When your clients retire and need income, they essentially have three options to choose from. These options are explained very well in the book The Great Wall Street Retirement Scam by Rick Bueter. In his best-seller, Mr. Bueter goes into detail about the pros and cons of each option. We covered this at a training event last week and I received numerous requests for the presentation. So without further ado, here’s a summary for you to use right away!
3 Retirement Income Options:
1. “The Bank’s Way” to Retirement
• Lose your money safely – According to www.bankrate.com (as of May 2, 2011), the average 1 year CD is currently paying 1.16%. According to www.inflationdata.com (as of May 2, 2011) the current inflation is 2.68%. This is what we call a “moonwalk account” – one of Michael Jackson’s claims to fame in which he looked like he was walking forward but was actually moving backward!
• Deal with the emotional stress of volatility – CLICK HERE for a chart showing the volatility of CD interest rates over the past 50 years.
• Guaranteed income – While there is no guarantee of income for the rest of a retiree’s life using bank vehicles, if using a conservative withdrawal rate based on historical returns, clients with $1,000,000 could hopefully take between $10,000-$30,000 annually and be safely positioned for at least 25 years.
2. “The Wall Street Way” to Retirement
• Emotional stress of volatility – CLICK HERE for a chart showing the volatility of the Dow Jones. You’ll notice that the market typically moves in cycles, with the shortest “down cycle” lasting 17 years. Note that we are only 11 years into our current downturn.
• Assume the responsibility of a pension manager – What if we have another 2008 and clients lose 30%, 40% or even 50% of their retirement savings? The popular Wall Street myth about earning a 10% average return if you buy and hold goes out the window if retirees are taking withdrawals and depending on their money for income.
(EMAIL ME for a free report by Mike Reese entitled “10% Market Lie.”)
• AARP recommends retirees’ withdrawal rates generally not exceed 4%. (CLICK HERE for the entire article.)
• Guaranteed Income– There is no guarantee of income for life using “The Wall Street Way” to retirement, but according to AARP (http://www.aarpfinancial.com as of May 2, 2011 ), $1,000,000 may get clients roughly $40,000 for a period of 25 years.
3. “The Insurance Way” to Retirement
• Utilize guaranteed income options – Annuities are the only vehicle which can guarantee income for the rest of a person’s life.
• Eliminate the emotional stress of volatility – Retirees can lock in a payment they can depend on – no matter what happens to interest rates, the economy, etc.
• Transfer the responsibility of pension management – Insurance companies have been managing pension style incomes for over a century.
• Guarantee retirement income – Using an example of $1,000,000 and a guaranteed income distribution of 6%-8% annually, clients could be guaranteed an income of $60,000 to $80,000 – potentially 50% more income than the “Bank” or “Wall Street Way.”
In summary, when it comes to income for retirement, it’s pretty clear that leveraging insured retirement income solutions can rid retirees of the stress of the market by not only guaranteeing income for life but getting MORE income while they’re at it!
For a real life example, last week we prepared the casework for a client who was 62 years old and he wanted income at age 65 for the rest of his life. He had 500k in an IRA to fund it with. This client was able to get a guaranteed income of $38,318 for the rest of his life. NOT BY ANNUITIZATION OR GIVING UP ANY CONTROL OF HIS MONEY!
Have a great week!