Leverage For Income + Leverage For Growth (a 2+2=5 scenario)

(don’t forget to checkout the video of this blog too)

I studied mechanical engineering in college so math is how my brain works.

Everything I do is centered around math and numbers, and the nice thing about numbers is that numbers don’t lie. ❌

Working as a financial planner it is my job to crunch the numbers and find opportunities for my clients.

And trust me, I am ALWAYS crunching the numbers.

That’s why when I talk retirement income planning with people, they must understand the importance of leveraging some of their money for INCOME and leveraging the rest of their money for GROWTH.

This strategy allows you to mathematically…

• Maximize your income
• Maximize your flexible spending money in retirement
• AND provide a contractual guarantee that you will NEVER run out of money in retirement (which is retirees number 1 concern).

This is what I call a 2+2=5 scenario, meaning there is a mathematical benefit to both your retirement income (you’ll be able to take significantly more retirement income) AND the growth potential of your retirement money.

These 2 strategies work together like peanut butter and jelly…😎

For most people, retirement income planning is an after-thought to saving for retirement, but the reality is that unless you have $15 Million dollars saved for retirement, then allocating 60% of your retirement savings to income is the typical sweet-spot that allows you to maximize income and discretionary money in retirement.👏

The reason this works mathematically is that you are allowing 2 different financial institutions to leverage THEIR strengths for YOUR benefit:

✅ First, you’re leveraging the actuarial, risk-pooling strength of an insurance company (which allows you to provide maximum retirement income for about half the price you can do it on your own with an investment account)!

✅ Second, you’re leveraging the growth potential of the stock market (because you have guaranteed income in place, you can invest more aggressively to achieve higher returns AND you give yourself much more flexibility for spending your retirement money how YOU CHOOSE).

Let’s look at the math on why this actually works… (compare this REAL example for a 65-year-old below with $3M saved for retirement)

✅ Scenario A (all retirement money in the market)

$3M in the market can only safely provide 4% per year of retirement income → $3M * 4% = $120k/year (this still leaves you a 14% chance of running out of money)!

✅ Scenario B (60% income & 40% growth strategy)

Give 60% ($1.8M) to an insurance company built to maximize income = We take $1.8M into the insurance market and shop for the absolute best guarantee.

As shown below, the highest immediate guarantee is $123k/year of lifetime income (remember, this not only provides more income than the market, but it also ensures you a 0% chance of EVER running out of money in retirement)

Here’s where this strategy really provides an amplification of benefit:

Having a guaranteed income source leaves you with the remaining 40% of your retirement assets ($1.2M) which can now be invested more aggressively in the market for GROWTH and are available (in their entirety) to provide a surplus of flexible money to spend however you want in retirement…. 🥳

But HOW⁉️

Because the market is built to GROW your money, which requires volatility.

This is what markets do, and what they do best.

But, when you try to force the market to provide you with retirement income, it is very inefficient at it.

That’s why you transfer the income portion of your retirement to an insurance company (which is built to absorb volatility and provide a guarantee).

In this case the insurance company guarantees you maximum income that you can never outlive in retirement.

This is why the optimal retirement strategy is to allow an insurance company to do what they’re best at, while also allowing the market to do what it’s best at….

….. All for YOUR benefit.