min read
Braden Mosley

Afraid of outliving your income? Here’s one solution

Sometimes, a book doesn't just pass through your life - it pivots it.

I recently read "Die with Zero" by Bill Perkins.

In the book, what started with an epiphany in the wake of his best friend's sudden death transformed into a philosophical shift in the way he viewed finances. A shift so strong it has positively influenced the lives of countless other Americans.

Here's the main idea: We spend so much time accumulating wealth that we forget to live. Instead of spending our life source (time and energy) to optimize for wealth accumulation indefinitely...

We should optimize our life source to build wealth in a way that optimizes for experiences.

In simple terms: don't live to work, work to live.


In the famous lyrics of country singer Kristian Busch:

"Never seen a hearse with a trailer hitch"

A common fear in retirement: Outliving your Income

Every day, I help retirees gain peace of mind about their health and wealth.

The fear of outliving your income can feel like a weight on your chest.

The last thing you want is for your loved ones to turn into caretakers.

The last thing you want is financial pity.

You want to remain as independent as you can.

There is one investment in particular that was made to resolve this very fear.

Lifetime Annuities.

A type of insurance that can be so helpful, Bill Perkins dedicated nearly an entire chapter to it in his book "Die with Zero".

Before I explain how it works, let me be very clear:

No finance/insurance product is one-size-fits-all.

This is not the end-al-be-all solution for everyone.

Consult with a professional.

Is a Lifetime Annuity right for you?

Imagine you bought a money tree.

You paid $200 for the plant, and every month, you can pick a dollar from it.

Not to mention, you don't have to water it! It will continue to grow new dollars for the rest of your life.

That is what a Lifetime annuity does on a larger scale.

You pay for the product, it will give you a guaranteed monthly income in return.

"But, it won't outperform the market..."

A common argument against annuities is that you could get a higher return in the stock market.

This is particularly the case with Dave Ramsey's followers.

This is not wrong, annuities generally offer 0% - 6% annual return, whereas the stock market has averaged around 8-10% over the last 20 years.

But it completely misses the point!!!

In the stock market, there are constant fluctuations. One year you could be up 10%, the next you could be down 20%.

Trying to draw a stable income from the stock market is not a game you want to play.

Let's say you draw $1,500 from your stock market account monthly. Let's say your stocks are up 8% overall this year... don't celebrate just yet.

One bad month (an election, a pandemic, etc), and you're drawing your $1,500 for a major loss. A loss that could wipe out your entire 8% gain and then some.

Not to mention, most annuities offer a floor of 0% return rate. This means that, no matter how negative the market goes, your annuity bottoms out at 0%.

Eliminating the downside is very important when your goal is a steady income.

Tax-free rollover from retirement accounts

Most retirement accounts (401k, 403b, IRA, etc) allow you to rollover funds into an annuity with no tax penalty.

For many people, their money tree is sitting in their retirement account.

Drawing directly from this account is an option, but often ends up leaving lots of money, and therefore experiences, on the table.

In "Die with Zero", Perkins states:

Retirees who had $500,000 or more right before retirement had spent down a median of only 11.8% of their wealth 20 years later or by the time they died.

Retirees with less than $200,000 saved up for retirement spent down only 25% of their assets 18 years after retirement.

Across the board, we aren't good at calculating how to maximize our wealth for experiences towards the end of life.

I understand some people want to leave money to their family, but most go about it wrong. I'll dive into that in another newsletter.

This is where insurance companies can use the law of large numbers to formulate the optimal amount of income they can give you every month.

Rather than trying to strategically spend down your savings and investments to hit zero the day you die (most likely leaving 75% to 90% of it on the table), these products help you optimize every last cent.

I hope this helped you understand the value of annuities.

While they are not for everyone, they are an incredible tool for those who are afraid of:

  1. Outliving their income
  2. Not effectively spending down their wealth
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