Wise Money Tools

The truth you must know about retirement. The pension is all but extinct. Retirement income is all on you. Where is it going to come from? What percentage of your assets can you spend each year, to make sure your money will last as long as you do? Everything has changed - and what you don't know, can hurt you. We'll talk about the critical retirement information you need to have a successful and worry-free retirement.

Debtor or Cash Buyer Are you a debtor or a cash buyer? What if I told you there isn't a lot of difference between them in the end? What are we told if we pay cash for big purchases? We're told that we'll save money and not pay interest. Of course, that is true – and interest can stack up. Listen to the quote regarding interest: Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you. Wow, that puts it into perspective, doesn't it? What most people don't really grasp is that you finance everything you buy, even when you pay cash. So, let me see if I can depict a visual for you when it comes to going into debt for something or paying cash. As we've mentioned before – we are always told to pay cash. The guy on the radio tells us to pay cash as well and never go into debt. But is there much difference? As a debtor I don't save, I want what I want when I want it and go and get it. Suppose in our example I want a car. I don't have the money, so I borrow the money. Essentially, I've dug myself a hole. Now with each passing month as I make my payments the hole begins to fill up again. About the time the hole is completely full – I've paid off the debt. Problem is, the car is now a heaping pile of metal and I need a new one. So, I did myself another hole and go into debt again, to buy another car. You know, when I was first married a close relative of my wife told me that I may as well just plan on having a car payment my entire life because that's just the way it is. This was long before I understood money and debt and I thought, I guess that's just life, always have a car payment. Anyway, so once again the debtor goes to work and each month makes his payments and fills the hole again. Only to repeat over and over and over with cars, and furniture, and boats, and home improvements, and anything else that he can't pay for with a few bucks cash. The debtor never gets ahead and literally hocks his future income now - for money from the bank to make his major purchases. So, we think, wow this is a horrible life right? And must think that the guy who pays cash must be much better off. Well, let's see – Now if we use our analogy of digging a hole, the saver actually builds up a pile of dirt as he saves, and saves. Once his pile is sufficient he literally takes the money that he's saved and goes and pays cash for his major purchase. The entire pile of dirt that he was building up, is now gone. What he's left with is the same bare ground he started with. In other words, he's back to square one, sent home without passing go and collecting 200 dollars – for those of you who play monopoly. In both cases of the debtor and cash buyer, they end up with just the bare ground and a used car. Now granted, the debtor had a deeper hole due to the additional interest he paid for his loan, but the cash buyer gave up something just as valuable. It's called opportunity cost. You see, had the cash buyer not had to take his pile of cash and made a purchase, his pile would still be growing and compounding. What he has missed out on was the opportunity for his money to keep growing because he took it out to make a purchase. He too is back to square one. The debtor paid interest out of his pocket for the use of money. The cash buyer gave up interest he could have had when he used his money. Both really have no money. So how do you fix this seemingly unsolvable problem? Well, we have to give kudos to the cash buyer for taking the time to forgo a purchase today and save first. Which brings us to our third guy in the conversation. This one we call a saver. What he does is save first, like the cash buyer, but this time instead of taking his pile of cash and making his purchase, he uses a technique called collateralization. I know, big word, but what it means is he leaves his money alone and growing and compounding, and then borrows against his money. That is what collateralization means, it means to borrow against your money. So in effect, his money never leaves the account. He borrows what he needs for his car – he makes payments back to the lender, but his money is still growing and compounding. The result is, he actually gets ahead. His pile of money grows while he gets the use of it for his purchases. Now, let me make one thing clear. The best thing this guy could do is never buy a car – right? I mean they are horrible investments. But since he will likely need or want a car and is going to buy one anyway, this is can be the best economic advantage to him. That is all we are looking for is an economic advantage. If we can still have our money growing and compounding and at a higher rate than the interest we are paying for the use of the money – we win. I'm sure you're asking yourself, why hasn't someone told me about this before? My answer is, the system is rigged against you. Between the big Banks and Wall Street, do you think they want you to know how to beat the system? You see, the way you beat it is by using a sold mutual, dividend-paying, whole life insurance policy. I know, but that's life insurance, right? It is, but it actually resembles more of the banking principals that we need than simply for the death benefit. There are a few keys though. We need to be savers, we need to overfund the policy. What that means is we design it to accept more cash than a typical policy would, that is how we supercharge the policy and build a capital reserve account. We want to maximize the premium right up to the IRS limits. I won't get too much into that here, but just know, that's how we'll design it, to the maximum tax advantages to you. I'll bet you didn't know there were tax advantages to a life insurance policy, did you? You might be surprised what you've never been told before – those darn banks and wall street firms want you kept in the dark, don't they? We also need to be wise with our money, we always want to pay back loans, so we are not stealing from ourselves, and any loan we take has to be an economic advantage to us. That's about it – now you know the difference between a debtor, a cash buyer, and a saver. If they are all on an equal playing field, with the same income and make the same purchases, the saver is going to come out lightyears ahead of the other two as they simply are on treadmills getting nowhere. This could be the difference between a subsistence retirement and an abundant one. Well, as always, if you have any questions, shoot me an email and I'll answer them as quick as I can. Send them to [email protected] Take care.

Where are we at so far

• We've defined a couple of things
• Pensions are all but history for most Americans
• Accumulating assets for retirement is pretty much up to you
• You better figure out how you are going to get a steady paycheck when you retire
• Annuities can offer a guaranteed income for life

Have you ever looked at investing in an annuity? It can be overwhelming. There are a lot of choices and some have many moving parts that it's hard to decide which one is best. In addition, I have to admit there are some bad annuities out there and worse there are some really bad annuity peddlers. I call them peddlers because they really aren't professionals and care more about what they earn then doing what's best for the client. I know, pretty sad, but true. Let's dissect the annuity for a minute. I want to say from the outset that there really is no such thing as the perfect investment. Every place you could ever secure your money has some give and take. The important thing is that you get as close as you can to meeting your objectives, you should be okay. Where we start is by identifying the three basic types of annuities. Here they are:

• Fixed
• Variable
• Indexed

Next, we want to identify characteristics that are the same in each of them. By the way, when it really gets down to it, the differences are in how they credit your interest or growth. For the most part, they are all trying to accomplish the same thing, even though their crediting methods are different. What they have in common:

1. They grow tax-deferred. All annuities grow tax-deferred until such time as you take it money out. You aren't necessarily required to take money out, unless it's owned by a qualified plan, such as an IRA where the government makes you take destitutions beginning at age 70 ½. This means you can defer the income taxes on the growth as long as you want.
2. No upfront sales charges – The vast number of annuities have no sales charges to get in. This means 100% of your money goes to work. There are some variable annuities that have sales loads, so you'll want to make sure you understand those charges if part of the annuity.
3. Surrender Charges – Instead of charging a fee/load upfront most annuities have a surrender charge period. This means if you take money out of the annuity during the surrender charge period it could cost you. The surrender charge period might be as short as 5-7 years and as long as 20 years. Be sure that the surrender charge period lines up with your overall objectives. This is generally not an issue if you are using the annuity for lifetime income.
4. 10% free withdrawal – As a general benefit, most annuities will let you take out up to 10% each year without a surrender charge. This is typically more than adequate for those looking for a bit of additional income and also want to keep their principal intact. It's also nice for an emergency of some sort if you need to get at some of your money.
5. The 59½ rule – The IRS will add a 10% penalty to ANY of the funds taken out before age 59½. This means you would be liable for the taxes on the growth and the penalty if you are not of age. The only time this penalty is not applied is to a single premium immediate annuity (SPIA). A SPIA is where you make a deposit and immediately begin taking income. There is no inside cash build up or "deferment" of taxes as income has begun immediately.
6. Guaranteed Lifetime Income – The term for this is "annuitization" or "annuitizing" your annuity. One of the key strongpoints to an annuity is to be able to generate a guaranteed lifetime income without ever worrying about your next paycheck. Although it seems many people who own annuities manage their income stream by taking withdrawals each year without annuitizing. There are pros and cons to this that we'll discuss as we go along. For instance, once you annuitize, there is no turning back you can't change your mind. The paycheck is not coming and won't quit until the predetermined time. However, you do not have to annuitize your annuity; you can take systematic or partial withdrawals each year as well.
7. No Probate - An annuity bypasses probate at your death and makes transferring your assets more efficient and without courts interfering. Many people invest in annuities for that simple reason alone. Privacy, ease, no losses.

Those are some of the benefits that pretty much run through every annuity out there. As I said earlier, the crediting method is what really differentiates each one. Crediting Methods FIXED ANNUITY: As you may have guessed by its name this credits a FIXED rate of return. Very similar to a CD each year the annuity company assesses it's assets and where they are at and then sets a fixed rate for the year. You can get 1, 3, 5, and even as long as 10 year fixed rates. There are typically no costs or fees in a fixed annuity. The annuity company sets the rate and makes a little bit more. After it pays you the company uses the difference to keep its doors open. By the way, you want a profitable annuity company. You want them to be there throughout your lifetime. The problem with a fixed annuity right now is the low-interest rates it pays. Most of the time the rates are better than bank CD or Money Market rates, but still low. If interest rates do rise these can become more attractive. There are still many investors who do not want to take any risk or chances are perfectly happy with the compounding of a fixed annuity, even at these interest rates. Think about the trillions of dollars still in CDs. CDs are taxed each year as well. A lot of that CD money will be passed on to heirs. An annuity can provide tax deferral on the funds. I mean why pay tax on money you didn't use that year? Why not control when, if ever, you want to pay the tax? You can hold a fixed annuity almost indefinitely without taking any income unless as stated earlier it's in an IRA, then you'll have to take distributions at 70½. So again, you can control when the taxes are paid. And again, bypasses probate. Your annuity goes directly to whom you've named. Your beneficiary sends in a death certificate, the check is cut. A piece of cake! VARIABLE ANNUITY (VA): The next annuity we'll talk about is the variable annuity. As the fixed annuity described its "fixed" return, the variable annuity describes its "variable" return. A variable annuity is made up of sub-accounts. What is a sub-account? It's essentially a mutual fund. Most sub-accounts are managed by the same mutual fund companies and often with the same management and philosophy as the mutual fund. Because the underlying investments are essentially mutual funds, you take the risk of the market. Will it go up, will it go down, who knows? You bear the risk and you get the rewards. There are some things about VA's that you should understand as well. The fees can be quite high. There are normal management fees charged by the mutual fund company. Then there are advisor fees charged for portfolio creation and management. Then there are mortality and expense fees. Finally, some VA's do a sales load on top of all that. In all, you may find VA's have between 3-5% in fees each year. Fees can obviously eat into the returns each year. If you happened to hit a VA on a good market year and the market goes up 10%, then you may only realize 5-7% depending on the fees being charged. Keep in mind that these fees are charged even in DOWN markets. You can lose money due to the market and then lose even more due to fees. The other unknown is if the sub-accounts (mutual funds) will meet or beat the market returns. This is a subject for another time, but statistically, only about 4% of all mutual funds beat the S&P 500 market returns. Even then the ones that do, rarely repeat. Consistently picking the right fund that beats the market year after year could be quite a feat. Most VA's have a death benefit guarantee. This is possible because of the Mortality and Expense fee that is charged. The fee is typically 1.25% to 1.75%. What this does is guarantees that if you die and the market is down, your beneficiaries will at least get what you put in. Suppose you put $100,000 into a VA. The following year the market tanks and your account value is now $75,000. If you were to die, your beneficiaries would at least get the $100,000 you put in. When its time to take income you have the option to annuitize, just like any other annuity. Once you do this you effectively take your funds out of the market, as the annuity company now has to guarantee that income and will not take a further risk with the funds. It's not a big deal in that once you annuitize all you care about is the steady paycheck. The real question is this, is a VA worth the risk? You have unlimited downside loss potential (except at death). You have to pick funds that you hope do at least as well if not better than the market. You have to subtract fees that can run as high as 5% against any market gains and even when the market goes down. The final type of annuity is called an Index Annuity. INDEX ANNUITY (Hybrid): Often times you'll hear an Indexed Annuity referred to as a "Hybrid." The indexed annuity is more than 21 years old. Long enough to experience a few market cycles, including the massive market drop in 2008 and 2009. This is really a simple concept but can be very confusing as well. Let's start out with the simple concepts. An indexed annuity is essentially a fixed annuity. You can't lose, your account value can't go backwards due to the market returns, and the underlying investment is guaranteed. Of course, the guarantees behind any annuity relies on the strength of the issuing company. The difference in an index annuity is the returns participate with an INDEX, such as the S&P 500. One thing to understand is that your money is never invested in the index. Your funds simply participate with the index. Okay, so how does that work? To understand how this works you have to have a little knowledge about options. Options can be risky and usually best left to those who understand them completely and how they work. Let me explain it like this. Suppose you were driving along and noticed a piece of property you like. You go and talk to the owner and explain that you'd like to buy the property, but not for a year, and you may not be able to get the financing either. You strike a deal with the owner. You work out an arrangement. You are going to pay him $1000 for an option to buy the property. In return, you lock in the current price and you have a year to buy the property. If you decide to buy the property you must purchase it within the year. If you decide not to buy the property or can't get the financing before the end of the year term, you lose your $1000 and walk away. That is referred to as a buying a CALL option. You have the right, but not the obligation, to buy that property at the stated price, before a determined date. You might ask how does an option work in an index annuity. An Index Annuity is really a fixed annuity. The money is not invested in the market and your investment is not subject to risk. The annuity company takes the fixed interest that they earn on the money, but instead of crediting you a stated interest rate for the year, they take that money and buy an option on an index. Let's suppose the annuity company can get 3% on the underlying investments and they were going to credit you 2.5% for the year. They take the 2.5% and instead of putting it into your account they buy an option on the S&P 500. By the way, there are options on several indexes, but the S&P 500 is the most popular. Okay so now what? Well, if the market goes up then you will participate with the market increase. If the market goes down the worst you can have is a flat year. You can't go backwards if the market goes down. The only money at "risk" is the interest from the underlying investments, not the investment itself. Now, this is where it gets a bit complicated. You see in this low-interest rate environment there is not enough interest to purchase an entire option. In other words, an option is much more expensive than the 2.5% interest we have to spend in our example. If you or I didn't have the money for the full price of the option they would simply say, see ya, come back when you have more dough. Because the annuity companies deal with sizeable chunks of dough, the options dealers will "share" in the cost of the option. Again, this is a simplified example, but suppose we only had enough money to buy 50% of the option. Essentially the options dealer will put up the other 50% and then share in the profits 50/50. In the end, you'll see an indexed annuity have what are called CAPS, SPREADS, PAR RATES. All these are various ways to share in the option. For instance, you may see a CAP of say 5%. This means is that you get all the upside of the index option up to 5%. The option dealer is taking the chance that the option will do better than 5% as he gets everything over 5%. Your return will have a CAP at 5%. The other way to manage this is by using a SPREAD. In this case, the company may have a spread of say 2%. This means that the first 2% goes to the option cost and you get the rest. If the market goes up 8%, they take the first 2% spread and you get the other 6%. Finally, PAR RATES. These are participation rates. Say for instance the participation rate is 50%. This means you will participate in the return. You get 50% of the upside. The market goes up 10% for the year; you participate up to 50% or 5%. There are other methods and more coming out regularly. It's a good idea to have someone you work with understand all these methods. All the rates are dictated somewhat by the current interest rate environment. Since the annuity company is not taking a risk and investing your principal in the market, they can only use the interest earned. If interest rates are high you will see caps, and par rates higher, and spread lower. It's also good to know that the option and market gains are not a profit center for the annuity company. They would love to see you get 100% of the market. Their hands are tied so to speak to interest rates as well. INCOME RIDERS: Now we better talk about income riders. What is an income rider? It's essentially a combination of both the accumulation phase of an annuity and the income phase of an annuity. This rider starting showing up about 10 years ago, and now you see it as an option in just about every annuity out there. Here is the gist of it. It's essentially a way to take income without annuitization. See, when you annuitize you lose control over your principal. That's not a bad thing in a lot of situations as the intent for that money was to generate an income – an income you can't outlive. Annuity companies played with the payouts and mortality credits and came up with a way that you could get income, that you couldn't outlive, and still have access to your capital. Of course, the income stream would go against your capital like any other investment. Let me give you a 30,000-foot overview. There are several different ways companies go about this, but this will give you a general idea. Suppose after you looked at all the options and benefits you felt the income rider was a good option for you. Here's what will happen. During the accumulation phase, the annuity company will continually use two different calculations on your account. I often say they keep two sets of "books" regarding your annuity. Here's what I mean. In one calculation, or on one set of books, the annuity tracks your actual performance. Suppose you chose an indexed annuity and it has a participation rate of say 60%. Remember this means if the market goes up 10% you would be credited 6%. The other calculation would be the income rider. Income riders have an annual rate applied to them, no matter what happens to the actual account value. For this example, we'll say that the income rider's compounding rate is 5%. This means that each year the income rider side of the "books" would be calculated at 5%. This set of books would be calculated at 5% no matter what the annuity actually credited. For this rider, most annuities charge around 1%. Each year your actual account value is reduced by 1%. This will not affect the 5% compounding on the income rider side of things. In the years where the index crediting was 0% on the actual side (remember in an index annuity 0% is your worst year) the income rider would still credit 5% on its side of the ledger. Year after year you have two calculations, what actually was credited and the 5% income rider calculation. With each annual statement, you see both calculations. Fast-forward 10 years and you are ready to take some income from your annuity. Now you get to make a choice. Which side of the ledger will you take your income, from the actual account value or from the income rider value? Here is where it gets a bit tricky. You would probably assume that you would take income from the side of the ledger that had the most money in it. I would agree, that makes the most sense. What if the market had 4 horrible years that produced no returns and yet the income rider continually compounded 5% every year over the same period of time, there is a very good chance that the income rider side would have a higher value. Here's how it works. Let's assume we are completely out of the surrender charge period so you have access to all your funds without a surrender charge. Further, let's assume you are over 59 ½ and you there are no penalties for withdrawal. Most likely you are past retirement age when you begin to take income anyway, so both those assumptions are reasonable. You can take out as much as you want from your actual account value. You can take regular income. You can take a percentage out each year. You can take a specified amount each year. You can even annuitize to assure you will have a guaranteed income the rest of your life. The payout for annuitization is based on your account value, your age, and of course if you want to provide income for a spouse or children after your death. On the income rider side, the annuity company will determine how much you can take out each year. If you are under 65 years of age the payout percentage is around 5-6%. Over 75 you may get more than 6%. By the way, do you remember what the "Bulletproof" Withdrawal Rate according to the Wall Street Journal? You got it, 2-3%. This is the rate that the WSJ says you can take and have a pretty good chance that your money will last your lifetime. The thing you have to understand is in order to take full advantage of the income rider, you shouldn't plan on taking your money in a lump sum, you should take your money out using the set percentage rate as income. Hence the name – income rider. If you do want more than the stated annual percentage or you want to take a lump sum, then that will come from the "actual" account value, which then reduces the income rider calculation on future payments. Let's talk about an example. Suppose we put $200,000 into an indexed annuity at age 55. Over a 10 year period, we were actually credited year after year an average of 6%. Which, by the way, is pretty close to what they've done. On the other side of the ledger, the income rider was crediting 7% each year. In the end, we have two account values: The Actual Account Value = $358,169.54 The Income Rider = $393,430.97 You are now out of the surrender charge period. You can do anything you want with the actual account value. You can even take all your money buy an RV and cruise the country! Let's suppose that you decided to take your income out at the "bulletproof" withdrawal rate of 3%. That would give you $10,745.00 per year. This is a safe amount based on current economic conditions. On the income rider side, they say that at your age, now age 65, you will get an annual payment of 5%. This would give you $19,671 per year. About $8,900 more per year. Run that out over 10 or 20 years and it's a pretty decent chunk of change. One thing to consider is that if you take the payments set by the annuity company from the income rider, you are assured that your income will continue the rest of your life. You can't run out of money! You will get a payout or what I'll call a "paycheck" every year even if you live to be 150 years old and have received much more income than was ever in your account. It's my opinion that the income rider calculation will most likely be greater than the actual account value. However, this means to take full advantage of it, you will need to make sure the income payment is sufficient and that you can live with the payouts. The older you are the higher the income rider's percentage may be. I've seen them as high as 6%-7% for someone 75 an older. That is twice as high as the bulletproof withdrawal rate and you are guaranteed to never run out of money, not a bad deal if income is your objective. At death, some income riders will pay the balance of the income rider's account value to your beneficiaries. If you started your income payments with $200,000 and over the years withdrew $100,000 and passed away. Your beneficiaries would get the remaining $100,000. Some annuities will pay out the balance of the ACTUAL account value, so you'll want to make sure you understand exactly what the death benefit guarantees are. If you foresee needing lump sums and annual payments are out of the question or maybe you'll need your money all at once after the surrender charge period, then the income rider is probably an expense you don't need to incur. Again, this is all based on your needs and your objectives. You may want a couple of annuities. Maybe you have one with the income rider and one without. This will give you access to a lump sum and also a higher income payout on the other. It's not uncommon as people approach retirement to have several annuities. The bottom line is that at some point you will likely want a guaranteed income for life. An income rider can give you peace of mind and assure you that you will not outlive your money. This can be a huge relief to retirees who don't have the ability to produce additional income. Wrap up or the Prelude - Summary: So what is this all about? In a word, it's HAPPINESS Retirement happiness seems to be the goal for most people, but what does that mean to you? What is the purpose of saving all this money, maybe even sacrificing while are you putting away your money for later if you don't have a plan? Are you rolling the dice? Are you hoping it will all turn out? Hope is NOT a strategy. Do you want to be happy during in retirement? What if I told you it's not that hard, it's not as painful as you may think to put a well-designed plan into action. In fact, it's relief, a burden lifted, and peace of mind. Did you know that 91% of those who have a plan have a better chance of lifelong happiness? In fact, there are even researchers who study lifelong happiness. The research went on further and depicted those who have a steady paycheck tend to be happier in retirement versus those that have varying incomes. In 2012 Time Magazine came out with an article titled – Lifetime Income Stream, Key to Happiness. The cushioning effect of lifetime income brings in a satisfaction and happiness in life. Those that have annuitized income tend to be most happy. Here's a question. Answer out loud…Do you want to be happy or unhappy? Seriously, Do you want to be happy or unhappy? I hope you yelled HAPPY! Let me refer back to the Wall Street Journal article that said the SECRET to happiness in retirement are: Good Friends Good Neighbors And a Fixed annuity with Lifetime Income. It went on and listed 7 keys points to a lifetime of happiness:

• Value your time
• Think ahead
• Expect less
• Pick your neighbors
• Work at retirement
• Invest in friendship
• BUY YOURSELF INCOME

Do you want freedom? Get a steady paycheck. Almost every conversation amongst retirees without a guaranteed paycheck is wondering how long will their money last? I cannot stress enough the need to guarantee your retirement income. Did you know that those with a guaranteed income that they can't outlive, actually live longer? Seems no one wants to leave behind a steady paycheck. I recently read a thought-provoking study containing evidence by both The Urban Institute and The Center on Society and Health[1], about how income and longevity play into a person's overall happiness. The higher a person's income, the longer, happier, and healthier their lives will be. Higher income = longer lives. You all might be thinking, "Is it really as simple as that?" Well, check this out: "The greater one's income, the lower one's likelihood of disease and premature death.

• Studies show that Americans at all income levels are less healthy than those with incomes higher than their own.
• Not only is income (the earnings and other money acquired each year) associated with better health, but wealth (net worth and assets) affects health as well.

Retirees don't live on ASSETS, they live on INCOME! Your assets can be lost, they can be stolen, swindled, sued, divorced, or decimated in a market crash. The ULTIMATE success of your retirement is not about assets. It is all about INCOME! Time to plan? Many people say they don't have time to plan. Yet they spend 4 hours a day watching TV. They spend more time planning a vacation which lasts a week or two then for planning for the longest vacation of their life, retirement. Some think they can just wing it, but that doesn't work. There is too much uncertainty! Longevity can put a tremendous amount of strain on your investments. A Hartford study called the Hartford Retirement and Investment Study in 2009. In it, they found that many people just don't like to plan. They found that 1 in 2 Americans say that planning is too difficult. 35% said they don't want to spend any more time on financial planning. They also found that those that do plan for retirement income have 3 times more likely to be confident that they will have sufficient income during retirement. Nearly 1/3 of those that planned said they were VERY confident about their retirement. Why don't we plan? Some have good intentions but never get to it. The weeks, months and years go by and suddenly the day of retirement is here. In the same study, they found that the volatility of the market especially after 2008 has made many feel like it's hopeless. Many are still recovering from 2008 and 2009. It's depressing. Optimism is in decline! Many have given up hope that they will ever be able to leave their employment and have adequate income. There is also the likelihood that the huge burden is on you. As we discussed, 100% of the responsibility is on you, if you don't have a pension and the pension is all but history. The 401k has replaced the pension and how it performs and the decisions you make are squarely on your shoulders. However, any success you will have in retirement will begin with planning. And you know what? It's not that difficult, but you'll never know unless you plan! How would you feel if you knew you had a paycheck for life? One that you could never outlive…

• Peace
• Comfort
• Satisfaction
• Worry-free

You may be fortunate to have plenty of assets to produce all the income you'll need. The only thing that could throw a wrench in your plans is if you LOSE money. Protecting your assets that you can never replace is imperative, even if you have plenty of income. No matter what you need to do, planning will give you peace of mind. It will give you the confidence you need to enjoy your retirement. Do you know what a "just in case retirement is?" When we are working we have all kinds of dreams when they retire. Join the country club, buy an RV, travel, go on cruise see the grandchildren, buy a boat, but they never get around to it. Why? "Just in case", "just in this", "just in case that". They live a Just In Case Retirement. They live a basic and maybe even sub-standard life and leave all their money to their kids. Then you know what the kids do? They go and buy the boat, go on a cruise, and join the country club and have fun spending your money. There isn't anything wrong with leaving your kids money, but there is a new thought process that now wonders "what leaving a bunch of money might do TO their children rather than FOR their children." Here's a good question for you to think about. If you could look down on your children 20 years after your passing, what must happen with your assets in order for you to be happy with your planning? How about 100 years? How do you keep your net worth from poisoning their lives? What is the purpose of your wealth? Do they know what to do with the money? How do you provide tools for your kids rather than toys? How do you keep it protected from creditors? Will the date of your death be the date of your children's retirement? This can all be addressed with proper planning. Now this series of podcasts has revolved around a guaranteed income for life. The annuity being the best way to accomplish this as only annuity companies can guarantee your income no matter how long you live. As we discussed there are 3 different types of annuities. Fixed, Variable, and Indexed. I would be less than honest if I didn't say I had by bias towards one flavor over another. When you lay out all the pros and cons, features and benefits of each one I think it will be easy for you too to find the one that works best for you. There are latterly hundreds of annuities, each with a slightly different emphasis. There is no way you can research every one of these on your own. It's time for some help. We have resources available to us to crunch the mounds of data into a few that might work best for you based on YOUR goals for retirement. Who knows if this is a good way for you to go, but I'd say, it's at least worth exploring. If you have plenty of assets, plenty of income, no need to protect your assets from risk, no issues with passing assets to your heirs, and are comfortable with where your funds are, then this probably isn't a good fit for you. However, if you are wondering where your income will come from, how long it will last, worried about the risk of loss, like having a plan for your future, you might want to contact us and see if any this makes any sense at all. There is no need to try to cram a square peg into a round hole. If it doesn't fit, let me be the first to tell you. Finally, I've tried to give a talk in facts, in Math and Economics. This isn't conjecture or speculation. There are some tried and true principals. There is real scientific evidence as to what produces a happy retirement. Let's talk about the facts, the math and economics and even the science behind designing a retirement for you. That is the only way you'll ever have a peaceful retirement and a paycheck for life. That's it for now...keep educated, keep informed, and be wise! Acknowledgement – There are many who have written and contributed over the years to this report. Tom Hegna being one innovative thinkers that I really appreciate. He wrote a book titled, "Paychecks and Playchecks" which is full of helpful content. Also, the Met Life Survey and other studies and articles from the various sources noted herein.

Every retiree faces the same risks when it comes to taking income from their investments and savings. They are:

• Investment/Market risk
• Withdrawal Rate Risk
• Sequence of Return Risk
• Inflation Risk
• Deflation Risk
• Longevity Risk

We better take a look at each of the risks and how they can impact you. Investment/market risk: This is pretty simple. If you have your money invested and at risk, you can suffer significant, and even catastrophic losses due to market drops. The theory is the closer you get to retirement the less risky you should be. One broad concept uses an age-old formula. If you take 100 and minus your age, this is the percentage of assets you could have at risk. If I was 70 years old, then having no more than 30% at risk is the rule of thumb (100 – my age, 70 =30). However, this is extremely broad. I find more and more people who are becoming risk-averse and may want much more of their assets safe and secure. Even taking a risk with 30% of their assets for some may be way too aggressive. There is what I call the "gut factor." How much can you afford to lose to market swings and at what point does your gut say, "That's enough?" You have to honestly ask yourself, "What if I lost all this money, how will it affect my future income needs?" Just because a neighbor or coworker is at risk, does not mean you have to be. Never take more risk than you are comfortable with. That is the best rule of thumb. Withdrawal Rate Risk: This risk relates to taking out too much money and running out of money before you run out of life. How much can one withdrawal each year and make sure they won't outlive their money? There are several variables here, of course, one simply being investment risk and if there are losses incurred. The other being how much you take each year. Back in the 80's and 90's it wasn't uncommon for advisors to tell their clients they could comfortably take out 10% per year and their money should last and even grow in their retirement years. Returns and even risk were much different than they are today. You may hear advisors say 6% or 7% nowadays, but no one will tell you 10% is a safe withdrawal rate and if they do...RUN! Side Note: There are investments that have very nice income opportunities. One that comes to mind is a paid-up whole life policy. If you are no longer adding new premiums and you have a paid-up policy, you can get dividends ranging from 5%-7% (currently) and still keep your principal (cash value) intact. However, you have to plan for this and start as early in life as you can and typically have 8-10 years to fund. The Wall Street Journal did a study on the "Bullet Proof Withdrawal Rate." You know what they found? The bulletproof withdrawal rate that would last throughout your lifetime was 2%. 2%... can you believe that? Based on interest rates and where this market has been, I can see why. They went on to say that you could probably get away with 3%, but anything above 4% had a high probability of not lasting. Withdrawal rate risk is taking out too much money each year, particularly in the first years. Calculating your withdrawal rate and projecting how long your money will last at that withdrawal rate would be a good idea. Let me share with you're the results of a Met Life survey: Almost seven in ten (69%) respondents overestimate how much they can draw down from their retirement savings—with 43% saying they believe that they can withdraw 10% or more while preserving their principal—even though most experts suggest a withdrawal rate of no more than 4% annually. Over half (56%) of pre-retirees are now aware that longevity risk, the risk of outliving their retirement savings, represents the most important financial risk facing them in retirement. Despite significant improvement over 2003, the results suggest there remains a lack of understanding in applying that knowledge. For example, six in ten (60%) respondents underestimate their chances of living beyond a given average life expectancy. The rate at which pre-retirees identified they would withdraw from their retirement savings suggests that today's longer life expectancy is not being fully considered in their retirement calculations. The simulation used in this example assumes the following: the dollar amount of withdrawals are then increased at a rate of 3% per year to account for inflation (historical average from 1926 – 2006 is 3.07%); the behavior of the hypothetical asset portfolio is based on historical data from Ibbotson Associates: Stock analysis is based on the S&P 500 Composite index. The bond analysis is based on a US Long-Term Corporate Bond index. We used 5,000 scenarios based on historical averages within the period from 1926 to 2006 to determine how a portfolio might have performed. We reduced the annual performance of the stocks by 1.09%, which we believe is a reasonable assumption for the average fund expenses for equity mutual funds. We reduced the annual performance of the bonds by 0.72%, which we believe is a reasonable assumption for the average fund expenses for bond mutual funds. This may not be used to predict or project investment performance and does not take into account the effect of taxes. Think about this for a moment. Suppose you were checking in at the airport and you ask the question, "What are my chances of getting in an airplane crash?" The statistics are pretty low. You have a 1 in 29.4 million chance of dying. I know, you are probably saying well who cares about statistics because if you are that 1 person, and I'd agree. Airplane Crash Statistics Data Odds of being killed on a single airline flight 1 in 29.4 million So going back to our withdrawal rate of 4%, even at that rate, 10% of those run out of money. You have a 90% chance of making it. I'll ask you the same question comparing to an airplane flight. If the captain said you have a 90% chance of making it to your destination, what would you do? I may not take that flight! That means 10 out of 100 aren't going to make it. Moral of the story, the Wall Street Journal was right, somewhere between 2% and 3% is the safe withdrawal rate. Sequence of Return: We have an entire video segment regarding Sequence of Return. This may be one of the single most overlooked issues that pre-retirees and retirees are faced with. Put simply, there is a danger zone, which is about 5-7 years before and 5-7 years after you retire where you simply should not lose money. If you withdraw money for income and lose money due to markets dropping, it's a double whammy to your portfolio and you'd be surprised how much faster one can run out of money. Sequence of Return proves that when you start taking money out for income when suffering losses can be devastating. You could likely be fine if losses came 10 or 15 years after you retire. However, taking losses in those first 5-7 years could wipe out years of income later. It is well worth your time to understand this particular risk! Inflation Risk: This may be self-explanatory to anyone over 40. All we have to do is look back and see what things "used" to cost and we know what inflation is. Inflation is the cost of living rising. You've heard grandma and grandpa talk about gas at 25 cents and how a loaf of bread cost a nickel. Fun to listen to and imagine isn't it? I remember when I was a teenager I built houses for a custom homebuilder. This was in the late 70's. We were building a very nice custom home in a decent neighborhood. This wasn't a mansion or too crazy, but it was a nice home by the standards back then. I'm guessing the home was about 2800 square feet, a mid-sized lot, and nice finishing touches. This would be a second or third home today, not a starter home. The cost was $105,000. I remember thinking, what millionaire is buying this beast? I mean I was making $3.50 an hour (more than most of my friends, $2.50 was the going rate) and there was no way I could imagine being able to afford a $100,000 home. Years ago my daughter bought her first starter home. Much smaller, nothing fancy, and guess what they paid? Over $130,000. That my friend is inflation! I'm sure all of you have similar stories of your own or those of your parents. Inflation essentially occurs when there are too many dollars chasing too few goods. There are several areas that seniors need to be concerned about when it comes to inflation. The three most prominent are the price of food, energy, and transportation costs. The reality is, inflation can eat at one's income and over time and lose purchasing power. There are some ways to combat it and should be considered when deciding on taking income from your portfolio. Deflation Risk: As you might have guessed deflation is just the opposite of inflation. So why is that a big deal? We have to understand what causes deflation first. If inflation were caused when too many dollars chase too few goods, then the opposite would be too many goods and not enough dollars chasing after them. So why does deflation occur? The short and easy answer is because of debt. When we work and get a paycheck and then go spend our money, the money gets involved in the economy, commerce takes place, and we have growth. It's referred to in the banking world as "velocity of money." It's basically how often a dollar is spent, and then spent again, and again. Over the past decade or two, commerce has come in the form of debt. Instead of saving and then spending our money, we've gone out and borrowed money, and hocked our future earnings to pay off the debt...later. Think of the homes, boats, cars, toys, and everything else that was purchased using borrowed funds over the last 20 plus years. That sparks the economy's growth - for a while - as we saw in the 90's and most of 2000's. Our government did this as well, but on a much larger scale and in multiples that you and I can't even imagine. No bank or credit card company would have ever let us borrow and spend in the same ratios (income to debt ratio) that the government has. After all the years of spending borrowed funds and going into debt - it's now time to pay the piper. Instead of working, saving and spending and buying new goods to help our economy grow, Americans are now working and paying off debt. This does not contribute to the growth of our economy. The debt that boosted our economy for many years is now the debt that could cause deflation. There is a greater chance that deflation will occur rather than inflation. Why are prices going down considered to be a bad thing? It's a barometer of the entire economy:

• Lower prices are needed to encourage buyers
• Fewer goods being produced
• Employers laying off their work-force
• Wages being cut
• More unemployment
• Spending down

You get the picture, it's not good for the economy. This, in turn, is not good for any of us as most of our money is somehow tied to the economy. Markets drop, interest rates drop, savings drop, and it's an overall downer for everyone. Deflation can hurt everyone over time. Longevity Risk: I'm going to say something about longevity risk that may not seem right at first, but then I think you'll agree: Longevity Risk could quite possibly be the Highest Risk of All! In fact, longevity risk is a RISK MULTIPLIER! What is this Longevity Risk? It's the risk that you are going to live too long – sounds horrible doesn't it? Now you know why there is so much talk about death panels (snide remark). There is a very high chance that your life expectancy will increase 2, 5, maybe even 10 or 20 years. The risk that you will run out of money is extremely high if you plan on dying based on mortality tables today. I watch planners all the time projecting income out to age 85, maybe 90. What about 95 or even 100? This is a real possibility. Why do I say Longevity Risk is a Risk Multiplier? Think about this... If you retire at age 67 and die at age 69 there likely has not been enough time for any of the other risks to really affect you. I mean..........

• If the market crashes: You'll probably be fine.
• If interest rates rise: You'll probably be fine.
• If interest rates drop: You'll probably be fine.
• If inflation starts to rise: You'll probably be fine.
• If deflation sets in: You'll probably be fine.
• If gold has a huge drop in price: You'll probably be fine.

However, say you live to age 95, add Longevity to any of these risks and it's MULTIPLIED. Every risk is INCREASED if you have a Long Life Span!

• Market drops are worse
• Inflation is worse
• Interest rates are worse
• Deflation is worse.

You have almost 30 years that your money has to last and give you a paycheck. This is why now, more than ever, you need to figure out a way to get a guaranteed income for life! You need your own private pension. You need a paycheck - A paycheck that you can't outlive!

Dr. Menahem Yaari turned the economic world upside down when he stated in 1965 that a retiree who wanted to maximize his income would put all of his money into a lifetime income annuity and that there was no other alternative that could guarantee a more optimal solution. The reason for this has to do with "Mortality Credits" (MCs). By combining your money with others in what is known as a risk pool you can get higher payouts and more income than a person can typically get by trying to maximize income on his or her own. To really understand annuity payments you have to understand Mortality Credits. You may not have heard that term, Mortality Credits, before. There are only two types of companies that can offer Mortality Credits. They are life Insurance companies and Annuity Companies.

• Can banks offer MC's? - NO
• Can Mutual Funds? - N
• Can stocks? - NO
• Can real estate? - NO
• Can Gold or silver? - NO
• Can Oil or gas? - NO

Real quick, before we get into mortality credits it would be beneficial to get a clear picture of how an annuity works. There are two phases to an annuity:

1. The Accumulation Phase – This is where we save and invest our money into an annuity. It is usually some kind of deferred annuity, meaning we are deferring the income until some time later. It will grow and compound during the accumulation phase.
2. The Payout Phase or what is called Annuitization - This is where you lock in an income stream that is similar to a pension. The idea being you can create an income you can never outlive and which can be guaranteed for life.

By the way with today's modern day annuities, one does not have to annuitize in order to generate income. There are pros and cons to Annuitization that we'll discuss. When you Annuitize you begin taking a guaranteed income, you get a steady paycheck. This can be monthly, quarterly, semi-annually, or annually. There are three parts to every income check you receive:

1. Principal: Some of each check is part principal (also known as the exclusion ratio as this part of the check is excluded from taxes).
2. Interest: Part of the income check includes interest earned on your annuity.
3. Mortality Credits: Only an annuity company can pay Mortality Credits.

Let's see if I can explain MC's this way: Suppose we have five women who enjoy vacationing together. Each year they meet and go on a cruise. One night at dinner one of the ladies had a bright idea to put $100 into a box. When one of them dies, the remaining friends will split the money. During the following year, one of the ladies died which left 4 remaining. After they divided up the money in the box, they each had an additional $25 dollars, they divided the deceased's $100 amongst the 4 survivors, or $25 each. This represented a 25% increase to their original $100. That is the best definition of Mortality Credits. In essence, they got a 25% return on their money with no risk. Mortality Credits have nothing to do with the rate of return or an investment portfolio or market returns; they are simply the results of mortality. Fact is some people die and some people live. When you talk about mortality, it is the average age that a man or a woman lives to, but it's an average. If life expectancy for a male is 82 years old, 50% won't live to the average age and 50% of them live longer. Mortality credits left by those that die early continue to pay out income to those that live longer. If you look at mortality on an individual basis no one knows when you are going to die, but when looked at in a pool of say 1000 or 10,000 lives, actuaries have a pretty good idea of how many will live to age 85 and how many will not. Insurance and annuity companies are very good at projecting mortality on a pool of policy owners. If you have a guaranteed lifetime income annuity the longer you live the more mortality credits you will get as part of your annuity payout. The highest payout you can receive from an annuity company is called a "LIFE-ONLY" Payout 0ption. This Life-Only Payout is guaranteed to pay as long as you live, even if you live to be 150 years old. However, at death, the payments stop. This can be a good choice if you live a long life, receiving payments greater than your initial investment. However, you could leave some money on the table, similar to the women in our example that died, and you could get less than your original investment back. Remember this is only if you choose the LIFE-ONLY option. What happens to your money when you die? If you don't live as long as you thought you might, your funds go to provide mortality credits for those that lived. It's a pooled risk. You were all in it together and those that live longer receive greater benefit. Now keep in mind, this is not a profit center for the annuity company. Often times I'll hear something to the effect that if I die all my money goes to the annuity company! All payments are actuarially calculated and income is distributed to those who live longer – not to the pockets of the insurance or annuity company. Death is not a profit center for an annuity company. The risk is actually on the annuity company in analyzing, through actuaries, how many people will live beyond their life expectancy and how many will not. Mortality Credits are amazing when you think about it. This is why payout rates can be so much higher than any other fixed or conservative investment without the risk of running out of money. Here is something interesting. Studies have shown that very few actually annuitize their annuities with the Life-Only Option (only about 8%). Before you think that the Life-Only Option is the only way to get a guaranteed lifetime income, it's not. There are many options. All the other options basically assure that you or your beneficiary will get the money you invested. Life with Period-Certain Option is another choice when annuitizing. Common time frames are 5 years, 10 years, 20, and even 30 years. This means you can get a guaranteed income for your life and if you die before the Period-Certain time frame you chose is over, your beneficiary will continue to get the payout until the Period-Certain time is complete. Example: Suppose I took a life with 10 years period certain option. What this means is that my income check will come to me for my entire life, no matter how long I live. However, if I died in year 5, my beneficiaries would continue to get my income payments for another 5 years (10 years certain). Now if I lived longer than 10 years, in theory, I got all my money and then some. If I died after 10 years, the income would stop at my death. Then there are several Joint Options. You can have Joint-Life Option with 100% of the payment going to you during your lifetime, and then to your spouse for this or her lifetime. You can have Joint-Life Option with 50% option. This means you get a payout for your lifetime and your spouse would get 50% of the payout after your death throughout their lifetime. As you can see there are several options and you should understand the pros and cons of each. Making an informed decision that is best for your situation is imperative as once you turn on the Annuitization Option and have chosen your method of payout it is permanently locked in with no way of changing it. Now every situation is different and this certainly isn't a blanket statement or recommendation to Annuitize your annuity. As I said earlier, you can simply take out a fixed amount or a percentage of your account value without Annuitizing as well. This may be good for those who have plenty of guaranteed income and simply use this money at their leisure. Risks Every retiree faces the same risks when it comes to taking income from their investments and savings. They are:

• Investment/Market risk
• Withdrawal Rate Risk
• Sequence of Return Risk
• Inflation Risk
• Deflation Risk
• Longevity Risk

We better take a look at each of the risks and how they can impact you.

Have you ever seen a video of someone jumping off a diving board into a swimming pool, but somehow end up doing a BELLY FLOP? It's funny unless of course, it's you, right? The same goes for retirement and income planning. It's not so fun if you are the one that runs out of money and more and more retirees face that horrific event. But it doesn't have to be that way! I watched a video the other day where people were asked – "How do you feel about money right now?" Some of the answers were: • Terrified • Hopeless • Stressed • Worried • Overwhelmed • Scared • Confused Sound familiar? PENSION A generation ago people stayed had one job during their working years. Today we change jobs often, I remember hearing that it's as much as every 5 years for a lot of people. Back in the day, many companies offered a pension to its employees. Like the dinosaur, pensions are becoming extinct. For those of you who don't even hear the term "pension", this was a guaranteed income for life when you retired. The payout amount was based on your tenure and salary. Most of the pensions still left are government jobs and even those are being reduced or eliminated. The problem is pensions became extremely costly to the employer and the burden and risk and performance was ALL on the employer as well. Retirees began to live longer and funding became a huge burden for the employer. There are many underfunded plans right now, I'm sure you've heard the news about this. Returns in pension plans have been much lower due to the stock and bond markets not doing as well as in previous years - all these factors contributed to the dwindling of pension funds. Most of the pensions that are inexistent are not capable of meeting their obligations and sooner or later will likely have to reduce benefits. Social Security (SS) is a form of a pension. Did you know at one time SS had a high enough payout that people could actually stay above the poverty line? Not so today. There were many more workers than there were recipients. Mortality for men was only a few years after retirement and just 2 or 3 more years for women. With life spans increasing and needing to fund retirement for 25 or even 30 years, the system is stressed, to say the least. Medicare is another topic and is even worse shape than social security. Benefits will likely have to be reduced and premiums will soar. Guaranteed lifetime income is now up to you. Your employer and the government are no longer viable options to rely on during your retirement. What replaced the pension? Today the pension alternative is the 401k. This has taken the risk from the employer and put it squarely on the employee. Pensions used to be the answer to having an income you could never outlive. The 401k has no such benefit. There are no guarantees that your money will last your lifetime. In fact, there are no guarantees that your 401k will grow and not lose money either. The risk is all on you! The question is, who will sign your retirement check? How your 401k performs and the risk you take is squarely on your shoulders with no bailout if the market tanks. Remember back in 2008 how many 401k's turned into 201k's? Literally had their account values cut in half. Fast forward 7 years and many have recovered, but how many more cycles like that can you afford to have? If the market dropped today, can you wait another 7 years to get back to where you are today? That's 2022. I recently read a results page by Fidelity Investments regarding 401k returns for 2014. Fidelity is one of the largest mutual fund managers in the world. They manage over 1.7 trillion dollars. The article started out positive, but then they broke the real news. Even though the S&P 500 shows growth of over 11% for the year, this is what Fidelity had to say: The average 401(k) balance is up 3% from the end of Q3 and 2% year-over-year. So let me understand this. People pay substantial fees to have their mutual funds and 401ks managed by Fidelity. After you pay substantial fees and expenses and you bear all the risk Fidelity ends the year up 2%. What do you think of that? Let me tell you about two other market cycles. In 1973 there was a market drop. If you had $1000 in the market in 1973 it took until 1982 - about 9 years to have that same $1000. Could this happen again? We all hear know about the crash of 1929. If you had $1000 in the market in 1929 you waited around until 1954 for your account to be worth $1000 again. That's 25 years just to get back to where you were. I'm not a doom and gloom kind of guy, but I do follow certain economists and many of them see one of the worst market drops coming in our lifetime. Much worse than 2008 and a longer recovery period. Why? The short answer is Baby Boomers. For the same reason that the markets soared through the 80's and 90's will be the same reason why markets could drop, considerably – and that is the Baby Boomers! Markets are all about supply and demand. When more money is being invested into the market then is being taken out, markets go up. During the baby-boomers working years, there was an unprecedented amount of money being invested in the market. More money has been poured into retirement plans than ever before. In fact, at the end of 2012, there was over 23 Trillion in various retirement plans. Now millions of baby boomers are entering retirement. This means there will likely be more money coming out of the market rather than going in. Supply and demand say this could negatively impact the market. We have very short-term memories. Most people have already forgotten how devastating 2008 was. Statistically and historically it's very likely some sort of correction or crash is coming. Why Do We Plan? Why do we do all this retirement planning stuff? The simple answer is we plan for income. Retirement is supposed to be our "golden years." It's the time you finally get to do all the things you dreamed about. Traveling, visiting grandchildren, golfing, getting together with friends, maybe buy a boat or an RV, and have some fun. Those who prepare and are ready for retirement tend to enjoy those years. Those who don't…well, it's not so pretty. There are two questions every retiree asks: 1. Where is my income or paycheck during retirement going to come from? 2. How long will my money last? Not knowing the answer to these two questions and not having a plan of guaranteed lifetime income will be the cause of a stressful retirement. Let me tell you a quick story – There was an older couple that decided to take a road trip across the desert from LA to Las Vegas. Have you ever driven between Los Angeles and Las Vegas? Desolate is an understatement. It can also get hot, very hot! This couple sets out on their trip in the middle of the summer. They have a nice car with all the bells and whistles. They have the radio on, the air conditioning cranked up, cushy seats and they are all set for their journey. Not long after they started, they noticed the gas tank was nearly empty. Worried they needed gas they finally saw a sign that said next gas 150 miles. Making some quick calculations and assumptions, they realized they were never going to make it to the next gas station. Now the frustration and arguing began. First, the blame game, why didn't you fill up the car, how could you do this, why weren't you more prepared, you knew how long the trip was going to be, and on and on. Realizing air conditioning took additional fuel mileage, they decided they'd better turn it off and put down the top on the car. That too was an argument as to whether or not there was more drag on the car with the top down and used more fuel. With the top down they began to really heat up. The sun bearing down on them, no air-conditioning, it was miserable. The arguments went on and on until finally, they ran out of gas, miles from the nearest station. This feeling of knowing you are going to run out of gas is similar to those who know they are going to run out of money in retirement or worried they might. Like this couple, they knew they were going to run out of gas, they just didn't know exactly when, and because of that, the entire trip was miserable. • The devastation of running out of money in retirement is not a one-day event, the actual day you run out of money • It's the anguish of weeks and years leading up to that day wondering when you are going to be out of money. Kind of like the frustration of knowing you are going to run out of gas. • It's the pain of watching every dime you spend and not being able to do what you want to do. The golden years are no longer golden. • Then the burden you may become to your family for support if you in fact run out of money. • It's not fun – no one wants to run out of money. Can you imagine a retirement where you had to watch every penny saving and holding on to it because you had no idea how long it needed to last? Worried about eating out, going to the movies, taking a trip, simply enjoying life. One of the questions I get asked all the time is "have we saved enough and how can we make sure our money lasts the rest of our lives?"

If you've been planning for the eventual day of retirement, well, there are a few things you might want to know! In this episode we'll talk about 5 critical things you must know for a successful retirement. If you have any questions, contact me at [email protected] Take care!

If you live long enough, sooner or later it will happen to you. You'll lose a loved one. The truth is, none of gets off this planet alive. The best thing we can do is make sure we don't leave behind a mess for our families....let's get prepared. I lost my black lab Shadow this week. Sad to see him go. He was a great dog!

Have you ever been repelling off a Cliffside? A few years ago, we were in Cancun and did a zip-line and repelling tour. For those on video or on our podcast page, you can see a picture. If you've gone repelling, maybe you thought the same thing that was going through my head, will this rope hold me? I did a little research and found out that repelling ropes can withstand a falling weight of just under 2000 pounds. So, if you are a human, chances are very good you weigh under 2000 pounds, so I think we're good – assuming the rope isn't all frayed and worn-out. Let's presume that most people who are repelling weigh less than 300 pounds. There may be a few who tip the scales a bit higher. So, the question is, if people who repel are less than 300 pounds, why do they make ropes that can hold a falling weight of 2000 pounds? Isn't that overkill? Isn't that being too safe? I mean wouldn't 1000-pound weight limit be fine? Way back in 1934, the mentor of Warren Buffet, Benjamin Graham, wrote about a book about analyzing and buying stock. He explained the several steps that need to be done in order to feel comfortable in buying a stock, or a company. One of those steps and in fact the final step is called "margin of safety." Essentially, what it means is if after you've looked a stock company, and analyzed a few things such as income, expenses, assets, and cash flow, you determine, what price you should pay for the stock should be. It's a value approach to investing. Suppose you've done the analysis and determined a company's price should be 20 dollars. This is what is called the sticker price. However, you don't EVER buy at the sticker price, Everyone knows that if you go to a car lot, you never buy the car at the sticker price, or the price in stuck on the window. That's just the starting point of the negotiations. Using Graham's and Buffet's philosophy, what you do is cut the sticker price by 50% and that then becomes your "margin of safety price." After building in your MOS, you would only buy that stock when it hits $10. There are several reasons, everything from your numbers could be off, the management could mess things up, some kind of event could arise and cause the price of the stock to drop. So, investors like Benjamin Graham, Warren Buffet, and Charlie Munger, will only invest when they can buy at the margin of safety price. Maybe that's why they've been so successful. I think of the repelling rope's ability to hold much more weight than necessary as it's margin of safety weight. Who knows, maybe part of the rope gets cut on a rock and half of its strength gone. Maybe another climber has to get onto my rope with me. There are many other reasons I'm sure, but the one thing I do know is that we're all very happy when we're hanging off the cliff in midair, 200 feet above the ground, that the rope has a margin of safety and could actually hold 10 of me. I think about the margin of safety concept when it comes to retirement planning. Suppose you and an advisor calculate that you need $500,000 producing income for you and along with social security that should give you a comfortable retirement. Now for you to accumulate $500,000, everything has to go just about perfectly. I mean you have to keep your job, at least your current pay, you'll have to save or invest the amount calculated without missing a beat. And the rate of return that your advisor calculated also has to be achieved without fail. You see, if you have a setback in work, take a decrease in pay, can't save for a while because you had an emergency or a small disaster that you had to pay for. And suppose you didn't get the rate of return that was projected. Maybe we had another lost decade like 2000-2010 where the market was essentially flat. With that in mind, maybe one thing you should do is plan your retirement with a margin of safety as well. It works for Warren Buffet, and it works for repelling ropes, why not us? So how do you plan for a margin of safety? Well, you could get really aggressive and just like Buffet won't buy a stock unless it's price is ½ of what he thinks it's worth you could do the same thing. Assume you can only save half what you are intending. Assume you are only going to get half the return you expect. Assume that you are only going to have half the income you expected to get from your investments. Then if everything goes according to plan, you have a margin of safety and all is well. Now that can seem rather disheartening, so maybe there is another way to look at this. If you think $500,000 will do the job, then plan and invest and save to have 1 million. That will give you a margin of safety as well. And if you fall short, you're still going to be fine. Now here's the good news. When you plan for a margin of safety you have an even greater chance of accelerating past your goal. Of having a worry-free retirement, and even if a few things went against you, you'll likely be just fine. It can never hurt to plan with a margin of safety and if all goes well, you're going to be even better off. When you think about your retirement, think about the rope. It's built with a margin of safety, just in case the unforeseen were to happen and chances are, it's going to protect your life! Investing and planning for a retirement with a margin of safety, just in case, is a wise thing to do and can only put you in a safer position in the long run. Well if you'd like to run a margin of safety analysis on your retirement plan – reach out, shoot me an email and we can talk. And as always, if you have any questions, again, shoot me an email and I'll answer them as quick as I can. Email me at [email protected] So next time you go repelling - check those ropes out, and know that they have plenty of strength to keep you safe – because they are built with a margin of safety! Take care!