Welcome back. In this episode we are going to address the question, "What is
the 4% rule in the financial services industry?" And with what I'm going to
teach you it reminds me of this cartoon that I have here on my wall. Which I
actually purchased the art for this clear back in 2007. When my third book
The "Last Chance Millionaire" was released. It became a New York Times Wall Street
Journal number 1 bestseller. And it shows this couple here. The husband is
working on his computer on the couch and this is his wife and it says, "If we take
a late retirement and an early death. We'll just barely squeak by." Sometimes
that's all too true for some people when they're looking towards retirement. And
one of the problems is this 4% rule in the financial services industry. So, I
want you to learn in this video about how to not outlive your money. And not
have to deal with that 4% rule that the industry broker-dealers force upon their
advisers. So that they won't be sued for you running out of money
I'm Doug Andrew. And I've been an author of... 13 books is my goal by the end of
this year. And my 11th book is titled "The LASER Fund" and I'll show you at the end
of this episode how you can get a free copy of this. I'll fire it out to you. You
just pay a nominal shipping and handling fee. But this isn't about trying to sell
you a book. I'm going to give it to you. In the financial services industry, which
I've been involved with for more than 4 and a half decades. I've noticed
that a lot of people that have their money in the market, because most people
put their money in you know tax-deferred IRA's and 401K's in the market. And
this is like the market EKG. And I've often described in my books, the stock
market is like a person with a yo-yo. Hopefully walking up some stairs. But it
goes up and down, up and down, up and down. And this is from 1962 to the year 2010.
That was a horrible dip that we experienced in 2008. So, in looking at
that, it helps us understand, "Golly, if you're just told to hang in there what
is your average rate of return going to be?" Well, you're going to be shocked when you
see the difference between investor rate of return, the actual rate of return
investors have versus the investment return if you bought and held. Now, I
often quote Warren Buffett because he had 2 rules of investing. Number 1 is
don't lose money and number 2 don't forget rule number 1. Easier said than
done, right? Well, let's look at the actual research. Crestmont Research says that,
"From a 50 year time period from 1960 to 2010. If you were to look at like the S&P
500..." Now that's the Standard and Poor's 500. It's a measuring device of the top
500 companies in America. That's an indicator whether the market is up or
down. And whether you probably made money or lost money in any given year and what
your average was. And Crestmont said, "If you eliminate 100% of the losses over
that 50 year period." Now most decades if you just moved in
10 year chunks. Most decades will have an average of 7 up years, gained
years compared to 3 lost years. There are periods like 2000 to 2010. There were
5 lost years and only 5 gained years. And our clients are more than
doubled their money during that time period. When most people were barely back
to break-even. But what Crestmont said is, "You know what?
If you just eliminated those last year's." You didn't make any money, but you didn't
lose them. They said, "You'd only need 25% of the upside gains to actually beat the
market." Do you understand that? If you eliminated the last year's, you only need
25% of that... So if the market went up 20 you only earned a 5. Ok, that means that
as the market goes up you only need 25%. If it went up 20 only earned 5% not 25
you would outperform the market if you just got rid of the last year's. Well, how
do you do that? That's why I'm so passionate about a concept called
indexing, because you eliminate the last years. You don't lose when the market
goes down, but you make money when the market goes up. And Crestmont is the one
that says, "You'll outperform the market if you do this." Now, most financial
advisors, how do they make their money? They make their money based upon it you
buying and selling. See? The more they turn your money in the market, the more
fees they generate. And so that's one of the reasons why they say, "Oh no, why would
you want to pass up this huge a gain period of time?" Well, it's because I want
to eliminate the lost years. You can participate when the market goes up and
not lose when the market goes down when you use indexing. And we teach this in
other episodes. And so it's really interesting I mentioned Dowel bar in
several of these educational episodes. Dowel bar has tracked investor behavior
and its impact on return. So, this was a 20 year period ending in 2012, I believe.
And they said, "You know what? If you just bought and held. You should average in a
20 year period around 9.14%. But most investors are not
averaging 9.14%, because they're not buying and holding.
If you earn 9 and you had a million boxes saved. That would be a
$90,000. But you pull out 90,000 out of a tax-deferred IRA or 401k.
Yyou're only going to net 60,000. Because 1/3 of that goes out the window in
taxes, usually for most retirees. But this is where they said, "Oh, in this time
period it was 3.83." Was the actual investor return. They had to revise that
down to 3.49 the next year. So, it's around 3 and a half to
4 percent. Now that means, why? Why is there a difference between this and this?
Because investors get emotionally involved. And when the market starts
going down, they finally go, "Uh!!!" And they get their money out of the market. And
then they wait till the market comes back up and they miss all that upside
and they finally buy in. So they're selling low and buying high and
that is not smart to be able to do that. And so what happens is the average
return is only about 3 and a half percent. So, this is what precipitated the
4% rule in the financial services industry. As a financial
strategist for 45 years helping people with
their hard-earned money at retirement to create predictable rates of return. I
wanted to get people's money out of the market. And put it into a strategy, in
indexed universal life insurance contracts that could net people 7,
8, 9, 10 percent internal rates of return tax-free after the cost of the
insurance and all fees. But let me show you the impact of the 4% rule
in the financial services industry. Let's say that you needed $3,000
a month on top of Social Security. Or maybe you taught school or
you had a defined benefit pension or whatever. So, you need 3,000
bucks a month to make ends meet, which is $36,000 a year. Now, in order to net 3,000
a month or 36,000 dollars a year out of a tax deferred IRA
or 401k. Most people would have to withdraw at least $50,000
out of that IRA or 401k to net 36,000. Why? Because you have to pay
tax. So you have to pay tax on that. Now, that's only 28% between
federal and state tax. Many people pay as high as
33% or in California 40%. If you have to withdraw 50,000 out of an IRA or 401k to
net 36,000. What is fifty thousand 4% of? Its $1,250,000 nest egg.
Does that shock you? If you're anything like me, "I don't accumulate a
$1,250,000 to have a measly 3,000 a month to
buy gas and groceries or golf green fees or whatever. That's pathetic!"
But see, that's the 4% rule. If you had a million 250
grand and it was out there at a portfolio of IRA or 401 k's in the
market. Most financial advisers are forbidden from illustrating any type of
a predictable income. But if you do want to take income, they are limited to 4%.
This is the 4% rule. "Oh, we recommend you only take out no
more than 50,000 on that 4% of that. If you take
out more than 50, they know you might outlive your money. And so, you have to
sign this waiver. That you will not sue them for outliving your money if you
take more than 4%. Isn't that pathetic? And so that's the 4% rule.
And people go, "Oh golly, I only could pull out 50 to net 36 and I
have a million 250. So, my favorite vehicle that I use is the max funded
insurance contract. I call it the LASER Fund in my books. And LASER is an acronym
that stands for liquid assets safely earning returns. In this book I show that
historically by using indexing, you can earn rates of return averaging 7
percent, 8 percent, 9, 10. I've actually averaged 11.17.
And I've netted at 10.07 for the last 25 years, by
using indexing and rebalancing. And so those two strategies are taught in my
books. But what does this mean? If you earn 8% and you had a payout
of 8%. 8%on a 1,250,000 is a 100,000.
How much better is a 100,000 than 50,000?
It's double, okay? It's a 100% more. But see? This 100,000 in
the LASER fund is tax-free. This one is only tax deferred so you're only netting
36. How much better is a 100,000 of income versus 36,000
to buy gas and groceries, haircuts and so forth? But actually, by
using 2 strategies indexing and rebalancing. There are many periods that
I have earned 10%. Most people that I've educated and that work with
our savvy financial advisers who understand how to do this correctly.
They've been earning or being able to have 10% payouts.
So, when you have a 10% pay out on a 1,250,000 that's a
125,000 tax-free. What would you rather have? 36,000
or a 100 or 125? I would guess 125. If you want to learn how to do
that. I would strongly recommend you learn about indexing strategies. How to
reposition that money in your IRA's or 401K's using what we call strategic rollouts.
Where you convert your hard-earned money from this kind of an environment with
apathetic 4% rule. And increase it to 8 or 10 percent payouts without
depleting the nest egg. The 4% rule, if they're only earning 3 and a
half will slowly deplete it. In my LASER fund it does not deplete the nest egg.
Hopefully, this is giving you some insights into opportunities that maybe
you didn't know existed before. And so this is what motivated me to become an
author. And I've written 11 books. My goal is to write a book every year minimum
for the rest of my life. But all of my books empower the reader to be able to
take ownership of their brighter future with strategies like what I've just
explained. Because it is so much better, double triple what the financial
services industry says you... "You can only pull out 4%, because we don't want to be
sued." And that's because of the actual rate of return due to market volatility.
And because you have to pay tax on where most people have their money. And they
thought they were going to be in a lower bracket and they're not. And so my most
recent book is called "The LASER Fund" and this
is actually two books in one. Because I found a lot of couples... One learned
sometimes more, left-brain. They like the charts in the graph. So, there's about 200
pages, 14 chapters of charts and graphs and explanations. But if you are a
numbers person and you flip the book over and you read this one. This is up
about 12 chapters that contain 62 actual client stories and examples of how this
works. And so however you like to learn, if you want to use your whole brain
right and left brain. You can read both of these. I would love for you to get a
copy. If you go to laserfund.com, you just cover the shipping and handling fee, very
nominal. And I will fire one of these out to you immediately. And there'll be
options in there for you to get the audio, the digital version, a little mini-
classes and so forth, if you want. But my goal is to empower you, not trying to
sell you a book. I want you to have the education, the ability to be able to
dramatically improve your retirement income and cash flow by double or triple
what the financial services industry says that you're stuck with at a
4% payout. So, welcome to your brighter future as you learn.