What comes to mind if we asked you what your biggest retirement risks are? Many people quickly get to questions around how much they need, and what kind of growth on their assets will be needed. Surprisingly, we hear a lot less conversation around how big of a role taxes will play in retirement, and even less around effective tools for increasing how much you can invest for retirement.
Like it or not, you are living with 3 BIG RISKS to your retirement savings:
Investment Risk
+ If you’ve been in the stock market, you’ve lived through this risk!
Tax Risk
+ Can you predict your retirement tax rate? How much will the government take? 30%? 50%? More?
Capital Risk
+ Simply put, it’s not having enough money to fund your retirement goals.
+ According to one of the largest 401k providers in the country, 74% of your income in retirement is driven by how much you invest and only 26% is a result of your investment returns.
For the rest of this article, we will focus primarily on Capital Risk. Let’s use an example and say you want to take $200k net per year income in retirement:
+ You’ll probably need at least $275k taxable income to net $200k after tax.
+ Assuming income from age 65 to 90, that would total $6.87M needed for retirement.
+ This is why most people’s retirement needs will be 6-9 times more expensive than their house.
+ Why then do most retirement plans expect you to entirely self-fund something that will cost so much more than your house?
You probably used bank leverage to buy your home, right? Have you considered it for funding your retirement needs? Like an employer matching your 401k contributions, we’ve worked closely with dozens of banks to provide a match on your contributions towards your future retirement needs.
Example: Say you could commit $25,000 annually for 5 years ($125k total). We have a specialized lending solution that will provide up to a 3 times match on your contributions ($375k total) resulting in $500k working for you towards retirement rather than just $125k.
Why will banks do this? Because they are comfortable with the safety of the asset you are borrowing on. How comfortable? Well, these loan terms have NO additional collateral, NO interest payments, NO personal loan qualifications, NO personal guarantee and currently we are getting these loans at only 2.75%. That’s as low as 30-year mortgage rates, but could you get a mortgage loan with no personal guarantee or financial qualifications for the loan? That tells you a lot about how the banks view the safety of this strategy.
If you combine solid returns, with tax efficiency, and bank leverage you don't have to knock it out if the park to get more in retirement. You may be thinking, “This sounds too good to be true” or “Why haven’t my advisors told me about this?” The reality is that these are tried and true strategies that a growing number of people are taking advantage of.
The bottom line is, with the potential of getting 60-100% MORE retirement income for you and your family, it’s worth investigating!
In our next article, we’ll focus more on Tax Risk and Investment Risk and how to address those. Please contact us with any questions and for a white paper on the topic. 303.645.40800, Impact@ImpactWealth.com
Your Impact Wealth Team
What Determines How Much You Will Have To Spend In Retirement?
How Much You Invest, Not Where You Invest It!
Current Focus Is On
Where You Invest 26%
Your Focus Should Be On
How Much You Invest 74%
Green box: Amount Invested, Red Box: Investment Return
Source: Retirement Success: A Surprising Look into the Factors that Drive Positive Outcomes by David M. Blanchett, QPA, QKA, and Jason E. Grantz, QPA
Disturbing Facts
+ 90% of all households earning $200k+ are under saving for retirement
+ Average savings rate in the US is 5% - Top 10% of income earners average savings rate of 9-12%
+ Required savings rate to maintain lifestyle for a 45 year old is 35%
+ The issue is not what is the best investment...It’s a fundamental shortage of cash