Retirement funds last longer if they pass the laser test.
In this episode, I'm going to address the question,
"How long will investments last in retirement?" Well, that's a function
of rate of return but also several other things that most people don't think
about. So, get ready to learn and become
enlightened.
So, I'm Doug Andrew and what do I know? Well,
I've been a retirement planning specialist for more than 46 years.
And I've helped people understand how to optimize their assets usually for
long-term goals such as retirement for 46 years. But also how to minimize
unnecessary taxes and make sure they don't outlive their money. So, when
people ask me that question, "How long will investments last in
retirement?" Well, golly! That's dependent upon several
variables. The biggest one is: Well, what rate of
return are you earning?" But rate of return isn't
the only consideration. But see a lot of people have that a lot of
money sitting in banks earning 1%, that's pretty
pathetic. You're rowing upstream so to speak at
one mile an hour and the current of inflation comes down
at 3, 4, 5, 6 percent. You're going
backwards. You're going to run out of money because the cost of living will
double probably every 7 to 10 years. So,
what you may want to consider, "Golly, I need to earn a rate of return that is
equal to or greater than the cost of living increase" what we call
inflation. So, a quick way to analyze inflation is to understand the
rule of 72. So, let me explain what that is and
you'll always be able to sort of think off the cuff off the fly about
what the cost of living may be 5, 10, 15 years down the road. So, before I
explain the rule of 72, first of all, whatever you have your
money in, your investments in retirement, they
have to be earning collectively safely predictably
on an annual basis at least as much as you need to live on.
Hello!? Okay? So, if you're used to living on uh 4,000 a month, 5,000 a month,
10,000 a month and you need that and after deducting maybe what social
security may provide or whatever, you need to be able to
make sure that your investments are earning on an annual basis
predictably and safely on the average at least what you're spending. Or else
you're going to run out of money just because you're spending more than you
are earning an interest on your investments.
Now, with a calculator, you can say, "Well, golly. I'm going to pull out this much
money." And I can show you if you were to pull out
this much money, for example the financial services
industry says only pull out 4%. So, on a million dollar nest egg, that's
40 grand. But if you pull out 40,000, you have to pay tax on that if
it's an ira 401K. You only might net 30,000 or 28,000
and then they charge you fees and so you have to look
at what the net is. But you're pulling out 40 grand if
you're only earning 3.5% which is what
the financial services industry says the average person earns Dalbar reports
people with money in the market average about 3.5%
because they're buying and selling at the wrong times.
Well, if you're pulling out 40,000 and you're only earning 35,000,
what's going to happen to your nest egg? It's going to slowly dwindle.
So, you can calculate based upon your life expectancy
are you going to outlive your money or not.
But that's not the only consideration. So, rule of 72
says, "You know what? If you were earning a specific
interest rate", let's say 5% interest and I put in
lump sum let's say of $100,000, how long would it take for my
100,000 to double to 200,000? You take 5%
interest, divide that into the number 72
and that will say 14.4 years. So, it's going to take about 15 years
before your 100,000 doubles to 200,000.
So, if it's earning 7.2%, your money will double in 10 years.
If you're earning 10%, 10 into 72, your money will double in 7.2 years. And I've
been averaging a little over 10%. So, my money doubles
every 7.2 years. 125,000 will double to 250(thousand) in 7.2 years.
It doubles to 500 000 in the next 7.2 to a million and then 2 million then 4
million than 8 million. I have clients who started out with 125,000
one-time lump sum. And 30 years later,
they have 8 million bucks. But it's generating 10 payout. That's 800,000
a year of tax-free income. But see you use the rule of 72
to calculate inflation. So, if inflation is let's say 5% in that example,
the cost of living will double every 15 years.
So, if you could get by on 3,000 a month, it's going to take 6,000 a month in 15
years to buy the same gallons of gas and loaves of bread that
3,000 a month about 15 years earlier. And in 30 years,
it's going to double again. You're going to need 12,000 a month to buy
the same haircuts and gallons of gas or golf green fees
that you could have bought for 3,000 30 years earlier. Well, guess what?
Inflation really is more like 10%. 10% because of medical costs and
everything else. 10 into 72 your money's going to double every
7.2 years. Well, the cost of living will double every 7.2 years.
So, if you could get by on 5,000, in
7.2 years, you're going to need 10,000. In less than 15 years,
you're going to need 20,000. Okay, in 22 years you're going to need
40,000. And in 30 years, you're going to need 80,000 to buy what
5,000 bought thirty years earlier.
This is what we call the tax and inflation power curve because people
don't calculate the tax effect. If you pull out money, if
you pull out 150,000 out of a million-dollar nest egg and
you pay tax of a third fifty to net 100. And that's why people outlive
their money because they're not earning 15%.
If they're earning 10%, they pull out 100,000, they only net
67,000. And the cost of living is
required that they take out more and more money.
Well, even if you tightened your belt, that million dollar nest egg that
requires that you have to pull out 50% more, 150,000 in a 33%
bracket, okay? To net 100 to buy gas and groceries because
maybe in 7.2 years, you started out with 50,000
to make sure you live. Now, you need double that 100,000.
Your money, your nest egg, your million dollars would be
gone drain dry in 11 years. That's the question to ask. Can you put your money
into something that inflation will help you instead of
hindering you? You come along for the ride. You link
your returns to the things that inflate. You convert your retirement money to
something that's totally tax-free. Make yourself immune from taxes. And make
sure your money is immune from market volatility.
So, let me review those 3 huge dangers here and I'll connect the dots
for you on how you can do this. So, it's easy to say that your
nest egg needs to earn on an annual basis
predictably at least how much you need to live on. Because if you're
pulling out more than it's earning, it's going to deplete
it. And sometimes a lot of retirees outlive
their money because their investments aren't anywhere close
enough to make sure they can retire for 20 or 30 years.
Or the rate of return is not providing enough to meet their minimum
lifestyle or standards and so they have to downsize and what-have-you.
But many times they don't realize what's happening to them because
of the negative impact of inflation, The cost of living
increasing every seven to 10years doubling, And also
on top of the taxes but they think they have to make it up and they put their
money in the market. AAnd now they have market volatility
and they lose big time. 40% sometimes when the market dives.
So, what i have always recommended is that
with your serious cash, that money for retirement that you do not want to
jeopardize, put it into an investment that passes
the laser test. L-S-S-E-T, liquid assets safely earning
returns. The L stands for liquidity. I prefer a
max funded indexed universal life because it passes
the liquidity test with flying colors. I can access money anytime I need
with an electronic funds transfer or a phone call.
The safety, okay? The S stands for safety. I want to make sure that whatever I set
aside is safe in the institution but also that
I don't lose money due to market volatility and any year that I
make money, that becomes newly protected
principle. I don't want to ever lose in future years money I paid in past
years. That's called lock-in and reset which i explained in other
educational videos. But then I want to earn a predictable rate of return.
I can't be rowing upstream at one or 2 miles an hour when the current of
inflation is coming down at 3, 4, 5, 6 or 7.
I want to link my returns to the things that inflate.
Indexed universal life allows me to link to an index
so that inflation... I don't like it any more than you do but it doesn't hurt me.
It helps me. If inflation is 10, I I've earned 15.5. If inflation is
20, I earned 25. I've always earned at least five and a half percent higher
than the inflation rate at the time. So, you want to link your returns to the
things that inflate so that it actually helps you if things inflate.
The last thing is is to make sure that it's tax-free. Make
yourself immune from taxes, inflation and market volatility so you
don't outlive your money. So, let me show you how you can learn to
pass the laser test and which investments pass it with flying colors
because most IRAs and 401ks don't even score
hardly 50% of what they could if you have your money in the market in
traditional IRAs and 401Ks. So, I've helped thousands of people
eliminate those dangers. Make themselves immune from taxes inflation and market
volatility. I do that with my favorite vehicle which i call the Laser Fund. And
so, my 11th book is actually titled The Laser
Fund. I want you to learn about this, this is
300 pages. There's 200 pages of charts, graphs and
explanations if you're into numbers and you're more of a left brain-learner. If
you're a right-brain learner, you learn by stories,
you read this side which is 12 chapters with 62 actual client stories
on how to accumulate access and transfer your money tax-free.
For goals other than retirement but especially for retirement. But college
funding, emergencies, real estate business, working capital and
so forth. I want to gift you a free copy of this
book. It's yours for free. You can claim it
by going to laserfund.com. I'll pay for the book. You just simply
pay $5.95 shipping and handling. And if you like the audio and the video
training too there's options there. But go to laserfund.com and claim your
free copy and begin to empower yourself so that
you will never outlive your money and you're
never going to ask the question, "How long will my assets, my investments
last in retirement?" You want a strategy where as long as you do.