6 Key Ingredients for Retirement Success

Do you know why cookbooks sell? Because they work.  It’s as simple as that.  All a person has to do is follow the step-by-step instructions and “presto” – a perfectly cooked meal.  Well, hopefully, anyway.

But the point is, we all need instructions.  For just about everything.  And usually the simpler the better.  In my new book, Stress-Free Retirement, my goal is just that: to allow retirement success to be simple and achievable for all.  In it you will find a simple recipe to lead you to that desired pot of gold.

Here are 6 key ingredients I share with my clients:

1. Never Lose Money – I know this sounds incredibly basic, but this is likely the single most important key to success.  You see, most people risk, and they lose.  And that just does not need to happen.  In today’s financial marketplace there are strategies allowing individuals the opportunity for significant growth when certain markets go up, coupled with ZERO risk of loss when those same markets go down.  Now you may be saying to yourself, “C’mon, that seems too good to be true.”  But fortunately it’s not. It’s real.  It’s achievable.  And it’s available to you.  Today.
2. Don’t Limit Your Gains – The problem with the traditional methods for avoiding risk is that they severely impair the ability for you to make any money or to keep ahead of Mr. Inflation.  Think about it.  Where do most individuals turn when they want to remove risk from their portfolio?  Yep.  You guessed it.  Certificates of Deposits (CDs), Money Market Accounts, and Savings Accounts.  And what are those three stellar account types currently paying?  One-percent, maybe, if you’re lucky.  Well, the bad news is unfortunately much worse than that.  With a 3.5% inflation rate, as experienced in 2011, that one-percent growth is actually losing you – yes losing you – 2.5% in purchasing power each and every year.  Gee, that sounds fun. 

So what’s the answer?  Simple.  Don’t limit your growth.  But, you may ask, “How is that possible?”  Sorry, but I’m not going to give up the goods that easily.  You’re going to need to get my book for the complete answer.  Just know this.  There IS a solution.  An easy solution.  A solution that allows you to guarantee you’ll never take a market loss in the losing years, while at the same time, not limit your upside growth potential in the winning years.

How good is that?  Really?  Think about it.  Unlimited upside gain potential with a guaranteed protection against market loss.  That may just be the perfect solution.

1. Earn “Interest on Your Taxes” Instead of Paying “Taxes on Your Interest” – I hate to break it to you, but in No. 2 above I didn’t give you all the bad news.  Sorry.  I didn’t want to overwhelm you all at once.  You see, not only are current interest rates at pathetically low levels, and not only does inflation cause a person who is utilizing these accounts to lose purchasing power, but the reality is even worse.  Why?  Because that stellar one-percent return provided by these accounts still has to be taxed … each and every year … as it is earned … not when it is spent.  So, if a person is in the highest tax bracket (currently 39.6% federal) and has a state tax of 9%, then nearly half (48.6% to be exact) of that one-percent return will be handed over to Uncle Sam at tax time.  (Isn’t he a nice uncle?)

So what does this mean from a numbers standpoint?  It means that your one-percent return is actually just a measly half-a-percent return … and that is before Mr. Inflation takes his cut.  After everything is said and done, a one-percent return in a taxable account, with a 3.5% inflation rate, will actually reduce an individual’s purchasing power by 3%.  In other words, he or she is technically losing 3% of his money each and every year, even though their account balance is going up each year on the annual statement.  Ugh.  That doesn’t sound too fun.  And it’s not.

So what’s the answer?  Well, maybe not “the” answer, but “an” answer.  It’s this.  Utilize a strategy that defers taxation and doesn’t require tax to be paid each and every year – simply because interest was earned within an account.  If an individual can defer the tax until he or she withdraws the money, it allows him to “earn interest on his taxes” instead of “paying taxes on his interest.” You’ll be shocked at what difference it makes.  It will blow your mind.

1. It’s What You Keep That Counts – To follow up on No. 3, I think too often people track the wrong metric when measuring their potential retirement readiness.  The perfect example of this is the IRA or 401(k) balance within a tax-qualified portfolio.  Most individuals get excited (or depressed) based on the account balance – the amount reported on their annual statement – but totally disregard what that balance actually represents in practical reality.

One of my favorite questions to ask individuals over the years has been, “Who else is named as an owner on your 401(k)?”  After looking at me like I’ve just lost my mind, they usually say something to the effect of, “Uh, nobody.  It’s just me.”

At which point I say, “I sure wish that were true.  But you’ll need to think again.  There is another “person” on your account.  A person who owns up to 30-, 40-, or even nearly 50-percent of your account value.  His name is Uncle Sam.  And the reason you don’t know this yet is because he doesn’t start taking his “cut” until you start withdrawing money from your account.  Then it’s time for you to pay up.  To pay up all those taxes you were previously told had been “saved,” as well as all the tax now due on the accumulation.  It can be incredibly ugly. And unfortunately, this doesn’t even take into consideration the addtitional taxation that can be imposed on your social security payments due to income coming from these types of tax-qualified accounts.”

Yep.  It gets worse.  A lot worse than most people could ever imagine.

You see, it isn’t so much what you accumulate that matters, it’s what you keep that counts.  But, as you may have guessed, there is a solution for this problem as well.  And by now I think you know where to find it.

1. Minimize the Fees – Fees are the silent killer within an individual’s retirement account, especially in losing years.  Think about it.  How fun is it to pay a fee to someone to manage your money in a year they just lost some of it?  That’s not only unfair, it seems almost criminal.

The good news is there IS an answer.  An answer that may surprise you.  An answer that will show you how to never pay a management fee – ever again – simply to receive a loss.  And if that doesn’t get your blood pumping just a bit, you better check your pulse.

1. Spend it.  Use it.  Enjoy it. – This may be one of my favorite keys to a successful retirement.  And one not likely espoused from any retirement specialist you’ve spoken to before.  But, there is very little regarding your money that is more important in my opinion.  It’s this.  Your money is there to be spent.  Not hoarded.  Not saved for a rainy day.  Not packed away for the day you take your very last breath.  But spent.

That’s why you accumulated it.  Right?  To use it.  It’s not there simply to pass on to the next generation.  There’s nothing wrong with that, but really not it’s primary purpose.  It’s there to be used.  To be given.  To be spent in a manner that will build the two things I believe extend into all of eternity – memories and relationships.

Think about all you can do with what you’ve accumulated.  Trips.  Time.  Memories.  With your children and your grandchildren.  And not only that, but think of the difference you can make in the lives of those less fortunate around the world.  It’s profound.  And you have the power to make that happen.

So please hear me on this.  It IS okay to spend your retirement money.  It really is.  And if no one has ever given you permission to do that before let me be the first to give you this exciting message.

Life is so much more than money.  And so is your retirement.