Published October 26, 2012
They do require that you get involved and think a little, but a retirement strategy that is simple and easy to implement should be worthy of a few minutes of your time—especially when it impacts you and your family!
Here are some simple rules that will get you started:
Rule #1 – Live below your means.
Do not spend more than you earn.
Rule #2 – Do not borrow money.
This rule does not include a mortgage for a residence. However, try not to borrow money for consumer items. If you do not have the money, do not buy it. If you need to borrow money to buy a car, try to pay it off as soon as possible. Can you get by with a $5,000 reliable used car instead of a $20,000 to $40,000+ brand new car? Probably. Try to pay off any credit balances you have, and try not to use your card anymore. Make a promise to yourself that any purchase made on your credit card will be paid off when your bill comes. Save your money! Cut your expenses!
Rule #3 – Keep your eye on inflation.
Inflation has been defined as an increase in the rise of a basket of goods and services that is representative of the economy as a whole. What that means in a nutshell is this: the more inflation the less your dollar will buy. Steady rising inflation can do significant damage to your retirement savings. You will need to save more money and/or earn more money just to stay where you are today. Save your money! Cut your expenses!
Rule #4 – Pay attention to taxation.
Pay attention to taxation. Taxation is in the background waiting for you when you decide to withdraw from your pension, 401(k), 403(b), IRA, or other qualified type monies. Taxation will shrink the amount of money that goes to you and will increase the amount of money going to the taxing bodies. The amount of money that you will actually have when you retire will be determined by the tax bracket that you will be in at that time. Do you think we are in store for higher taxes? Most experts think so. If that is the case, less of your qualified money will be yours and more of that money will go for taxes.
It has been said that there are two sound rules to follow when it comes to investing:
• Rule #1 – Never lose money on your investments.
• Rule #2 – When all else fails, follow rule number #1.
Here we go again. Simple and easy. Simply try not to lose money while investing. How do you do that? Consider these safe investments (keep in mind that in the author’s opinion, there is NO investment that is 100% guaranteed – NONE). It’s important to remember that all investments have good points and bad points. Try to make an investment that would be most beneficial to you.
There are a number of different types of annuities. Try to find the one that will generate the most amount of growth without any downside risk. Why? Because we want to follow rule #1.
Annuities have a long history going back to Roman days when they were used as a form of gratuity for loyal soldiers. When the Great Depression of the 1930s came upon us and thousands of people lost their entire life earnings in the stock market, legendary Babe Ruth (while puffing on a cigar) said, “I may take risks in my life, but I will never risk my money. I use annuities, and I never have to worry about my money.”
Look for annuities that have optional income riders that if exercised would guarantee a lifetime income stream even if your value went to zero. Why is that important? Because you do not know how long you will live! Other additional riders are available (some for an additional fee) that may benefit your unique situation. Some annuities give an upfront bonus to open an account. Annuities come non-qualified and qualified.
NOTE: If you are under 59½ and choose to make a withdrawal, there would be an additional 10% federal tax penalty for early withdrawal on top of any other additional taxes and possible company fees.
Market-Linked CDs (Certificate of Deposit)
Why MLCD’s (Market-Linked CD’s)? Because they offer safety plus potential of higher interest gains without market risk.
Potential benefits of MLCDs include:
• Safety – 100% principal protected
• Insurance –FDIC Insured
• Guaranteed Interest – Minimum interest equal to typical CDs
• Potential – Potential to earn additional interest that outpaces inflation
Historically, precious metals have served as a store of wealth and have long been prized as the only truly reliable hedge against inflation (do you think we’ll see inflation in the future?). As tangible commodities with intrinsic value, they offer distinct advantages over stocks, bonds and other paper assets. While the value of stocks can decline (they can also go up in value), precious metals such as gold, silver, palladium, and platinum have historically always retained a value, regardless of market conditions.
Even when compared to other hard assets, such as real estate or fine works of art, precious metals compare favorably based on their high degree of liquidity and portability. History does tell us that economic and political instability has placed upward pressure on all precious metals. If you would like precious metals for your IRA or qualified account, or if you would like precious metals to be delivered to your home, contact me at: Frank@mypreferredplan.com
Permanent Life Insurance
While not a pure investment vehicle per se, I would be remiss if I did not get you to think a little about the benefits of permanent life insurance.
There is much confusion about life insurance and there is not much space here to address them all. Simply stated there is term life insurance and permanent life insurance. Term life insurance is compared to renting an apartment. Permanent life insurance is compared to buying a house with a mortgage. Most term life insurance plans do not build equity (though there are some plans that will pay back all of your premiums if you do not die for a specific period of time). Permanent life insurance builds equity.
Permanent life insurance works better when you are younger because the cost of insurance is cheaper. Permanent life insurance allows you to grow your equity, earn interest tax-deferred and the most attractive part is the ability to borrow out gains, tax-free.
It is one of the few SAFE savings vehicles that allow you to grow your money without tax and also take out money (in the form of a policy loan) tax-free. It is also something to give serious consideration to.
Again there are many varieties of permanent life insurance. Look at the types that do not have any downside risk to them. Again keeping it safe along the way allows the policy to grow for your future. NOTE: Do not forget that your loved ones get the protection from the permanent life insurance policy in the event of premature death, and the death benefits come out income tax free!
While it does not look like it is a savings vehicle because of the cost of the insurance in the plan, used properly, it could be a valuable piece of your financial picture.
I hope I have given you some food for thought. Your retirement strategy does not have to be complex. Simple and easy may be boring, however, you can very seldom get yourself in trouble if you spend less than you earn. Try to invest in investments that can be as SAFE as possible. Remember, try your hardest not to lose money. If you have any questions or need further assistance, please contact me at: Frank@mypreferredplan.com. Feel free to visit my website at: www.mypreferredplan.com