Tag Archives: annuity

The Power of a Money Reset

This is a true story from a new client that describes almost everyone reading this today.

“John, I just got back to even this year on my retirement account after being down for about 8 years.”

Does this sound familiar?

I asked this client if he had ever heard about a reset and he said “no”.  If he understood a reset he would have never been in the tough situation of waiting for money to rebound to long forgotten high values.

You see, when your money has the power of a “reset” every year it is a game changer for the future value of your money.Reset buttonEx:  You place money in a program that allows you to track an index instead of actually owing the underlying security.  Let’s say for the sake of example that the index you follow is at the level of 100 on the day your money starts tracking that index.

Let’s also assume that one year later that index is now 80 instead of 100.  This is a 20% loss that because of the way you have your money structured you did not participate in any loss whatsoever.  Your cash didn’t lose any market value even though that index you track is down 20%!  This is powerful in and of itself but it gets even better.

Now let’s say from the first day of your second year until the last day of that same year the index that went down to 80 rebounds that year to 90.  If this was a share of a mutual fund or a stock you would still be underwater 10%.  However, since you took advantage of tracking the index your cash went up the second year because your base for determining an index’s gain or loss “reset” back to the 80 level which it was at the end of the first year.

So, in year two, instead of being still underwater on your investment your cash grew by a percentage of the index gain from 80 to 90!  Would this have changed my new client’s end results?  The results would have been very different over that 8 year period by utilizing the power of indexing with the power of a reset.

Do you have money in the market right now you are hoping will grow over time providing you with a great retirement nest egg?  If you knew your money could never go backwards, would grow any year the index was higher than where it started from by using the power of a “reset” why would you still take on all the risk of the market?  There is no need to lose large amounts of money needlessly.

You can be in the market with a chance at real growth but never the downside risk.  Your money can also be guaranteed to provide you with lifetime income no matter how long you live.  Another benefit is you can use your IRA money or new money for this kind of program.

Guaranteed Income (Part 3)

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Last week, we talked about investing, the second circle of wealth in my series of “Six Absolute Necessities for Acquiring Long-Term Wealth.” The third is guaranteed income. When I study people with successful retirements, filled with abundance and options, almost all have things in common:

  • They carry very little, if any, personal debt.
  • They have stable, secure income from multiple sources that they can set their watch by every month
  • Starting about 10 years before they retire, they begin shifting their assets from riskier investments to low- or no-risk income assets.

A mortgage is generally the biggest debt most of us have. Many argue that you should never pay off your house because the equity you put into it is tied up and not making you money. They might recommend borrowing as much as you can now because interest rates are low.

I say you can have the best of both worlds. First, pay off your mortgage before you retire. By adding small amounts directed to your principle every month, you will take months, even years off your payoff date. When your house is paid off, get the biggest equity line of credit you can. This way, if you see an attractive investment opportunity, you can put your equity to use, and if you don’t, you have removed the pressure of a big mortgage payment in retirement.

If you can pay off your mortgage while you are working, why not now shift that payment over to a solid savings or income product? This could work out to tens of thousands of extra dollars producing monthly income for when you retire.

An abundant retirement is about strong positive cash flow that you can count on for years to come. Do you have any idea how much money you need to retire every month? Do you know where you can get that income from? Do you have enough money for home health care or long-term care? Are you protected from big market downturns during your retirement years? How much will inflation eat into that monthly income needed?

Can You Answer These Questions?question mark

All these questions must be part of an income plan. We calculate these for clients all over the country. First, know how much income you and your spouse will receive from Social Security when you retire. You can get an estimate from the Social Security Administration. If you believe that number is at risk because of issues with Social Security, you better start putting more away and growing it safely.

If you need $5,000 per month to retire and the Social Security for you and your spouse is only $3,500, then you have a $1,500 shortfall. Do you have a pension? How much will that be when you begin to draw it? Do you have a 401(k) or Individual Retirement Account? How long could that account last if you need to draw $1,500 a month — $18,000 in a year? Will you have to pay taxes on what you take out? If you have a 401(k) or traditional IRA, the answer is yes. If you lose 50 percent of your capital to a bear market, how long will you be able to get $18,000 per year?

As you get to be in what we call the “retirement danger zone,” which is 10 years before your projected retirement, you need to start shifting assets away from market risk and over to guaranteed products. A solid fixed indexed annuity with a long-term income rider might be a very good call. I wrote an article about the different types of annuities and how to purchase one that fits your needs.

A lifetime income rider (state and product variations exist) will guarantee that you have a certain amount of income (depending on how much you have in your annuity and at what age you start withdrawing) for you and your spouse’s life. If you live to be very old, your normal retirement funds might run out, but a lifetime income rider guarantees that income stream regardless of what happens to the underlying cash in the account. Also if you have five to 10 years, you have time for that income rider to grow. Many income riders offer 6 percent and more guaranteed growth every year.

When you purchase a $200,000 annuity, many companies might offer a 10 percent bonus on your initial purchase price so your starting amount would be $220,000. When you add compound growth at 6 percent over 10 years, your income rider would top $400,000. Then you would start to draw your lifetime income at 6 percent of the $400,000, giving you $24,000 a year income for you and your spouse’s life. Presto! You have filled your income gap. If you have the resources to purchase another annuity, you might get one with a cost of living clause to hedge against inflation.

John Jamieson is the best-selling author of “The Perpetual Wealth System.” Check out this week’s featured video.