- Would you rather have a battery or a generator?
In this educational episode,
I'm going to address why do most retirees
outlive their money?
So, get ready.
I'm gonna show you the difference using this metaphor,
the difference between a battery and a generator.
(bright spirited music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now
for nearly five decades,
helping thousands of people prepare for retirement
so they won't outlive their money
by optimizing assets and minimizing taxes.
But one of my goals is to make sure
that if they happen to live to be 120 years old,
they will not outlive their money
due to the negative impact of taxes,
inflation, and market volatility.
So before I go into that,
let me sort of explain what I'm talking about here.
Most financial advisors
try to charge up a retirement battery, so to speak,
by putting your money into some kind of a portfolio
that hopefully, you know, won't go dead before you do.
The problem is, that most asset managers
they have your money in tax deferred IRAs and 401ks
invested in the market.
And if you haven't figured this out yet,
Wall Street was never designed to create predictable income.
If you ask most asset managers
to illustrate a predictable cash flow or income
out of your IRAS and 401ks invested in the market,
they will be very nervous or hard pressed to do that.
If they do, they will likely only show you
a 4% payout,
because most broker dealers tell their advisors,
"Don't you dare ever illustrate more than a 4% payout."
This is called the 4% rule.
Why is that?
Okay.
Well, DALBAR, who studies investor behavior
basically has looked at history
since the Great Depression,
and on any 20 year period,
if you bought and held in the market
you would likely average around 9.14%.
So let's say 9%.
Well, what does that mean?
If you're averaging 9%
on a tax deferred account,
and you had a million dollar nest egg, let's say,
earning 9%, that's 90,000 bucks.
Theoretically, you could pull out $90,000 a year
without depleting principle if you were averaging 9%.
Does that make sense?
But if you're in a 33% tax bracket,
which a lot of people find themselves at retirement,
you pull out 90,000, you've gotta pay 1/3
of that 30,000 in federal
and/or state tax, okay?
So you're not netting 90,000 to buy gas and groceries.
You're netting 60,000 a year or 5,000 a month.
Now, some people, they go, "Well, yeah,
if we tighten our belt, maybe we can handle that."
Well, then inflation comes in and pretty soon
in about five years at the current rate of inflation
as of the recording of this episode,
inflation's been over 15%.
The real rate of inflation, okay?
15 into the rule of 72 means the cost of living
will double in 4.8 years.
So you may need a net of 100,000
in less than five years to buy you what 50,000 buys today.
But let's go back to this 4% rule.
So if you could, you know,
just have your money stay in the market
and not get emotionally involved
on your hard-earned money,
you ought to average 9%, is what DALBAR says.
But you'll net six.
Well, people aren't really averaging nine. Why?
DALBAR says, the average retiree in America
with money in the market is only earning 3.49%.
Why?
Because they said investor return
is something totally different than the investment return.
Investment return, if you bought and held would be,
you know, 9%.
Why is it only 3.5%?
They said, because when you have this nest egg
and you are relying on predictable income,
human nature is when the market goes
through a major downturn, which it does once every,
you know, seven to 10 years,
people watch that nest egg,
that million dollar nest egg dwindle in value
when the market goes down 20, 25%.
They see it go down to 750,000 or 700,000.
And they usually at that point go, "Ugh, ugh.
Enough already."
And then they sell and convert to, you know,
money markets or whatever.
And so they sell low,
and then wait, wait, wait 'til the market rebounds
and they have enough confidence
and then they buy back into the market at the convincing of,
you know, their advisor and they buy high.
So that is getting emotionally involved.
And so when you sell low and you buy high,
the average return for most retirees
with money in the market is only 3.49%.
Knowing that, the financial services industry,
I'm talking about asset managers, broker dealers,
came out with what is called the 4% rule,
which means if you're really only gonna average 3.5%,
they don't want to be sued for you outliving your money.
So they only want you to pull out 4%,
which is gonna slowly deplete your nest egg
if it's only earning 3 1/2,
but not before your LE.
LE is life expectancy.
They will require their advisors,
if you pull out more than 4%,
they'll usually require that you sign a hold harmless,
that you will not hold them liable or sue them
for you outliving your money.
Okay? That's called the 4% rule.
I think that's pathetic.
In fact, I think that's unacceptable.
So I don't accumulate a million dollar nest egg
to have a measly $40,000 a year of income.
That's ridiculous.
And that's before tax.
Even in a 25% tax bracket,
you pull out 40,000, you pay tax of 10,000,
you're only adding 30,000 to buy gas and groceries.
That's 3%.
If you were to subtract the 1% asset management fee
they charge you on that million dollars,
that's another 10 grand.
You're only netting 2%.
That's ridiculous.
28, 30,000 to buy gas and groceries,
prescriptions, and golf green fees.
Now my favorite vehicle is a max-funded
indexed universal life insurance contract
structured correctly and funded property.
This is where I have averaged
11.17% since 1997,
and I've netted cash on cash 10.07.
So based on that,
a million dollar nest egg can generate easily,
you know, $100,000 a year of tax free income.
Let's just go down to nine.
Many times, if I earned 9.6,
I've netted nine.
So 9% on a million dollar nest egg is 90,000.
So my question is,
how much more is 90,000
than 30,000 or 20,000?
It is 300% more.
90,000 of income is three times or 300% more than 30,000.
If you subtract their asset management fees,
that's only 2% and I've earned 10% net.
How much more is 10 than two?
Don't say eight.
It's 500% more.
It's five times the income
without depleting principle.
And the beautiful thing about max-funded IUL,
is it eliminates the three big dangers
that cause most retirement batteries to go dead.
These three dangers short out most retirement plans
or batteries.
Taxes, because IUL is tax free.
Money out of an IRA or 401k is now taxable.
Okay? The second is inflation.
Well, with IUL, I'm able to link my returns
to the things that inflate.
I don't like inflation anymore than anybody,
but it doesn't hurt me.
I've always been able to earn a rate of return
equal to or greater than the inflation rate at the time.
But if you're only pulling out, you know,
4% a year and the inflation rate is 7, 8, 9, 15,
you're going backwards, okay?
For example,
in the COVID-19 pandemic year 2020 to 2021,
many of our clients locked in gains of 61.33%,
some just 25%.
Inflation, the government said inflation
was averaging around 8.7%,
but they didn't include the price of gasoline
and prescriptions and so forth.
The real rate of inflation was probably 15 to 20%,
but our clients were actually earning
a rate of return about 5% or more
greater than the inflation rate at the time.
The third is market volatility,
because you don't want to have to try to time the market.
The reason why there is a 4% rule
is because the market does this.
and if the market goes down, people go,
"I can't afford to take money out."
In fact, they sell low when they buy high.
So get rid of the market volatility by using indexing.
Indexing allows you to participate
when the market goes up.
But when the market goes down, you don't lose,
because your money in an IUL policy is not in the market.
A lot of agents don't understand that.
You're linking your returns to what the S&P or the Dow Jones
or some index does or indices,
but your money's not invested in the market.
Your money is safe in the insurance company
earning their general account portfolio rate.
You're telling the insurance company
to take the interest on your money to buy upside options
so they'll have the wherewithal to pay you
if the market goes up.
But if the market goes down,
you still maintain your million dollar nest egg.
The options expire, worthless.
You may not make much of anything but you don't lose.
So those are the three dangers that IUL eliminates.
And how does it do that?
Well, it's because you're converting to a tax-free vehicle.
IUL is tax free.
You're linking your returns to the things that inflate,
and you're using indexing for safety.
And the greatest strengths
of max-funded IUL is liquidity.
The ability to access your money when you need it,
safety of the institution
and safety of principle,
and to earn predictable rates of return.
Not pie in the sky rates of return every year,
but averaging, you know.
Like, I have 11 and netting 10 after the cost of insurance.
So if this is intriguing you,
I would recommend you learn more about this
or you're gonna miss the boat.
So I have been blessed to have authored
12 books so far in my life.
This book, number 11, has been flying
off of our warehouse shelves.
I would love to gift you a copy of this 300 page book.
It's actually two books in one.
This one is about 200 pages, 14 chapters,
with all kinds of charts and graphs and explanations
if you're a left brain learner.
If you're more of a right brain learner,
you flip it over to this one.
This is about 100 pages,
12 chapters with 62 actual client stories
of how a max-funded IUL can be used
for all kinds of financial goals.
Retirement, college funding for your kids,
working capital for business, real estate management,
emergency funds, all kinds of...
It's the dream solution.
So if you want to claim your free copy,
simply go to laser fund,
L-A-S-E-R fund.com or click on the link below.
You contribute a nominal amount
towards the shipping and handling.
I'll cover the rest of that cost and I'll pay for the book.
I will fire out a hard copy to you,
and while you're in there claiming your free copy,
check out if you like to listen and learn
or watch and learn, there's audio and video.
Check out our free educational webinars
that we teach on a weekly basis.
You can even schedule an appointment
to talk to an IUL specialist to see
how a property structured IUL policy
can work in your particular set of circumstances.
(bright uplifting music)