Thread by @roncaruthers

1. How to have a stress-free retirement

'Get Money, Buy Income'.

@CJ_Johnson17th

In the last decade or so, the retirement landscape has completely changed.

2. In fact,

if you're trying to retire with assets in a 401k or an IRA,

you (and your advisor) are LITERALLY trying to do something that's never been done before.

Here's why:

Before the last 20 years, the majority of people's retirement money came from pensions and SSI.

3. You would work at a job forever, get a nice company pension (and a gold watch!) when you retired that covered most of your income along with Social Security, and any shortfalls you made up with your own savings.

Like the picture above.

4. But, in the 1970s, ALL that began to change.

Companies began to switch from a 'Defined Benefit' model to a 'Defined Contribution' model because they realized they could save trillions (yes, TRILLIONS) of dollars collectively.

The 1970's are when the IRA and 401k were created

5. So, from that point forward, a company could simply 'match' your contributions if they chose to, and THAT ended their liability to you, whereas before they had to guarantee you an income for life.

Today, only 31% of Americans have a pension & the average is less than $10,000.

6. And most of the people that receive a pension work for some form of goverment:

-federal employees;
-State, county or city employees;
-Teachers, firefighters, police;
-And a few big corporations like Caterpillar.

7. So now, the old model has been flipped on it's head, and looks like this:

YOU are the one mainly responsible for putting enough money aside to retire comfortably.

8. And, my definition of having a comfortable retirement is:

A) To have enough money and/or income to keep the exact same standard of living you currently enjoy (or better),

B) Adjusted for inflation each year,

C) And to have that money last through your life expectancy.

9. That's a pretty good definition, don't you think?

AND, it is MEASURABLE, like any worthwhile goal should be.

Now, back to the dilemma:

ASSETS are not INCOME.

You have to CONVERT them to income.

And THAT is where the problems start.

10. For starters, if you are married, and you both live to 65, the odds are 50% that ONE of you will live until age 92.

So, to be safe, you HAVE to plan on having your income last until age 100.

In fact, people living longer is part of the reason Social Security is struggling.

11. It's also one of the reasons the math behind the '4% rule' isn't valid anymore.

If you're not familiar with this, a man named Bill Bengen back in the 90's determined that when you retired you could 'safely' pull out 4% from your 401k and NOT run out of money.

12. The problem with this, btw, is 2-fold:

First, the average life expectancy back then was 77 years.

Today it is 87 years.

AND, he ran the models using 60% bonds.

Back then, bonds earned 6-8%.

Now, they earn 3-5%, if you're lucky.

So, that model doesn't work today.

13. So, back to the dilemma of converting assets to income.

Since you 'have' to put more money in the market, you are affected more by when the market crashes or is volatile.

Which increases the liklihood of losses.

Which increase your anxiety in retirement (stress).

14. In fact, 60 % of retirees fear running out of money MORE THAN THEY FEAR DEATH ITSELF.

Crazy, but it's true.

So, how DO you solve this problem so you can have a 'stress-free' retirement?

Simple, actually.

'Get money, buy income.'

15. You 'buy' your own asset backed pension.

And you want to buy enough of it so that you can cover your MUG (mortgage, utilities, groceries) and other fixed expenses.

So, here is how we do it in my office:

First, we figure out what a client HAS to have each month.

16. Then we go through and figure out how to maximize their Social Security.

There are over 500 strategies to claim this, and most people pick the WRONG one.

By picking the right one, they can increase their lifetime income by over $250,000 in most cases.

17. THEN, we figure out how much 'income' we need to buy with their assets, so they get a monthly 'paycheck' between the Asset-Backed Pension and their SSI that covers ALL of their needs (the MUG).

18. The rest of their money can stay in the market.

And they use it for fun stuff like travel, hobbies, grandkids, etc.

THAT becomes their 'PLAY-check'.

But, no matter what happens with the market, we know we have their needs taken care of, adjusted for inflation.

19. Now, how does the Asset-Backed Pension work?

Simple: we contract with a financial institution (just like a lot of companies have for THEIR pensions) and enter into an agreement for them to pay my client lifetime increasing income as long as ONE of the spouses are alive.

20. The company I pick for them depends on how old they are and when they're going to need income, but as an indepedent fiduciary, I of course recommend only top rated financial institutions that have been around 100 years or more.

Let me give you an example of how this works.

21. I have a client that is currently a widow, and 58 years old.

She wants to start taking income in 10 years.

So we gave a top rated company $180,000 for them to manage.

In 10 years, they START giving her $20,599 a year.

AND, she can't outlive it, and it will increase.

22. In 10 years, that income will be $39,057 a year.

In 20, $75,193.

And it will continue to increase and pay her for as long as she's alive.

By age, they will have paid her $825,551.

She only GAVE them $180,000.

And there is NO risk.

23. BTW, the account 'runs out' of money when she's 78.

And if this same money was in mutual funds or a managed account, that would be the end of her income.

But the company will pay her as long as she lives.

(Yes, I just repeated myself to make sure this sinks in).

24. What if she dies before age 78 when there is still money in the account?

Her daughter will get what's left.

Simple as that.

One of the big questions I get is 'How do they DO that?'

I have to run now, but the short answer is:

These companies are really good at math.

25. So, in summary.

How you create a stress-free retirement is simple:

Get money, buy income.

Social security was NEVER designed to cover all your needs.

Buy the rest, and you'll sleep just fine in retirement knowing you will NEVER run out of income.