With an economy that’s out of control, many Americans don’t know what to do in regard to saving for retirement. The volatility of the stock market, confusion about how to correctly leave a legacy for their loved ones, and navigation of estate tax can be frustrating for those planning retirement. There are a lot of things to consider when deciding how to save, withdraw money during retirement, and reduce or eliminate taxes altogether.
Through this article we will explore common strategies that have been somewhat misleading. We will go through a couple of steps in order to achieve the goal of tax-free retirement.
I believe that, as an investor, one needs to know the difference between Average and Actual Returns. An Average Return is based on the amount of money that you put in a particular investment account that yields a certain rate of return. For example, a person invests $1,000 into an account. Over the course of year one, this account loses 50% of its value and then nets a positive return of 50% in year two. How much would the return be at the end of year two? Let’s think about it for a second. The return is zero. See the following example:
You see that the average return is 0%. Wouldn’t the ending value be equal to its beginning value of $1,000? The answer to that would be no, not even close.
The average return may be 0%, but the actual return is -25%! You may be asking yourself, “How can this be?” So let’s illustrate the numbers again:
An actual return is when you calculate the losses and returns together; it produces the actual gain on principal. If that account has a positive 50% gain in year two, it gains 50% of the $500, increasing the return at the end the second year to $750.
$500 + 50% = $750
This brings us to the first step to saving your money from this depreciation—having the right advisor who:
• is able to understand what your needs are first and foremost
• has the ability to articulate both the Actual and Average gain
• And has the knowledge to produce a solid tax-free retirement plan
Keep in mind you want an advisor who first cares about your goals and is creative enough to build a plan that tailor-fits those goals through tax-free retirement. Not only does your advisor have to be creative but he or she must have the technical capacity to deliver the results that you need.
The final step would entail designing your tax fee retirement plan with indexed universal life insurance. This concept has been around for decades but only a few have known about this incredible strategy.
How would you like to be able to create a plan where you can invest income into a vehicle that will grow tax-deferred over a period of years? The best part of this plan is that your money can then be taken out tax-free for retirement with the ability to leave a tax-free death benefit to your loved ones or charitable organization when you die.
This is what Index Universal Life can do for you. If you would like more information on this incredible product, please visit AutumnFinancialIL.com or contact advisor Allen Thomas at (708) 513-1146.
Kelly, Patrick. The Retirement Miracle. 1st ed. Bluewater Press, 2011.