Traditional financial planning pays much more attention to accumulating assets for retirement than to the reposition and distribution of assets during retirement. It is not surprising since most financial advisors are compensated based on the amount of assets under management.
Let us be clear; the reason for savings/investing is to generate future passive income when we can no longer produce active income, and to leave a legacy. The most important characteristics of passive income are reliability, consistency, control and lifetime duration.
Let us further assume that when you are ready for retirement, you have a well-capitalized banking policy and a good-size 401(k) retirement account. The question at hand is how do you maximize your retirement income?
In the past, retirees have been advised that if they withdraw 4% of their initial retirement portfolio balance (401(k) plan), and then adjust that dollar amount for inflation each year thereafter, they would have created a paycheck that lasted for 30 years. Given the present low interest rate environment and the performance of the stock market, that advise is no longer true. In fact, withdrawing 4% of the initial balance every year, guarantees with 100% confidence level that your money would last for only 20 years. As an example, if you had a 401(k) plan portfolio balance at retirement of $1 million, you are guaranteed with 100% confidence that you could withdraw $40,000 a year for only 20 years. How can we do better than that?
The answer is as follows: when you are ready to enter retirement, you rollover 50% of your 401(k) plan to a single-life Single Premium Immediate Annuity (SPIA). This SPIA guarantees you for life that you are going to receive between 7% and 10% of the amount invested. If the amount invested is $500,000, you will receive an income of between $35,000 and $50,000 a year until you die, depending on your age and other factors when you purchase the SPIA. When you die, your spouse will use the proceeds of your banking policy to purchase another single-life SPIA that would guarantee an income during his/her life. Meanwhile, you withdraw 7% instead of 4% from your 401(k) plan in such a way that when you have a losing year in your 401(k) plan, the following year you withdraw from your banking policy the same amount that you were withdrawing from your 401(k) plan. This process minimizes the sequence-of-return risk and provides you with $35,000 a year. In total, you will be receiving between $70,000 and $85,000 a year with $35,000 to $50,000 a year guaranteed for life versus only $40,000 a year guaranteed for 20 years with the old methodology.
The above is a generic explanation and for a plan specifically designed for your financial situation, you should contact us.
If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at http://InfiniteBankingSimplified.com or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com or call us toll-free at 1-844-443-8422.
Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners
We are experts in designing high cash value dividend-paying whole life policies.