It’s safe to say planning for retirement is one of the best things you can do for yourself. That being said, it can be a confusing process. There are a lot of elements to consider when determining how much money you’ll need. Not only do you have to think about inflation and how much your annual retirement income will be, but you also have to consider how long you’ll live. Two million dollars sounds great but what if you live longer than your retirement money allows? Most people want (and need) to maintain an income, not assets when they retire.
One way to ensure you’re in control of your retirement fund is by understanding the two economic powers that come into play. From there, you can create a strategy that marries the two together and puts you in the best position for your impending retirement. These two economic powers are investing in the economy and actuarial science.
For the most part, we’ve been conditioned to lean toward investment retirement accounts like a 401(k) or Roth IRA. While this is the most widely utilized way to plan for retirement, there is another way to grow a nest egg for the next season of your life. Before we get into that, though, let’s take a look at each of the economic powers on their own.
Economic Power #1: Investing in the Economy
The first economic power is the economy, which usually entails purchasing stocks and bonds to grow wealth. These investment portfolios are then managed by a financial broker, who handles the process of investing your money in the market. While this is a commonly used strategy, it does have its drawbacks.
The biggest drawback associated with investment portfolios is time. It may take years to grow wealth relying only on an investment strategy, but you could lose it all in a matter of seconds. When the market crashes and the funds you’ve spent 12 years building up are gone, recovering that wealth will take just as much time if not more.
Another drawback is the fees associated with an investment portfolio. Relying on a broker to manage your money comes at a price; namely, a percentage of the total value of your investment portfolio. The second hit to your retirement savings is a bit of a sneaky one. Every dollar taken from your portfolio to pay your broker is one less dollar compounding over time.
Economic Power #2: Products Backed by Actuarial Science
A lesser utilized way to plan for retirement and grow generational wealth is with products backed by actuarial science. In this case, actuarial science refers to using mathematical and statistical methods to determine risks related to insurance and finance. Compared to an investment portfolio, these products and strategies come with a solid guarantee the money will be there when you need it.
This form of retirement planning includes methods like the Infinite Banking Concept and other insurance-based financial planning strategies. These strategies work by utilizing products like a properly structured whole life insurance policies as a means of increasing wealth over time. By purchasing a properly structured whole life insurance policy you are able to borrow against it in order to finance big purchases. Rather than paying interest to financial institutions, you’re paying that interest to yourself as you put the money back into your policy.
Use Them Together for Maximum Benefits
One of the 7 Principles of Prosperity is taking control of your money, and it’s an important one. When relinquishing control of your money to financial institutions, like an investment broker, you’re no longer in control of how your money is put to work. Managing your money with a hands-off approach creates wasted opportunities to grow wealth. But, when using this strategy in combination with science-based products, you can take back control while achieving great results.
While a common strategy, relying solely on investing in the economy to prepare for retirement has disadvantages. It’s important to have a plan for when the market is in a downtrend or you need cash fast. Why? Well, withdrawing from investment accounts while the market is down can create a “death spiral.”
Luckily, there is a way to avoid the death spiral and fallout of taking a distribution of your investment accounts. This is where an insurance-based product like a properly structured whole life insurance policy comes into play. Rather than investing your money in the economy or products backed by actuarial science, the two can be combined to work in perfect harmony. Doing so creates a solid plan for growing wealth and ensuring you have an income during retirement, not just assets.
If there comes a time when you need cash fast, you won’t need to turn to your investment accounts. By utilizing an insurance-based financial product, you’re able to use it as a supplement to your investment strategy. So, should you ever need access to cash fast and the market is in a downswing, a properly structured whole life insurance policy can protect your investment by allowing you to withdraw from your account without penalty. Doing so protects your investment portfolio until the market recovers. It’s a win-win!