3 Low-Risk Strategies For Creating Retirement Income
Did you know that 40% of Baby Boomers have NO savings! 69% have NO retirement plan! This is a sad situation because that means that most retirees are suffering from the anxiety of not knowing whether they are going to have enough money to retire. They struggle with uncertainty of not knowing if their money is going to last until they die.
Are you one of these people? It’s unfortunate that the above doesn’t just apply to Baby Boomers, but it also applies to older and younger people. X-geners and millennials also need to take heed. If they don’t start planning for retirement, they will end up in the same place. In fact, it is more important for these new generations to plan for retirement than previous generations due to the fact that people are now living longer.
It’s today’s reality that there is a 50% chance that, among married couples, at least one spouse will live to the age of 92 and a 25% chance that one will live to 97. According to an Ernst and Young study, 75% of Americans can expect to see their assets disappear before they die. This is kind of scary don’t you think?
So, now the question is, “Why don’t more people prepare for retirement?” And, ” How can we make sure that we don’t outlive our money?”
Most people don’t plan for retirement for several reasons, such as:
- They don’t know where to start so they depend on their company to do it for them through a pension, or just hope that Social Security will be enough to maintain them.
- They don’t think that they have any money to invest in a retirement plan. Most people are living paycheck to paycheck as it is and don’t see where they can find extra income to invest in a retirement plan.
- They don’t have the self-discipline to invest in a retirement plan. They start and stop and don’t allow the power of compounding to work for them.
- They don’t know where to put their money. Most people only know of two places- 401Ks or mutual funds. Both of these can have significant detrimental downsides as what happened after the meltdown of 2008-09. The stock market plunged 50% and took down 401Ks and mutual funds with it. Millions of people lost their gains that took them a lifetime to earn.
- Most families these days are living paycheck to paycheck. Inflation is high and wages are low. According to a recent study by Charles Schwab, 59% of Americans are living paycheck to paycheck and struggling to make ends meet. This makes it difficult to think about retirement.
So what am I supposed to do Dave? How can I retire rich so that I don’t outlive my money? According to Tony Robbins and his book, “Money- Master the Game,” here are some suggestions:
- Start to plan for retirement now. It’s not too early nor too late. Don’t depend on your company to do it for you, and don’t assume that Social Security will be enough to live on. Let the power of “compounding” work for you especially if you are young. The secret is to start early. Say you’ve got a dollar and your able to double it every year for 20 years. How much money do you think that you would have after 20 years? . . . ($1,048,576!) That’s the power of compounding!
- You can start small. Where do you find the money to invest? First, look to see where you are bleeding money. For example, financial expert David Bach talks about the “latte factor.” A latte may cost $5-6 dollars and if you buy one every day for a month, that might be $100 that you could take and invest in your retirement plan. Brian Tracy also suggests investing just 1% of your income and live on the remaining 99%. When you get comfortable with this, then increase your savings another 1%, and continue to increase it by 1% every month. Brian also recommends that as your income increases, instead of spending it all, resolve to save 50% of your “increase.” The goal is to save 15-20% of your income.
- Make it automatic. Because most people don’t have the self-discipline to save, the key to successful retirement is to have the money deducted from your paycheck automatically every month. You can do this by working with a financial planner and setting it up with your financial vehicle. You can also do it through a “Save More Tomorrow” plan. You commit to automatically taking a percentage of any raise you receive in the future and adding that to your investment portfolio.
- Don’t lose money! Put your money into investment vehicles that protect you from the downside. In other words, make money when the market goes up, but not lose a dime if the market goes down. If you have money in the stock market, and it goes down it could take years to recover the loss. For example, a portfolio loss of 35% requires a 54% gain to restore the portfolio to whole. However, as the loss grows, the size of the return needed to recover increases at a faster pace. Indeed, a 50 percent loss requires a 100 percent gain to recover and an 80 percent loss requires a 400 percent gain just to get back to even. OUCH!
According to Tony Robbins, there are three strategies that can achieve this:
- Structured Notes- a loan to a bank. The bank issues you a note in exchange for lending it your money. At the end of the term, the bank guarantees to pay you the greater of 100% of your deposit or a certain percentage of the upside of the market gains minus the dividends.
- Market-Linked CDs– are linked to the market so if it goes up, you get the upside, but if it goes down, you get back your investment plus whatever small returns. It is also FDIC insured.
- Fixed Indexed Annuities– are offered through an insurance company. They offer 100% principal protection, guaranteed by the insurance company. You get the upside without the downside. You make money when the market goes up, but you don’t lose money if the market goes down. All gains are tax deferred. There are also no fees that you have to pay. In addition, you can create an income stream that you can’t outlive!
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“No matter where you live, if you don’t have another source of income, you could end up the best-dressed greeter at Wal-Mart.”- Tony Robbins.
To your success,
David Figueroa- Success Coach
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