide for themselves the day they retire.
Two Pre-Retiree Wealth Building Questions
How much do I need to save?
Where do I need to put it?
Two Parts to the Climb
Accumulation and Distribution
Think of it like climbing a mountain. What’s the objective? Is getting to the top the objective? Or is it really getting to the top then making it back down safely the ultimate objective? This is a metaphor for our financial lives. Getting up the mountain is our Pre-Retirement/Accumulation phase and getting back down is our Retirement/Distribution phase. The key is this one continuous journey. Understanding how retirement income streams work (distribution) defines “how you pack your bags” in Pre-Retirement.
If you were going to climb a mountain, would you get a guide? What if the guide said they could get you to the top of the mountain, but they weren’t sure how you were going to get back down? Would you continue to use that guide or find another one? Let us be your guide to all things retirement.
Thinking About Retirement Planning
Why is this Strategy So Important?
Longevity
All of us only have a finite amount of money. Inefficiencies cause major losses to occur. We must be efficient in where we allocate our money in the short time we have to save for your retirement plan.
Inefficient losses can be reflected in:
- Lower Current Lifestyle
- Financial Vulnerability
- Lower Retirement Income
- Higher Taxes and Fees
- Inadequate Protection
- Less Benefits
- Loss of Financial Control
Effective Planning
How Significant is Efficiency?
Someone might be able to create $75,000 a year of retirement income based on current savings with an inefficient process.
The same individual could create $125,000 a year of retirement income with an efficient process using the same amount of savings.
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Inflation’s Impact
Let’s say you saved $1,000,000 at the time of your retirement. Traditionally you take out the safe annual withdraw rate, 3-4%, a year which is $30,000 – $40,000. With the inflation adjustment, people who make $100,000 yearly to support their lifestyle today need to be making $180,000 annually in 20 years with 3% inflation.
The Problem with
One Economic Power®
(Traditional Financial Planning)
The 3-4% Rule
Let’s say you saved |
3-4% a Year is |
|
$1,000,000at the time of your retirement. |
$30k – $40k(the safe annual withdrawal rate) |
EXAMPLE OF HOW MUCH YOU’LL NEED TO
ACCUMULATE IN ORDER TO SUPPORT YOUR
LIFESTYLE AT RETIREMENT
With Inflation Adjustment
If you make |
You’ll Need |
|
$1,000,000to support your lifestyle today. |
$180,000annually. |
For the desired lifestyle of $180,000 and at a 3.5% distribution rate, you will need to accumulate
$5,000,000
in assets to retire and maintain your current lifestyle.
How feasible does this path sound running your own numbers? Is this the path you would want to stay on if you had the choice?
PROJECTED ANNUAL RETIREMENT INCOME
Effective Planning
If You’re 40 Now
Example
Let’s say that your current income is $150,000 a year. At age 65, with 3% inflation, your adjusted income needs to be $314,067 a year to maintain your current lifestyle.
If You Currently Have |
$400,000 |
And you continue to save |
$16,500each year at a 6% annual interest rate. |
When you’re 65, you will have |
$2,676,329saved. |
Withdrawing 3.5% annually you will only have |
$93,671a year in annual income to live on at age 65. |
Effective Planning
If You’re 50 Now
If You Currently Have |
$1,250,000saved for retirement. |
And you continue to save |
$20,000each year at a 6% annual interest rate. |
When you’re 65, you will have |
$3,489,148saved. |
Withdrawing 3.5% annually you will only have |
$122,120a year in annual income to live on at age 65. |
Example
Let’s say that your current income is $200,000 a year. At age 65, with 3% inflation, your adjusted income needs to be $311,593 a year to maintain your current lifestyle.
The problem in many cases isn’t the accumulation of money in retirement plans like 401(k)’s, but the low distribution rates we could be on track for if that’s all we do. What if today you could put yourself on a path that provides higher distribution rates from the retirement assets you’re accumulating? It is possible using our Two Economic Powers® approach.
*Hypothetical illustration may not be used to predict or project investment results.
The Solution
Approach your yearly retirement income with the Two Economic Powers® Strategy.
Comparisons
Two Economic Powers® Examples
The example below uses the same amount of savings to generate annual Retirement Income Comparisons. Actual results may be more or less favorable.
One Economic Power®Strategy |
|
 |
Retirement Assets Only |
| Total Income: |
$174,519 a year |
| Amount Guaranteed: |
$0 a year |
| Approximate Years of Volatility Buffer: |
– |
Two Economic Power®Strategy |
|
Covered Assets Option |
Volatility Buffer Option |
$376,112 a year |
$374,460 a year |
$340,398 a year |
$0 a year |
– |
5.4 years |
What is a volatility buffer?
The system by which an individual can protect their assets in the event of market unpredictability immediately following retirement.
For More Information
Let’s Chat About Your Retirement Income Plan
Just answer a few simple questions to see how well prepared you are for retirement and we’ll get in touch to find the very best plan that fits your lifestyle and financial concerns.
You’ll also receive a complimentary white paper featuring eight core ideas to retirement income planning, written by retirement income expert Dr. Wade Pfau.
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Resources
Retirement Planning Resource Hub
- What is a RICP® and Why Should You Care?
- Does Your Advisor Have Their RICP® Designation? Find Out Here.
- Inventor of the 401(k) Says He Created a Monster
- Vanguard Retirement Nest Egg Calculator
- Fidelity – A Spending Power with Staying Power
- Eight Core Ideas to Guide Retirement Income Planning
- How Long Can You Expect to Live?
Watch the Video to Learn About Retirement Planning With Two Economic Powers®
Learn About Planning
We Can Help Plan for the Road Ahead.
I would like to have a no-obligation, complimentary conversation about my finances and my retirement! Let’s take some time to talk, listen, share ideas, and see if we’re a good fit to work closely together to put all the pieces of your financial life together. Call us at (610) 360-8187, email us at mseibert@1847financial.com, or send us a message.
