Research & Statisitics

 

“CLIFF NOTES” – THE BOTTOM LINE

If you are like most people, finances are a foreign language, and you may not like dealing with your money. One reason is that you have received so much conflicting information from so many sources, it can’t help but being confusing. Do you remember Cliff Notes? Didn’t you just love them? Up front, right now, we are going to give you all the answers buried in this book, “Cliff Note”-style. We’re going to tell you all the secrets up front, and you don’t even have to read the whole book. You’ve never been told or learned most of the information we are going to give you right now. But this information is vitally important to your long-term financial security. We respect your time, so after reading this section, if you are not convinced to read the rest of the book, don’t waste your time, just give it to someone else who is retired or nearing retirement.

Here are the key points, the Cliff Notes of Momma’s Secret Recipe For Retirement Success:

  1. Retirees want, but are not getting, seven (7) things from their money including:
  • Guarantees they won’t run out of money for as long as they live.
  • Avoiding all large stock market losses and never experiencing another 2008 again.
  • Maximizing their income during retirement without getting killed with taxes.
  • Earning acceptable rates of return without taking excessive risks, not losing what they have.
  • Understanding and reducing the total fees they are paying both direct and indirect (hidden).
  • Knowing what they can potentially leave their beneficiaries after using their assets for income.
  • Having their entire plan in writing.
  1. If you don’t know how much money you can safely take out of your assets for income, how long your money will last, how to guarantee you won’t run out of money, how to protect your assets against Stock Market volatility and losses, how much income tax you will pay on your income distributions, how much you will lose in the next stock market crash, if it’s OK to start using some of your money, what your total fees are and how you can reduce them, and what’s going to happen if you or your spouse pass away, you are basing your entire plans for retirement on hope and luck.
  2. “Riding out the stock market” doesn’t work. Between 2000 and 2018 the S&P 500 Index only increased by an average of 2.85% per year before fees. This is because the stock market lost approximately -50% from 2000-2002 during the Technology Bubble, made +100% just to recover, then lost approximately -50% again from 2007-2009 during the 2008 Financial Crisis, and then made +100% again by 2013 just to break even.
  3. During the 2008 Financial Crisis between October 9, 2007 through March 5, 2013 which is a period of 5½ years, the Dow Jones Industrial Average Index increased by 0.10% per year before fees.
  4. If you suffer a -35% or larger loss like what happened twice in the last 20 years, you only have a 61.1% probability of getting back to even over any 5-year time period, meaning you have a 39.9% chance not only that you won’t make any money, but you won’t even get back to even.
  5. Starting in 1996, there are nine (9) 15-year time periods ending 2018. In all nine (9) 15-year time periods, the S&P 500 Index averaged an annual compounded increase of just 4.17% before fees.
  6. From January 2000 through 2018, the S&P 500 Index increased by an average annual 2.85%, the Dow Jones Industrial Average increased by an average annual 4.06%, and the NASDAQ increased by an average annual 2.61%, with all these increases calculated before any fees.
  7. A -50% loss requires a +100% recovery gain just to break even, a -40% loss requires a +67% recovery gain, a -30% loss requires a +43% recovery gain, a -20% loss requires a +25% recovery gain, while a -10% loss only requires a +11.1% recovery gain and a -5% loss only requires a +5.3% recovery gain.
  8. If you’re a moderate investor you must be willing to lose between -20% and -39% of your assets.
  9. The current bull stock market is over nine (9) years old.
  10. There have been 13 severe bear stock markets since 1929 that average a -39.5% loss.
  11. This means on average every seven (7) years there is an average -39.5% loss in the stock market.
  12. As of October 2018, we were historically more than two (2) years overdue for a large stock market loss.
  13. If you are a 55-year old couple, based on history you will go through five (5) more -39.5% stock market losses in your lifetimes. If you are a 60-year old couple you will suffer through four (4) more -39.5% losses. If you are a 65-year old couple you will also suffer through four (4) more -39.5% losses. A 70-year old couple can plan on battling through three (3) more -39.5% losses during their lifetimes. A 75-year old couple can plan on limping through two (2) more -39.5% losses, and an 80-year old couple can also plan on struggling through two (2) more -39.5% losses during their lifetimes.
  14. If you have $1,000,000 and earn +50% and then lose -50%, your portfolio value is only worth $750,000 as you have just lost -$250,000.
  15. Riding out the stock market through big losses gets you nowhere. Riding out the stock market simply means riding the stock market down. From 2000 through 2018, if you rode out the stock market, as represented by the S&P 500 Index, and you received returns equal to the S&P 500 Index, your assets would have grown at an average annual compounded rate of just 2.85% before fees were deducted.
  16. If you started with $1,000,000 in 2000 and rode out the stock market through 2018, received returns equal to the S&P 500 Index,and paid 3% per year in total fees, like the average American is paying without even knowing it, your $1,000,000 would have reduced to $963,890 by the end of 2018 without you taking any income from your portfolio.
  17. If you started with $1,000,000 in 2000 and rode out the stock market through 2018, received returns equal to the S&P 500 Index, paid 3% per year in total fees, and took out $50,000 of income per year, you would have run out of money, had $0 left, by March 2013.
  18. If you have a $1,900,000 portfolio and suffer a -55.2% loss that was common during the 2008 Financial Crisis stock market meltdown, you would have lost -$1,048,800 leaving only $851,200 left in your portfolio. The $851,200 remaining in your portfolio would have to earn +123.2% just to recover back to the original $1,900,000 value, assuming you didn’t take out any income and you didn’t pay any fees.
  19. The typical retiree believes they are paying only 1% in total fees per year, when they really could bepaying 3%, 4%, or even 5% in fees every year without even knowing it. If you own a variable annuity you could be paying up to 6.5% per year in fees.
  20. If you have $1,000,000 of assets, paying 3% in fees could cost you $551,415 over a 15-year time period.
  21. The “Safe Income Withdrawal Rates,” which is the percentage of income you can withdraw from your portfolio during retirement and have a high probability your income won’t run out, has steadily decreased over the years. In the 1980s, the financial industry thought the “Safe Income Withdrawal Rate” was 6%, then in the 1990s it dropped to 5%, then in the 2000s it dropped to 4%, and now in the 2010s it stands at 3%. There is some discussion in the financial industry that this 3% rate could drop to 2.5%.
  22. Momma’s Secret Recipe For Retirement Success has seven (7) steps in the recipe. We created The 7 Rules To Live By For Retirement Security to include:
    1. Avoid large losses – use the “5% to 10% Rule.”
    2. Minimize fees.
    3. Significantly reduce volatility.
    4. Earn a reasonable rate of return.
    5. Manage taxation.
    6. Generate “certain income” from your assets that is guaranteed to last for as long as you live, not “maybe income” that could end at any time.
    7. Have a written retirement income plan.
  1. There are two (2) stages of money in retirement planning:
    1. Stage 1 – Asset Accumulation while you’re working. Growth is very important and you don’t worry as much about risk, needing income for life, or safety and liquidity.
    2. Stage 2 – Income Distribution and Asset Preservation when you’re retired. You must shift your focus to first guarantee lifetime income, liquidity and safety, and growth is less important.
  1. The “3 Bucket Safe Money Approach” will allow you to control your assets the way you want to by:
    1. Placing a portion of your assets into the guaranteed lifetime income bucket that will protect your assets against all stock market losses and provide you income for as long as you live.
    2. Placing a portion of your assets into the liquid/safe bucket that will protect your assets against all stock market losses and be completely liquid for access.
    3. Placing a portion of your assets into the growth bucket for the opportunity for a higher rate of return focusing on risk reduction.
  2. Fixed index annuities with income riders will protect your assets against all stock market losses—if the stock market crashes -50% you will receive a 0% return that year. In addition, they:
    1. Provide you with income guaranteed to be paid to you for as long as you live.
    2. May allow you to start drawing income immediately.
    3. Continue to pay your income for as long as you live (even if you use up all of your principal).
    4. Guarantee you will not lose any of your past or current gains from future stock market losses.
    5. Provide the opportunity for competitive rates of return based on a low-risk asset.
    6. May provide the opportunity for future increased income that is guaranteed for your lifetime.
    7. Typically carry low total fees of approximately 1%.
    8. Pass 100% of remaining assets to your beneficiaries when you pass away.

Some of the negatives are (a) you can’t take 100% of your funds out for a specific time period without a surrender penalty, (b) you will not get stock market rates of return, (c) you will pay a fee, and (d) you can’t place 100% of your money into this type of plan.

  1. Liquid/Safe assets are placed in the bank and will be available for any purpose and will be protected against all stock market losses. You should continue to add money into the bank every month during retirement. The biggest negatives are that you will not earn a high rate of return and guarantees may be capped at certain FDIC limits.
  2. Growth assets are typically needed as a crucial part of a proper asset allocation model for both retirees and pre-retirees. You can potentially reduce your risk of loss from large stock market losses by using risk mitigation models such as Stop Losses.
  3. From 2000 through 2018, a period of 18 years, if you invested $1,000,000 in 2000 and received annual stock market rates of return equal to the S&P 500 Index, by December 31, 2018 your $1,000,000 would have grown to $1,705,632 and you would have gone through two (2) separate time periods that saw the stock market lose approximately -50%.
  4. From 2000 through 2018, a period of 19 years, if you invested $1,000,000 in 2000 and received annual rates of return up to a maximum (CAP) of 6% based on stock market rates of return equal to the S&P 500 Index, but never had to suffer any losses, by December 31, 2018 your $1,000,000 would have grown to $1,909,687. The lesson here is that it may be far more important to protect your principal against large stock market losses than trying to earn the highest rates of return.
  5. If you invested $1,000,000 in 2000 and received annual stock market rates of return equal to the S&P 500 Index, took out $50,000 of income per year, and paid 0% per year in fees, your entire portfolio would have been depleted to $0 by 2018.
  6. If you invested $1,000,000 in 2000 and received annual stock market rates of return equal to the S&P 500 Index, took out $50,000 of income per year, and paid 1% per year in fees, your entire portfolio would have been depleted to $0 by 2016.
  7. If you invested $1,000,000 in 2000 and received annual stock market rates of return equal to the S&P 500 Index, took out $50,000 of income per year, and paid 2% per year in fees, your entire portfolio would have been depleted to $0 by 2014.
  8. If you invested $1,000,000 in 2000 and received annual stock market rates of return equal to the S&P 500 Index, took out $50,000 of income per year, and paid 3% per year in fees, your entire portfolio would have been depleted to $0 by 2012.
  9. The +117% gain of the S&P 500 Index over 3½ years from May 22, 1996 until December 31, 1999 was completely erased by the -54% loss of the S&P 500 Index over 9+ years from December 31, 1999 until March 9, 2009.
  10. Stop-Loss strategies on stock market assets can potentially reduce the severity of a large stock market loss.
  11. No one is born with a “money gene.” You really are not confused about your money, and it’s not that you don’t understand your plan, it’s that you don’t actually have a plan. You need everything about your money and your plans for retirement in writing. You need a comprehensive written retirement income plan that includes a complete retirement income projection showing exactly how much income you will receive every year of your retirement, where your income sources will come from, the risk you are taking, the fees you are paying, an income tax analysis, a beneficiary analysis, and all the details about your plan in writing.
  12. There are four (4) parts to a comprehensive written retirement income plan:
    1. Retirement income projection: income analysis + risk analysis + fee analysis.
    2. Income tax analysis.
    3. Beneficiary asset transfer analysis (legacy plan).
    4. Full plan details.
  1. A hypothetical case study shows assets of $1,600,000 were allocated to increase annual income by $60,000. The case study included $56,000 of joint guaranteed lifetime income.

 

  1. A hypothetical case study shows assets of $1,600,000 were allocated to reduce loss risk by 80%, and reduce recovery gain needed by 90%.
  2. A hypothetical case study shows assets of $1,600,000 were allocated to reduce annual fees by $32,000, saving over $984,000 in fees from age 65 through age 85.
  3. A hypothetical case study shows gross annual income increasing from $78,000 to $138,000 with an effective federal and California combined income tax rate of 15%. This means a total of 15% income tax was paid on their $138,000 of gross annual income.
  4. If you are 65 and had $1,600,000 of retirement assets, took out approximately $60,000 of income per year from your assets, earned a 4% annual rate of return, had taken out over $1,370,000 of income by age 85 when you passed away, you would leave over $1,530,000 to your beneficiaries after you had taken out all that income. The lesson is that you may not have to earn a high rate of return to achieve your financial goals.
  5. The “full plan details” of a comprehensive written retirement income plan should include all the plan advantages, disadvantages, costs/fees, what you are doing, why you are doing it, when/how each asset will be used, and the step-by-step process you will use to meet your goals.
  6. A 2nd Opinion about your money will tell you either your current plan is on track to meet your goals or that there are steps you need to take to increase your probability of retirement success. You need to know this information now, not ten (10) years from now.
  7. On the website of the Securities and Exchange Commission SEC), the first paragraph of the SEC’s definition of an annuity is:

An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

  1. An annuity policy is a legally-binding enforceable written contract. Every single thing the annuity company promises you, all guarantees, fees, and everything about how your annuity works is given to you in writing. Mutual funds, portfolio managers, advisors, and brokerage accounts don’t do this.
  2. Annuities, and their ancestors, are some of the oldest financial instruments in history, believed to date back as far as 225 A.D. – then called “annua”, translated as “annual stipends.”
  3. Annuities first came to the United States in 1759, even before the first “market for stocks” was started by 24 brokers in 1792.
  4. In the 1700’s, it is believed some of the most prominent annuity buyers included Benjamin Franklin, George Washington, and Beethoven.
  5. In modern times, a few notable purchasers of annuities are believed to include Winston Churchill, Babe Ruth, Charles Schulz, Jane Austin, Ben Stein, Ben Bernanke, and Shaquille O’Neill.
  6. We have found most people spend more time planning their vacations each year than on planning for their retirement.
  7. To receive $100,000 per year of income throughout a 30-year retirement, you will need a lump sum of $2,040,108 based on a hypothetical 6% annual earnings rate and 3% inflation rate.
  8. From 1971 to 1981 the average inflation rate per year was nearly 7.5%, meaning the cost of your goods and services would double in a decade. At age 60, an inflation rate of just 3.5% per year would require your income to double by age 80
  9. A single premium immediate annuity is one of the oldest types of annuities where you pay a lump sum to an insurance company, and they pay you income guaranteed for a single or joint life or for a specified time period. The guaranteed income payments are not affected by stock market volatility or losses. There is no opportunity for growth as this type of annuity is meant for one thing and one thing only: income. Once the insurer has your funds, you almost always lose control of your asset moving forward, except for the guaranteed payments you receive.
  10.  fixed deferred annuity requires a lump sum or periodic payments to an insurance company with contributions guaranteed to grow at a stated rate, but may grow at an even higher current rate. The insurance company will pay you guaranteed income or your principal plus interest at some time in the future, meaning your income benefit is deferred. Your principal and income are not affected by stock market volatility or losses. There are special types of fixed deferred annuities called “multi-year guaranteed annuities”, “MYGA” for short. MYGA’s are very similar to a CD, but have additional benefits. MYGA’s provide a fixed rate of return guaranteed for a set number of years, for example “4% guaranteed for 5 years.” Most fixed deferred annuities do not have a front-end load and do not assess annual fees, but almost all of them will assess a surrender charge for a specific time period for premature withdrawals.
  11. A variable annuity “VA” is considered a “security”, the same way stocks and mutual funds are, because the entire variable annuity value can decrease, meaning you can lose principal from market volatility and losses. With a variable annuity, you pay the insurance company a lump sum of money, and the insurance company allows you to allocate your money into one or more subaccounts, which are kind of like higher fee mutual funds. Your subaccounts will increase or decrease each year providing you a gain or loss for the year. You have a potentially higher upside with potentially higher risk. Most variable annuities do not have a front-end load, but total annual fees can reach as high as 6.5% per year, every year. Variable annuities seem to be responsible for the majority of the controversy and bad press on annuities. Ken Fisher’s infamous “I Hate Annuities” campaign originally targeted, and focused on, the negative aspects of variable annuities.
  12. When an advisor makes a blanket statement like, “All annuities are bad and they are the worst things for you,” it almost always means the advisor is uneducated about all the different types of annuities available in the marketplace, and/or can’t legally sell annuities, and/or simply prefers to sell other things, and/or is not looking after the true best interests of his/her clients.
  13. A $550,000 hypothetical CD that was earning 5% paid $27,500 per year, or $2,292 per month, income. A 1% CD rate, closer to current rates, would only produce $5,500 per year, or $458 per month, of income, an income loss of $22,000 per year, or $1,834 per month.
  14. Some fixed index annuities with income riders can provide guaranteed lifetime income starting immediately, meaning you put money in today and your income starts next month, and will be paid to you every month for as long as you live, even past age 100, regardless of stock market losses and volatility.
  15. The life insurance industry has provided financial protection to millions of American’s unlike any other financial services sector. This protection includes periods of time during horrific wars, depressions, recessions, deadly worldwide epidemics, stock market crashes, inflation, and deflation. During the Great Depression, life insurance companies provided the financial bedrock for Americans when more than 10,000 banks failed. Many people are surprised to know that the insurances companies of the United States bailed out the banking industry during this time, not the federal government. It’s reported Babe Ruth used annuities in 1934 when he retired to create $17,500 of guaranteed annual income, which is $300,000 per year in today’s dollars. When Babe died, his wife Claire was able to continue living a comfortable lifestyle on a guaranteed income provided by another annuity he had set up to protect her. No one has ever lost $1 of guaranteed principal, income, or death benefit in a fixed annuity or fixed index annuity with an income rider due to the stock market crashing, the economy collapsing, or insurance companies failing. Even if the annuity was purchased the day before the Great Depression, and before the stock market crashed -90%, no guaranteed annuity principal was lost, no guaranteed income payments were lost, and no guaranteed death benefits were lost.
  16. Stockbrokers always like to state the stock market has earned +10% per year since 1900. Sounds great, but they forget to tell you that this is before fees, and more importantly, that since 2000 the S&P 500 Index has only increased by approximately +85% before fees. No one reading this was alive in 1900, but most of us have lived through the volatile stock market between 2000 through 2018.
  17. There are four (4) basic but important questions you need to be able to answer about your portfolio: (1) how safe is the portfolio if the stock market crashes, (2) how much income can be generated and is it guaranteed for life, (3) what is the potential rate of return of the portfolio, and (4) how liquid is the portfolio?
  18. From 1979 through 2008, a period of 30 years, the stock market averaged a 7.23% annual increase. If you had $1,000,000 and took annual income distributions of $50,000 (5%), you would have run out of money during the 30-year time period because of what is called “sequence of returns,” simply meaning your financial success is predicated by the luck of when the different annual growth rates in the stock market actually happen and when you take distributions.
  19. If you take $120,000 of income distributions from a hypothetical $3,000,000 portfolio for 10 years, and in the first year you lose -50% (like 2000-2002 and 2007-2009) and then earn +12% the next nine (9) years from years two (2) through ten (10), meaning you lost -50% and then made +108%, at the end of ten (10) years your $3,000,000 would have been reduced to $2,053,770 not accounting for fees or income taxes.
  20. A “stretch ira strategy” using a fixed guaranteed annuity with an income rider may allow your beneficiaries to take distributions of your inherited IRA over their entire lifetime, reducing the income-tax burden on your IRA.
  21. The typical retired couple, who increases their gross annual income from $100,000 to $200,000 thinks they will get killed in income taxes, but in reality they usually won’t. They will pay an estimated 14.69% effective federal income tax rate on their $200,000.
  22. The income that is guaranteed to be paid to you for as long as you live from a fixed index annuity with an income rider cannot be reduced or terminated by the insurance company unless you take excess withdrawals from your plan. This means you can take the maximum income amount guaranteed by the insurance company for your life and it can’t be changed because it is a legally-binding enforceable written contract. Hypothetical example: Let’s assume you are married and buy a fixed index annuity for $3,000,000 that pays you a joint guaranteed lifetime income benefit of $150,000 per year. The insurance company has to continue to pay you and your spouse $150,000 per year for as long as at least one of you is living, even if past age 100. Your income cannot be reduced or terminated for any reason including stock market crashes, even if your account reaching a value of $0, and all remaining assets in the plan when you die are passed on to your beneficiaries.
  23. The happiest and healthiest retirees are those with the highest level of fixed monthly income sources such as pensions, Social Security, and annuities. Many reports have highlighted this data including a recent study by Towers Watson.
  24. Income tax planning is very important during retirement. Gross income is not important, net income after income taxes is important, it’s what you really have to spend. With our national debt increasing from $5.7 trillion in 2000 to $21 trillion in 2018, and with the soaring expenses of Social Security, Medicare, Medicaid, interest on the national debt will eventually take up 92 cents of every tax dollar. This could push the need for higher income tax rates.
  25. Four (4) of some of the biggest risks you will face during retirement include market volatility risk, retirement income plan risk, income tax risk, and longevity risk. Wall Street-type traditional investments typically cannot reduce all of these risks. A fixed index annuity with an income rider can help you reduce, and in some cases potentially eliminate, these risks.

You have just been given the facts, the bottom-line answers, the secrets about your money from some of the top financial professionals specializing in retirement planning in the nation who have over 425 years of combined experience. How do you honestly feel after reading the “Cliff-Notes” of what’s in this book?

  1. You may feel shocked because no one has ever told you these things, in fact they have probably told you the opposite!
  2. You may feel scared because you now know the truth and you may have based the fate of your financial success during retirement on misinformation, bad advice, or simply lies.
  3. Or like some lucky people, you may feel exhilarated, you may feel very interested in learning about your money, you may feel that very warm ray of hope, because your eyes have been opened to what has really been happening to your money all these years. Many retirees and pre-retirees we meet with have told us they have always had feelings about their money that things just didn’t seem right, what they were told by their advisors didn’t feel comfortable and didn’t answer their questions, and what was happening to their money year-after-year just didn’t make sense.

Our job is to help you for the first time in your life understand your money so that you no longer have to worry about it. We have just given you the summary, now we will provide you all the supporting data to prove all of the above statements.