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How To Take the Most Income Without Ever Running Out

Ron Tetley

While attending classes to become a financial advisor, my teacher said something that completely changed my life. It changed the way I look at financial planning as a whole, and how I have directed my career path to this point. As a result, I’ve had the privilege and the pleasure of helping many people.

I was sitting in my class one day, taking notes, and the teacher said: “Someday, you will be sitting at your desk and one of your clients will be sitting across from you, telling you that they are ready to retire. They will tell you they need to start taking money out of their retirement accounts in order to supplement their income. And so, because you are a financial advisor, they will ask you, ‘What’s the best way to withdraw money so I never run out?’”

I have to tell you, this teacher had my attention. I listened with keen anticipation for the answer. My pen was poised above the notepad and I was ready to transcribe this golden nugget of information that would help all my future clients achieve true retirement success. I underscored the question, “What’s the best way to withdraw money so I never run out?” I underlined the question with two red lines and had put a dash after it, eager for the answer. But my heart sank when I heard it.

“Just don’t ever take out more than 5% and they will be all right,” said the teacher.

“Really? That’s it?” I nearly said out loud. “That’s your nugget of wisdom for me to share with my clients that will ensure their success in retirement for the rest of their lives?”

I’ve always been good with numbers. I think in numbers. I’m always calculating this and running numbers for that.

“Your brain must be a terrible thing to live with,” my wife, Teresa, said to me one day. I reminded her that she does, in a way, live with my brain every day. But I digress.

When this guy made that comment, my brain immediately went to work trying to calculate how that could possibly work, but to no avail. I couldn’t get the math to add up. Then, I did what you should never do in school. I raised my hand to ask a question. I’m not sure if he thought I was questioning his authority, his intelligence, or what, but he began to verbally beat me up in front of the entire class for even questioning what he said. After all was said and done, his advice to me was to just believe it “because it works 90% of the time.” So I shut my mouth and leaned back into my chair. But I couldn’t get that 90% thing out of my head. I mean, if you were getting on an airplane and I was checking your ticket at the door, and I told you, “Great news! We have a 90% success rate in take offs and landings,” would you get on the plane? I don’t think so.

If I was your waiter at a restaurant and you asked me how the food was here, and I said, “Great news! We have a 90% success rate of not poisoning our customers,” would you place your order, or would you beat a hasty retreat to the nearest exit?

You see, 90% isn’t good enough. Especially when we are talking about rest-of-your-life money. So began my quest to find the answer to what I observed to be the number one concern in retirement. In planning sessions, I usually hear the question expressed in two ways:

(1) When can I retire?

(2) Do I have enough money to retire?

It’s actually the same question, isn’t it? People want to know how much money they can spend every month and never have to worry about running out. The key to having a successful retirement plan is, in a word, income. It’s the income you have, or don’t have, in retirement that will determine your lifestyle. Without a doubt, there are other pieces to the retirement plan puzzle, but the income piece is the keystone of the arch. Everything else hinges on it.

Anyone who bakes will tell you that a cake without eggs is not a cake. Leave out this one ingredient and you’ll end up with a spongy substance lacking in taste. The same can be said of retirement income planning. A retirement income plan without the key ingredient – guaranteed income – just isn’t a good retirement plan.

People ask me all the time, “Ron, what investments do you use in income plans?” I’ve seen just about every kind of investment you can name applied to income planning. Sometimes it reminds me of that old expression, “trying to fit a round peg into a square hole.” As an investment advisor representative, I have access to all of them. My certification status even allows me access to investments that brokers and bankers cannot offer. But, when someone comes to my office asking the burning question that seems to be in the forefront of their minds – “How much money can I withdraw in the way of income without ever running out?” – they don’t seem to be interested in projections or guesswork. They usually want to see guarantees – retirement income guarantees

Let’s look at a case study:

John and Mary Smith are both 59 and want to retire at age 62. John gets a small pension ($1,200 per month) and a small Social Security check ($900 per month). Mary gets a small Social Security check ($500 per month). They have three major concerns:

  1. Their Social Security income and the income from their pensions will only cover daily expenses.
  2. In order to maintain their current lifestyle in retirement, they need an additional $15,000 per year.
  3. Both need to know they won’t outlive their money.

Surveys show that the number one fear among those approaching retirement is not dying too soon, but living too long. At some point, we all come to terms with the fact that we will die, but what if we outlive our resources and are forced to spend those last years of our life in poverty? What if we lose our independence and dignity, and become a burden to those we love? I’m always amazed at the lengths to which people will go to insure their homes and automobiles against the unknown, but they refuse to take steps to insure their lifestyle.

Think about it. If your income was insured so that no matter what happened, you still got your monthly check in the mail, how would that make you feel? Would you breathe a little easier? Would you sleep better at night?

This is why John and Mary Smith worked so hard all their lives to put money aside for their future. They wanted to make sure they have the money they need in retirement. They knew their pensions and Social Security wouldn’t be enough. They cut corners and did without so that they could save for retirement. And they did a pretty good job. They were just a few dollars away from having accumulated $450,000 in their retirement accounts.

After careful analysis, we were able to determine that it would take $350,000 of that total to give them a guaranteed lifetime income for the rest of their lives that would ensure they would be able to enjoy the same lifestyle in retirement that they did before they retired. This left them with what I like to call an ECP (Emergency Cash Position) of $100,000. Not a bad little slush fund, eh? In fact, it would have to be a pretty dire emergency for $100,000 not to cover it.

So we take the $350,000 and use it to fund “Advanced Income Solutions,” our proprietary retirement income planning program that represents a culmination of all of my years spent searching for the best way to take income out of a retirement savings account without depleting the principal (all because that teacher yelled at me). The investments I use have three common denominators. They are guaranteed, insured, and interest bearing only.

Guaranteed means your money is always there. Insured means that even if these banks go out of business, you will still get your money back. Interest bearing only means that your money is never “at risk” in the market. You have reputable companies putting it in writing that they will pay you every month, for as long as you live (guaranteed), the amount agreed upon that matches your wishes. Now you have a plan you can live with.

About the Author:

Ron Tetley is an Investment Advisor Representative and licensed insurance agent with comprehensive knowledge of retirement, wealth enhancement, and estate planning issues. Ron is a well-known financial educator in Akron, Ohio. Since 1994, Ron has specialized in helping individuals avoid common, costly financial mistakes. The majority of his time is spent meeting with prospective and established clients. Ron resides in Wadsworth, Ohio with his wife, Teresa, and together they have four children.

Call (330) 253-6880, email, or visit his website to see how you can get a free copy of his book “Comparing Apples To Tacos – How to know when Wall Street isn’t playing fair with your lunch money.”


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