Expand Your Outlook on Financial Planning
Imagine living a life of financial independence. Imagine having no money worries, knowing you have an income stream you can’t outlive. Think that’s impossible and just a daydream? Think again. When you implement some key financial strategies, anyone can have financial independence now and in their retirement years. (* See footnote at the end of this article.)
Know Where Your Money Currently Is
Chances are you have a 401(k) or IRA to which you contribute. They’re great vehicles to start your retirement plan. If you don’t have one, start one right away. If you do have one, don’t let it be your only option for financial planning. While a 401(k) or IRA is the perfect starting point for most people, if it’s the only place you’re putting your money, you may not be financially independent one day.
Realize that most 401(k)s and IRAs are invested in the stock market. But the stock market is a risky place to put your money. You’ve likely heard “market experts” say that stocks, on average, provide a return of about 10% annually. But that “10% return” number is averaged over more than 100 years and no longer applies in the 21st century. Today, your typical annual return from investing in the stock market is closer to 5%.
Be aware, too, that if you want to earn higher returns, most brokers advise you to take more risk. But that’s simply not true, as more risk won’t help you become financially independent. The fact is that there’s no reason for your money to be at a higher risk than you’re comfortable with. That’s why you need to find out exactly where your money is. How risky is the investment? Are you comfortable with that? If not, realize that safer investment options are available.
Choose Safer Investments, Such as IULs
When you look into safer investments with less volatility, be sure to ask about IULs (Indexed Universal Life Insurance policies). Unlike traditional life insurance policies that only offer a death benefit, an IUL combines a cash growth account with the traditional life insurance policy. How? An IUL compounds market-linked interest on all cash values paid in that are greater than the term insurance premiums. This gives you access to your principal and profits during your lifetime—or an income stream during retirement.
Even better, since it’s a life insurance product, you don’t
Kris Miller is Estate Planning Expert and Safe Money Strategist at Trusts Unlimited.
pay taxes on the money you withdraw. This is a huge advantage, because most people realize that taxes will go up in the future. Why have a large portion of your retirement income eaten up by taxes? You’ll need that money to live on, so a tax-free option is ideal.
An IUL also offers less volatility because the cash account portion of the IUL accrues interest based on the upside-returns-only of a market index, such as the Standard & Poor’s 500. In other words, when the market index drops, you don’t lose your principal. This is what makes them such a safe investment. When the market rises after a previous drop, you continue to accrue new growth without having to rebuild your principal amount.
Of course, nothing in life is perfect. IULs are no different. Since it’s a life insurance product, your application still has to go through underwriting. So if you’re living with some health challenges, you may be denied the policy. Additionally, if the market doesn’t perform, the underlying costs can cancel the policy.
While anyone can get an IUL, they are ideal for people in the 35-54 age bracket. This allows ample time for the money to grow (the average interest rate on an IUL is 6% to 8%).
Save More Than You Think You Can
Most people put aside money for their future so they’ll be “OK” when they retire. But why be just OK when you can have financial independence? No matter how much money you’re saving right now, chances are you can save a little more without any discomfort to your lifestyle. The key is to adopt a savings mindset.
When you have a savings mindset, putting money aside for your future financial independence is not just about adhering to a certain percentage rule, such as saving 10% of your income. It’s about looking at saving like a game—continually challenging yourself with, “How much can I save this month?” When you approach saving for your future like a contest, you’ll have an added motivation to do more for yourself. You’ll look at every purchase and verify whether you really need it. When you get to this mindset level, the amount of money you put aside will skyrocket, as will your future financial health.
Be Financially Free
While the future may seem like a long way off, it’s really just around the corner. So take the steps to ensure your financial independence today. The sooner you start, the easier it’ll be to build an income stream you can’t outlive. n
* The information in this article is provided for information purposes only and is not meant to be acted on without advice from an accountant or personal financial advisor.
The American Payroll Association (APA), www.americanpayroll.org, is the nation’s leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 23,000 members, APA is the industry’s highly respected and collective voice in Washington, D.C. Get more information at www.americanpayroll.org.