I think most of us have heard the quote, “the greatest trick the devil ever pulled was convincing us that he doesn’t exist.”
Well, I’ve got another one for you:
The greatest trick financial advisors ever pulled was convincing us that we will have less income in retirement than we do right now.
Here’s a question: who convinced us that we should plan to have less tomorrow than we do today? Traditional financial planning operates on the assumption that you are going to be in a “lower tax bracket” when you retire. On the surface that sounds like a pretty reasonable assumption. I mean, afterall, you aren’t collecting a paycheck from your employer anymore.
But have you ever considered these questions in rebuttal:
- How does anyone know what the tax brackets will be 20-30 years from now?
- Is there a chance that tax rates will increase for every bracket in the future?
- What tax deductions am I not going to have anymore (mortgage interest, child tax credit, 401k contribution, etc)?
- What will the purchasing power of my dollars be in 20-30 years compared to today?
- Will I need more money because of inflation, rising medical costs and long term care?
- Do I have any retirement income that is tax-free?
And the most important question of all: Why am I building a plan that promises me LESS in retirement than I have now?!
I can tell you, with absolute certainty, that any financial advisor who builds a retirement plan for you that promises LESS than what you are earning now is going to accomplish that goal 100% of the time! In fact, I don’t even think you need to pay an advisor to accomplish that goal…you could easily do that on your own for free.
Is that really what you want? An actual plan designed to have less? Is that going to motivate you to follow the plan during your working years?
According to author Wade Pfau (Ph.D. and Chartered Financial Analyst) in his book Safety-First Retirement Planning, “for today’s 40 year olds, the real purchasing power of money will be about 60 percent of what it is today at age 65.” And this book was written in 2019. Given inflation over just the last year, I imagine that purchasing power will be much lower than 60%.
Most fears in retirement are centered around outliving one’s money. What this forces many retirees to do is to underspend in retirement. Running out of money is a bad thing, but so is underspending! So many people work for 40 years in order to be able to enjoy the good life of retirement and then get there and are afraid to spend what they have worked for.
The problem with this mentality is that we are selling ourselves short. But here’s the good news: there is a way to create an income right now that will continue to grow as you get older. Imagine following a plan that allows you to give yourself a raise during retirement? Now that’s an exciting plan!
And no matter what phase of life you are in, you can change how your money goes to work for you. You don’t have to stick with the plan you have just because that’s what you’ve done for the last 10, 20, 40 or 50 years. After all, it’s YOUR money!
I’ll let you in on how I switched from the “Accumulation” plan to the “Income” plan. It really just involves asking 3 questions:
1: Who is controlling my capital?
- I looked at where my capital (i.e., my cash and equity) was flowing. I realized that I was giving control of my capital to other people (stock brokers and bankers, mostly). Once I realized that I did not control my own capital, I started exploring how I could change that.
2: How can I control my own capital?
- In 2010 I was introduced to the power of dividend-paying whole life insurance contracts. I learned that I can accumulate capital safely and efficiently inside these contracts, then leverage that capital for opportunities. I now put upwards of 25% of my income into these contracts every single year.
3: Where can I grow my capital safely and consistently?
- It took me several years of trial and error (mostly error) to answer this question effectively, but since 2020 I’ve been growing my capital through private lending. In short, I loan my money to a private company that in turn pays me a monthly and annual cash-flow payment for the use of it. The monthly income I earn is consistent and my capital is protected by several measures. I also earn equity (i.e. ownership) in the companies I lend to.
The result? I don’t ride the roller coaster of the market, I know my capital is protected, and I earn an income from my private lending that pays for some of my life’s expenses (truck payment and private school tuition, currently).
Every year I add more capital to my plan by funding my whole life insurance contracts and performing more private lending. And every year my passive income goes up. I am quite literally “giving myself a raise” each and every year.
I encourage you to start challenging “conventional wisdom” when it comes to planning for your future. You don’t have to give control of your capital over to someone else and you don’t have to keep riding the market roller coaster. It’s your money. It’s your choice.
If you ever want to have a deeper discussion about anything financial, feel welcome to schedule some time with me here.