The Two Economic Powers Approach allows you the ability to choose between a variety of income options when your time for retirement nears. It offers options that are not all relegated to returns on invested assets--bringing you peace of mind in your financial life.
It starts with savings. You must build to create weekly, monthly, and ultimately annual savings. It means foregoing spending your money now for use in the future. Wealth is rooted in your ability to save and ability to also earn, while minimizing loss.
We must ask the question: How do you spend your money?
• Is structured?
• Do you know right now your total outgoing expenses?
You must look at the facts and make adjustments to spending and saving to improve your ability to build wealth moving forward. Then,
• Are you saving routinely? Every paycheck, every month. Are you living within your means?
• Where are you at with your emergency fund and savings? If its still being built, it's incredibly important for wealth building, and you must have this cushion to avoid liquidating investments.
These 4 concepts must have a "YES" and this will get you many steps closer on the path for creating more wealth. Wealth occurs with money over time, wealth building is a process. It happens when you change how you spend your money, and where you save it. Wealth is also more likely to grow when structured money flows, saving is happening automatically, and financial cushion is there to cover the unexpected hiccups in life.
Like I said before, wealth building starts with your ability to save, and once you have saved–– How do we allocate it?
So, we can explain this over and over, but the common issue is that we accumulate year over year and you believe it will add up to save withdrawal rate. What is really needed is a target to shoot for and retirement savings defined. So often, in order to preserve the principal and have growth, the industry standard is a 4% withdrawal from the 1998 research known as the Trinity Study. In order to maintain your principal, your growth rate must outpace your withdrawal rate. Any assets attached to rates of return will fluctuate in value.
In order to anticipate future returns, professionals examine the average return over a 30 year period of the stock market. Unfortunately, no one know the future; yet, predictions are imperative to determine adequate retirement savings. Consequently, we must begin establishing certainties that we can control such as: what is the potential withdrawal rate I want from my portfolio?
Most commonly, the 4% standard rule for a 30-year time period. So if you wanted to $100,000 a year, the minimum retirement savings would be between 3 million - 4 million. This amount is unrealistic for some. The real problem is can I have a standard, predictable withdrawal rate, despite fluctuating market rates and avoid selling at a loss. The key to achieving consistent, and higher withdrawal rates is through having structured assets not attached to fluctuating rates. Alternatively, one can also create another pot of assets to pool from when growth-oriented assets are down.
So, if your retirement assets drop 20% in a year what alternatives are to downside protection?
Previously, pensions held by most employees were available to supplement during the downturns; in addition to, social security being a large portion of retirement income. Today, most employers offer 401(k)s, which is attached to markets, and the level of social security income is questionable for millennials and gen-z generations.
Option 1: Every dollar in a retirement is exchanged for a guarantee that is covered at the time of retirement. Ultimately, it is the same amount of retirement savings allocated between two long-term wealth building tools.
Option 2: Two pools of income are created, where assets can recover from losses. The second pool is not subjected to short term market fluctuations.
Meeting with a professional can help provide clarity in:
• Which positions to take in insurance and investments and find tax-efficiencies to increase retirement income.
• And more...
"Decisions you make today will improve your tomorrow" -Cheryl Evans