What If You Can’t Afford To Retire?

““Cessation of work is not accompanied by cessation of expenses.”” – Cato the Elder (2nd centuryB.C.)

Aging baby boomers are starting to realize that there is very little chance most of them will be able to retire at 55 or 65 and live off their savings. That’s because most of those closing in on retirement don’t have enough saved. A recent survey conducted by The Insured Retirement Institute found the following:

* Only 60 percent of baby boomers report having any retirement savings
* 36 percent said they plan to retire at 70 or later
* 27 percent are confident they will have enough for retirement

The survey found that 27 percent of baby boomers are confident they will have enough money to last through their retirement, down from 33 percent a year ago and 37 percent in 2011. Only 6 in 10 boomers report having any retirement savings, down from roughly 8 in 10 in previous surveys.

Of those who were willing to answer, about 40% have an investable net worth of less than $50,000, 60% less than $100,000, and 80% less than $250,000.

If you figure on making 6% on your money, this means fewer that one out of five Americans who are nearing retirement age have the wherewithal to enjoy a passive retirement income of more than $15,000.

How well can you live on $15,000 a year?

And it’s only getting worse. During the Great Recession, government numbers showed that Americans were in a net spending rather than saving mode. Fortunately, that has turned around but the vast majority of Americans are not rich enough to retire and they are getting less rich every year.

I'’ve made the argument that retirement,– the idea of not working, of living off passive income – was a short-lived phenomenon in this country. It was sold to us by the government and by the banking and the insurance industries, yet it only worked (and only partially) for one complete generation:– the parents of the baby boomers, who benefited from the appreciation of their homes.

Other than that, most Americans have worked most of their lives,– just as most Europeans, most Asians, and most Africans have done since recorded history.

Still, it’'s a great fantasy and one you should not give up on entirely.

If you work hard and invest your savings, you can still retire comfortably. But you’'ll have to do those things over a long period of time,– which you may not have. (Or you’'ll have to get lucky, which you shouldn'’t count on.)

But even if you are able to stop working and live off your savings, retirement may turn out to be less than the wonderful experience you’ve imagined. A former colleague of mine retired with a personal net worth in excess of $20 million about five years ago. Since that time, he has done everything you can do in retirement:– traveled the world, spent time with his family, played a lot of golf, etc. But the other day, he pulled me aside and said, “Ray, let’s do something together. I’ve got to get my blood moving again.”

He wasn’t talking about golf. And he’s not alone. The golf courses of America are full of lonely retirees fantasizing about the good old days when they were involved in something meaningful.

And they are right. There is nothing more rewarding than working on something you think is important. And there’'s nothing less satisfying than whiling away your time with distractions, waiting for your body to shut down.

Someone smart once told me that they should invent a new period of life for Americans today. After the working years, there should be something called the Semi-Retirement or Post-Daily Grind or the Golden Working Years, during which you get to (a) do something you really enjoy doing, (b) do it as many hours as you wish, and (c) get paid good money for doing it.

In the Internet age, I believe this is going to be possible for many of us,– and it will definitely be possible for you if you start planning on it now. It doesn’t matter if you are 55 or 35, there is a way to shift the course of what you are doing now toward some rewarding activity that meets all your needs:– intellectual, physical, emotional, and financial.

The trick is to do work that you love. And it may be that the work you are doing now isn’t lovable. A  Rutgers University study found that 70% of those asked would be OK with working into their “retirement years” if they could find some part-time work they could do outside of their current employment.

Work that’s enjoyable (probably something different from what you are doing now) and work that can be done part-time (20-30 hours a week). Does 't that sound like good “unretirement” work to you?

Let’s add two more qualifications:

* The work should be in a desirable location.

* It should enable you to associate with agreeable people.

That meets my three standards –to enjoy what you do, where you do it, and with whom you do it.  

If you can find work that meets those requirements and pays you a reasonable financial reward, you will probably be very happy to forget about retirement altogether,– at least for a while.

In future messages we will talk about how to go about finding such work. Right now, I'’d like you to think about it. What would you do if you could do anything? Where would you do it? What kind of working relationships would suit you best?

It may be that you will decide to become a free-lance copywriter. Or maybe you will work as an Internet artist, or a cyberspace interior decorator. Your love of horticulture may be transformed into a part-time source of income for you. Anything is possible.$

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If You Want to Retire in the Next Five Years, Do These 9 Things Now

Time for one last push to get you where you want to be

By the time you hit 60, you’ve hopefully built up a significant savings balance. But even if the number is big, you have to be careful about protecting what you’ve built, while still taking advantage of opportunities where you can find them. Here are some ideas to help you get the retirement you want:

Have a career Plan B. The last years of your career will be crucial savings years, but they can be perilous. On average, unemployed Americans 55 to 64 have been jobless for 11 months. So to help ensure you can work until your planned retirement date, lay the groundwork for a backup plan—whether it’s a short-term project, freelancing, or a business idea.

Downsize the house. As seen in the chart below, housing accounts for the largest share of spending in retirement. Swapping a $250,000 house for a $150,000 one puts cash in your pocket—and frees up $3,250 a year in taxes and upkeep, according to the Center for Retirement Research.

Want to retire early? Factor in better health. Ending your career well before you turn 65 requires extra preparation, for a pretty obvious reason: You have more years to fund. Another challenge, though, is that you’ll probably be in excellent health and active for more of that time. That’s also why you’d like to do it, of course, but it means that you are likely to spend more. Younger retirement-age people spend 36% more than those 75 and over, according to Census data. Plan for the extra spending with a more ambitious savings goal. Deciding whether to retire early now? Add a generous allowance for the cost of your travel plans and hobbies to your regular budget—theretirement-expenses worksheet at Vanguard.com is a helpful tool—and make sure it all still fits with a safe spending plan.

Take some profits. You spend a lifetime building wealth, yet success and failure can come down to a handful of years—those just prior to and after you stop collecting a paycheck. The odds say that given how long retirement is, you should keep the bulk of your portfolio in equities. Yet you don’t get to play out thousands of scenarios. you get only one try. Dial down equities to half or less as you near this danger zone. You can always take on more risk after, when the stakes are smaller.

Don’t eat the seed corn. Common advice for retirees is to withdraw 4% of savings in year one and then adjust for inflation. But due to low yields, says economist Wade Pfau, that’s too aggressive now. A 2.9% withdrawal gives you a 90% chance of a 50% stock/50% bond portfolio lasting 30 years. If that seems low, start higher, but protect your capital by spending less in bad market years. 

Put your assets in the right place. Once you’ve maxed out your IRAs and 401(k)s, use taxable accounts for the most tax-efficient investments in your mix. They include index and buy-and-hold equity funds that trade infrequently and generate few capital gains distributions.

Rethink your target. If you’re close to retirement but don’t like the look of your balance, take heart. Most retirement advice and online calculators assume you are going to spend the same amount, adjusted for inflation, each year after you stop working. In reality, spending tends to decrease as you move through retirement, according to David Blanchett of Morningstar Investment Management. When working out your retirement budget, make a distinction between fixed, essential costs and those you may have more flexibility with.

Maximize Social Security. What if you could earn 8% a year on your money risk-free, and all you’d have to do is be patient? Well, there is such a thing: Social Security. A person who would get $24,000 a year tapping his benefit at 62 can expect that sum to swell to $42,000 by waiting until 70. That looks even better when you consider that the payment lasts even if you live a long, long time.

Avoid taxes in retirement. There may be years when you fall into the 15% bracket ($74,900 taxable income for couples). Take advantage by selling your long-standing holdings with big gains. why? The long-term capital gains rate for those in the 15% bracket or below is 0%. That’s right: nada.

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10 Tips for Retirement Savings

Retirement just kind of happens. If we live long enough, we’ll eventually reach a point where we either leave our careers, opt for another, less intense work life, or finish working for a living altogether. There was a time when companies included pension plans in their compensation packages and employees could look forward to receiving a percentage of their salaries to live on for the rest of their lives. Social Security benefits used to be enough to offset the cost of living, so that a person could retire based on Social Security income alone. In the 21st century, neither of these hold true any longer.

Instead, it’s up to the individual to create a comfortable retirement for him or herself. Luckily, those who still look forward to retirement will have the longest post-retirement life spans, thanks to continued advances in health care. In other words, it’s a good idea to do as much as possible to ensure that you will have a secure and enjoyable retirement.

Learning precisely how to do that can be daunting. Speaking with a certified financial planner or advisor can certainly help, but there are steps you can also take to help create a bright future after your working life ends.

10.) Make a Plan for Retirement

Saving for retirement can be a bit difficult to figure out at first. If you need to get a handle on what you need to do to create a large nest egg, you need to begin with a plan. The U.S. Department of Labor recommends that you start by determining your net worth — the total value of your assets minus the value of your debts (things like the value of your house minus the value of what you still owe on your mortgage). You want this number to be positive, with your assets worth more than your debts. Don’t be disconcerted if that’s not the case. Even if you find your net worth is negative (as many people do), start there to figure out what you can do to make it positive.

First, determine what you’ll need to contribute to reach your retirement goal. You want a nest egg that can annually deliver between 70 to 90 percent of your pretax, pre-retirement salary. How much will you need to contribute to reach that goal? More importantly, how will you ensure those contributions are made?

Next, you need to create a budget of your recurring expenses and include your savings contributions as a monthly expense. A budget will also clearly show you where your money’s going and should also provide some insight into what debts should be dealt with first. Now that a plan’s in place, you’re going to need to change your mindset in order to stick to it.

9.) Get in the Saving Mindset

Saving up for years just so you can make 70 to 90 percent of your old salary annually when you retire sounds like a mind-boggling idea. How can you save that much while you’re still living your life before retirement? Fortunately­, there’s compound interest — small amounts of money contributed to a retirement savings account like a 401(k) or Roth IRA that can grow by leaps and bounds over the course of a few decades. Still, you have to plant a seed to grow a tree, and when it comes to saving for retirement, it can be difficult to have the discipline necessary to pay now in order to benefit later. This is where a savings mindset comes in.

Look at the budget you prepared as part of your plan. Is a significant portion of your monthly income being sent off to credit card companies? Then you need to become an attack dog, bent on aggressively paying off your credit card debt. One of the great ironies of saving well is that it often entails doing some serious spending, at least at the outset.

You should designate an amount of your pretax income to contribute to your retirement savings on a monthly or bi-weekly basis and have it taken out of your paycheck, just like your taxes. It’s easiest to save money when you don’t have it in your hands; you’re effectively taking the decision of whether to save that money out of your control.

Take on the outlook that the money you save for retirement doesn’t exist, except for in the future. In other words, stay out of your savings account.

8.) Take Advantage of Retirement Plans

It may seem like a no-brainer to take advantage of a program at work where your employer matches your retirement fund contributions, but not everyone sees it this way. In fact, about one-third of people who have a 401(k) plan available at work don’t contribute. You should consider doing so, especially when employers offer contribution matching programs. Under these programs, not contributing is like turnin­g down free money — with compound interest.

There are a number of types of retirement savings account plans that employers can offer. Among the most popular are the 401(k) plan and the IRA (individual retirement account). Both have their advantages (see Tip 6) and disadvantages, and are widely available at most mid-sized to large companies.

Those who work at small businesses have options as well, as do the self-employed. Check with your employer, a financial consultant or the federal government about various available retirement savings accounts. You might also consider contributing to more than one account. Diversification is an essential ingredient to saving a nest egg.

7.) Diversify, Diversify, Diversify

The saying, “Don’t put all of your eggs in one basket,” couldn’t apply more to saving for retirement. Financial advisors, investment bankers and economists will all tell you that the more diverse a portfolio, the safer it is. A person heavily involved in just one type of investment is more vulnerable to financial problems if the markets associated with that investment tank.

The most common diversification suggestion is to divide a portfolio among stocks (which can offer big pay-offs but can also be high risk) and bonds (Treasury bills that offer little to no risk, but pay out less than stocks). Depending on who you talk to, you’ll hear different percentages for splitting your portfolio between stocks and bonds. One good rule of thumb is to keep your bond percentage close to your age adjusting as life goes on; so if you’re 30, about 30 percent of your portfolio should be in bonds. By the time you retire, 60 to 70 percent of your portfolio should be in bonds.

Don’t stop with just stocks and bonds when diversifying your portfolio. Look for other ways to spread risk among your investments. Investing in largely unrelated sectors, like pharmaceuticals and telecommunications, is a good idea. You should also consider investing in economies throughout the world, rather than companies in just a handful of countries or a single region.

6.) Consider a Roth IRA

There’s long been a debate over which is preferable — a Roth IRA, where savings are taxed when they are contributed, or a 401(k), where contributions aren’t taxed until they’re removed, or until the account matures.

Both make sense, and the 401(k) usually wins because enough interest has accrued over the life of that account to offset (and then some) the taxes levied against it upon maturity.

Since the recession of 2008-09, however, the assumption that a 401(k) will always pay off has come into question. Also, with the unparalleled U.S. government intervention in the markets and in banks, it’s a pretty sure bet that younger workers who have just started to save for retirement will see much higher taxes to pay for that financial intervention by the time their 401(k)s mature.

These two factors make Roth IRAs worth considering. While paying taxes up front (and thus, having less to invest) might hurt now, it’s worth crunching the numbers once more. You might find you’ll lose less money in the long run.

5.) Manage Your Mortgage

If you own a home, you’ve got both a huge debt and a very valuable asset. You can use a home to your advantage as both. If you’re a young saver and own a home, it’s a good idea to keep an eye on interest rates. If they begin to fall, consider refinancing your mortgage to a lower rate. Using any extra money that formerly went to the recurring monthly expense of your higher mortgage payment can then go towards your retirement savings contributions. It’s a good idea to do the math first, however. Paying off mounting credit card debt will likely prove a better use for the extra income, since credit cards almost always have a higher rate than a home mortgage. If the opposite is true for you, refinancing your mortgage is definitely a good idea.

Avoid the temptation of taking out a second mortgage to consolidate your debt unless you trust your spending habits have been curtailed to fit a saving mentality and the cost of paying off your credit cards and other debt is more expensive than the additional mortgage payment each month.

Ultimately, the best thing you can do with your mortgage is to pay it off by the time retirement rolls around. The loss of a recurring monthly expense in the hundreds or thousands of dollars like a mortgage payment is an instant and substantial increase in income.

4.) Cut Investment Fees

John Bogle, the founder of the Vanguard investment firm (which holds more than $1 trillion in assets), points out that investment constitutes a $600 billion industry. That’s not in investment, that’s in fees alone. To paraphrase Bogle, no matter how the markets are doing, investment firms still make more than half a trillion dollars per year.

Cutting investment fees as much as possible is one sensible way of protecting a nest egg. What appear to be piddling amounts can wreak havoc over the life of a retirement account. For example, a one-time $10,000 investment that earns 8 percent annually over 25 years will have more than $16,000 (28 percent) less at maturity with a 1 percent annual fee levied against it than it would without the fee [source: NADART].

An investor will find it difficult to avoid all fees with a retirement account. It pays to look around though; some advisors charge fewer fees than others. For example, a good certified financial advisor will charge only an annual fee, usually 1 percent of the value of your portfolio. This means the advisor has ample incentive to build your wealth. Other advisors may charge transaction fees in addition to an annual fee. Familiarizing yourself with fees before signing on with an advisor can help you save money in the long run.

Be careful going overboard with ditching fees, however. Part of what you’re paying for in an advisor is expertise.

3.) Keep Working

This is likely to be the least popular tip, but it’s the most realistic one. Increasingly, the idea of checking out of the work force at age 65 is going the way of being able to retire on Social Security checks. The good news is, we’re generally staying healthier and more active longer, which means we also can work longer. It stinks, but it also gives your portfolio the chance to continue increasing in value for a few more years. Remember, compound interest really adds up over time.

A person entering retirement age has a few options available. One is to simply stay at the same workplace. You can also undertake a step-down method, either by decreasing the hours logged at work or by finding another, less demanding job. The downside to the step-down method is that it will likely result in less income. Having paid off your mortgage and other substantial recurring expenses and being willing to live a bit cheaply for a few years works well while you’re gradually decreasing your work load. If you’re willing to trade money for free time, it will pay off.

2.) Budget on the Back End

You’ve cut corners and saved for the last couple decades. You’ve been good about not touching your nest egg. You diversified your portfolio well and weathered some economic downturns. Now that you’ve reached the end of your work life, you’ve got a substantial treasure chest that’s all yours. Don’t blow it.

Create a budget you can stick to just before you retire. After years of creating new budgets as your net worth grew more and more positive, you should be a pro at making budgets by now. This is not to say that you have to look forward to living frugally for the rest of your life, just wisely. What is it you’ve always envisioned yourself doing when you retire? If it’s travel, then create a travel category as a monthly expense in your retirement budget. If it’s spending time with your family, then create a “spoil the grandkids” category.

You can still live your retirement years the way you like; sticking to a budget will help keep you from outliving your nest egg.

1.) Purchase Long-Term Care Insurance

It’s a pretty depressing thought, sure, but we’re all going to die one day. Unfortunately, none of us can say how and when we’ll die. That’s why it’s a good idea to purchase long-term care insurance. This specialized form of insurance covers the cost of health care that extends long beyond a typical hospital stay.

On the surface, buying long-term care insurance doesn’t seem to have much to do with saving for retirement. Remember, however, that smart saving also involves spending at times. With long-term care insurance, you’re actually buying a policy that protects your retirement savings. Having to spend your nest egg on long-term care — which can easily reach into the tens and even hundreds of thousands of dollars, depending on the quality and length of the care — is not what you’ve been saving up for throughout your career.$

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3 Easy Ways to Save More for Retirement

Investing for retirement is difficult…

Keeping a constant eye on the markets, studying economics, staying on top of every trend without a misstep… that’s time-consuming and confusing.

Worse, the 401(k) system is broken: Lack of guidance, poor websites, and limited investment options make most individuals’ first foray into investing confusing.

But you can’t hide from it. No one is going to rescue your retirement for you.

The good news is it doesn’t have to be so tough. As you’ll see below, there are just three keys to understanding 401(k)s. Learn these and you will truly change the quality of life in your retirement…

Let’s get started…

There are only three things you need to think about to earn an extra six figures in your retirement plan…

1. Asset Allocation
2. Low Fees
3. Index Funds

Let’s quickly cover asset allocation…

Asset allocation means how you divvy up your capital among several categories of assets. By taking a broad view of the possible asset classes to hold, you can meet your retirement goals. Changes in the market get smoothed out by the diversified nature of the portfolio… leaving you to sleep well at night.

The key is doing it from the start and sticking to it.

First, you set aside some cash for emergencies… Then, start with a simple allocation: Decide between stocks and bonds. If you have a longer-term view and a high tolerance for risk, you might make your allocation 80% stocks and 20% bonds. If you are closer to retirement and don’t like volatile returns, you could do 70% bonds and 30% stocks.

Most of us fall somewhere in between those extremes. When starting off, I suggest using an “in the middle of the fairway” asset-allocation plan: 60% stocks and 40% bonds. It ensures you harness the proven wealth-building power of stocks… while also using the conservative, income-producing power of bonds.

The point is to combine assets, like stocks and bonds, that are not perfectly correlated (meaning their price movements are not closely related to each other). Blending them in a portfolio smoothes out your total returns.

As you get closer to retirement, you can adjust your allocation to match your risk tolerance. For example, you can use the “60/40” asset allocation while you are in your 40s, 50s, and 60s… and then start increasing your allocation more to bonds when you reach your 70s.

Once you are comfortable with that basic stock-bond allocation, you can start to get more complex, dividing your categories among, say, domestic and international stocks. Or you can divide your bond allocation among corporate, federal, and municipal bonds. You can also add a small allocation to precious metals, or what I call “chaos hedges.”

That’s Step 1. With allocation, we’ve protected your portfolio from deep swings and ensured you’ll have money until the end. Now, let’s get into the nitty-gritty of fixing your 401(k)…

Hidden fees pervade the financial industry…

The fees on fund investments are even worse. The fees always look small to the untrained eye. A mutual fund can easily charge 2%-3% of assets without looking too expensive.

When the percentages are that small, it can seem like it’s not worth your time to fret over fees. But that’s completely wrong.

Remember, these aren’t one-time fees. It’s a 2% hit every year. Over time, that 2% adds up substantially. And it’s particularly egregious considering you can find funds with fees as low as 1%, or even 0.25%.

Even more troubling, each year you pay a fee, you lose decades of compounding that would grow on top of that money.

The results add up…

Consider an investor who saves $5,000 a year, earns 8% in returns on investments, and pays a 2% annual fee. Over 40 years, he amasses $786,000.

If he cut that fee to 1%, he would finish with $1,045,000.

Think of how hard you work to save $5,000 every year for 40 years. It’s not easy. No matter how much you earn, life gets expensive. Over all that time, you set aside $200,000.

But here’s the catch, you can earn an additional $259,000… by just spending five minutes controlling the fees on your funds.

That’s easy money.

And you can do even better than that. You should be able to get your fees to less than 1% if your plan has reasonable options.

Skeptics might wonder… When we switch to cheaper funds, aren’t we going to get worse performance? Don’t bargain prices mean bad funds?

Nope. The truth is the exact opposite…

The cheapest funds in the game are index funds.

Index funds don’t have a Wall Street trader behind them, trying to outcompete everyone else and beat the market. (The majority of the smart guys fail.) Rather, index funds follow simple rules designed to help them track the overall performance of a particular asset class, like U.S. stocks or Treasury bonds.

Most “actively managed” funds (those with a manager trying to pick the best stocks) underperform the market year after year. In fact, 96% of actively managed mutual funds fail to beat the market over a sustained period.

That means you don’t have a 50-50 chance of picking a “good” fund or a “bad” fund… It hardly even matters which one you pick. The vast majority are bad and won’t beat the market.

On the other hand, index funds don’t need to pay superstar managers or an army of analysts. Ironically, they keep costs extremely low and provide better performance.

Investors are finally catching on. The index fund industry is growing. According to the Investment Company Institute Fact Book, the percentage of stock assets held in index funds has grown from only 9.4% in 2000 to 20.2% in 2014. Over the last seven years, more than $1 trillion have flowed into index funds. Vanguard’s Bond Index Fund recently surpassed PIMCO’s Total Return Fund as the largest bond fund in the world.

It’s likely your plan offers a few mutual funds that track an index.

By following these three simple steps, you can fix your 401(k) and boost your lifetime returns by hundreds of thousands of dollars… in just a few minutes.

So take the time to review your retirement plan today… It will be the easiest money you make in your entire life.

Here’s to our health, wealth, and a great retirement.

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Protect Your Retirement Income With An Annuity

How to Escape the Biggest Destroyer of Wealth

Before I explain how to avoid the single biggest destroyer of wealth, there is one very simple—but very important—concept you need to understand.

It’s the law of uninterrupted compounding.

Compounding is a simple investment strategy in which you put your money in an investment that pays interest. At the end of the year, you take the interest you earned and reinvest it with your original stake.

Now your interest earns a return, as well.The next year, you’ll get a bigger interest payment. Then, you’ll reinvest that payment, and so on…

A snowball is the best analogy for compounding. As you roll the ball through the snow, the surface area gets bigger. The more surface area on the snowball, the more snow it picks up.

The snowball gains mass slowly at first… but pretty soon, you can’t move it because it’s so huge.

Compounding is slow and boring at first. But gradually, the interest you earn grows, and your reinvestments increase.

And the longer you allow your money to compound uninterrupted, the more it grows.

The key to compounding is to let it work over many years.

The chart below shows the value of an account growing at 10% per year over 60 years. We call this the “hockey stick” chart, because the money grows slowly for several decades, then really picks up speed after about 40 years.

The Hockey Stick

If you don’t interrupt it, compounding produces a fortune.

At 10% interest, it takes 40 years for $10,000 to grow into $411,000 (see the red arrow).

That’s pretty good. But do you see what happens next? The growth of the account explodes.

By year 50, it’s grown to just over $1 million.

By year 60, it’s grown to more than $3 million.

In short, the power of compounding is most effective when you let it work over many decades.

Interrupting the Compounding Process

The compounding process works only if you don’t interrupt it… i.e., if you don’t pull money out of the account along the way.

The chart below shows what happens if you make an early withdrawal and pull $150,000 out of your account in year 40.

As you can see, first, the balance in your account drops. That’s the red line you see dipping below the black line.

Second, there’s less money in the account to produce interest. You’ve interrupted the compounding.

Look what it does to your wealth…

In year 50, you’ve got $713,000, instead of $1 million. And by year 60, you’re left with $2 million instead of $3 million.

Your account balance is $1 million less in year 60.

Interrupted Compounding

One small withdrawal causes your wealth to plummet.

30-, 40-, and 50-year periods are long. They’re hard for most people to fathom. But we use these time frames to illustrate one important point:

Interrupting the compounding process—by liquidating part or all of your funds—is the single biggest destroyer of wealth.

These interruptions are not always easy to spot.

For example, a 20% decline in the stock market interrupts the compounding process in your 401(k) account. That’s because your account balance dropped by 20%. And you have less money producing interest.

Or, you could cash out part of your 401(k) or IRA to buy a new car or house or to give a gift. That interrupts compounding as well.

Or, consider your child’s college fund. You start putting money into it when your child is born. It compounds and grows tax-free in a Coverdell account or 529 plan.

But when your child reaches college age, you liquidate the account to pay for tuition expenses. You’ve interrupted the compounding process after only 18 years.

The Holy Grail of Finance

You know leaving your money alone and letting it compound produces great wealth. But there’s one downside to this: You can’t touch or access your money for a long time. You’ll interrupt the compounding.

The holy grail of finance is a vehicle or account that relentlessly compounds your money. But at the same time, it lets you access your money without interrupting the compounding process.

Does such an account exist?

Dividend-paying whole life insurance—what we call “Income for Life”—offers us these exact benefits.

We put money in one of these policies, and it compounds for the rest of our lives.

We capture the power of uninterrupted compounding, and we get rich.

Pretty simple, right?

But what if we want to pay for a vacation? Or a car? Or college tuition? Wouldn’t that interrupt compounding?

If this money were in a bank account, a brokerage account, or a 401(k)… yes, it would. In order to pay for a big expense, you’d need to liquidate your savings account. Or sell your stocks. Or get rid of your mutual funds.

Doing this would free up your money for use. But, of course, the money is no longer working for you. You’ve interrupted the compounding process.

Actually, it’s worse than that: Not only have you stopped the power of compounding, you’ve decreased the value of your savings, stocks, or mutual funds. This double whammy results in a critical blow to your long-term returns.

I want to illustrate this visually for you. Below is a rough graphical representation of what most people do as they save—and then pay—for big-ticket expenses.

First, you save up, earning interest along the way. Those are the green lines.

Then, you liquidate your account to buy something… maybe a car. You save up. You liquidate. You always end up at zero.

Saving Up for Big Purchases

By paying cash for your big-ticket items, you interrupt the compounding process.

But with Income for Life, you can still pay for these things AND compound your money, uninterrupted.

How is this possible?

You save up money in your Income for Life policy. Then, at any given time, the insurance company lends you the money you need (up to the amount you’ve saved in your policy). And you pay it back to the insurance company at your own pace.

Remember, you can get these loans in under a week… without running your credit or filling out a 30-page application.

The insurance company is willing to do this because it has nothing to lose.

If you decide not to pay back the loan, the insurance company could simply deduct whatever you owe from your payout when you die.

In short, because of the policy’s loan feature and the guaranteed lending provision that comes with your Income for Life policy, if you need money, you can borrow it from the insurance company.

And because you use the company’s money, nothing interrupts the compounding of the money in your policy.

Remember our uninterrupted compounding chart from earlier? Here it is again.

The Hockey Stick

The path our money is taking in an Income for Life policy:

Let’s look at what happens when you use your Income for Life policy to buy something.

Remember, when you borrow from your Income for Life policy to make a purchase, you don’t liquidate your savings, your brokerage account, your IRA, or your college plan as you did with our earlier example. You take a policy loan from the insurance company and repay it over time.

Because you took out a loan and used the insurance company’s money, your money continued to compound and grow… uninterrupted.

Now, five years later, you’ve repaid your policy loan. But the cash-value balance in your policy is much higher because you let it compound uninterrupted.

By using a series of loans to pay for life’s big expenses, you will never interrupt the compounding process.

The illustration below shows how this process looks.

The black line is a close-up of the “hockey stick” compounding curve. The green dots represent points in time at which you might take policy loans. The green lines represent your shrinking loan balance each year as you pay back your loans.

The Path to Uninterrupted Compounding

Use policy loans to pay for your big-ticket items.

By borrowing money from the insurance company, you can continue compounding within your policy… even as you spend.

Recap

I’ve shown you how devastating the action of interrupting the compounding process is.

And I’ve shown you how the average person destroys his or her wealth by doing this many times throughout his or her life.

Bottom line: Income for Life is the only solution I know of that allows you to harness the power of uninterrupted compounding… while still letting you spend your money when you need it.

15 Ways to Retire Earlier

AN EARLY START TO YOUR GOLDEN YEARS

The word “retirement” and number “65” are as linked in the North American psyche as “bacon” and “eggs.” Then again, that all depends on how fast you want your eggs, right?

Retiring early — or leaving the work force for the golf course, if you like — might sound like an unattainable goal. But there are many ways to make it, so long as you take numerous approaches into account.

es, 65 is the standard — but what’s 21st century life all about if not exceeding standards? Here are 15 major financial and lifestyle moves you can make to achieve this goal.

Are you fantasizing about early retirement. Here’s how to make that dream a reality.

1. LIVE TWO TO THREE TIMES BELOW YOUR MEANS

Sorry, folks: Simply skipping that $4 latte in the morning ain’t gonna cut it. It takes a much more committed approach where “sacrifices” are viewed in a new light. It’s amazing when I work through the numbers that some people think manicures, landscapers and maids are a need.

2. REDEFINE ‘COMFORTABLE RETIREMENT’

Less spending later constitutes the flip side of less spending now. If you imagine comfy retirement as a vacation home and monthly cruise ship trips, revisit that vision so you don’t have to bleed cash — but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?

3. PAY OFF ALL YOUR DEBT

That’s right, all of it. First: Is it time to pay off your home? You might not have the resources now to plunk down one huge check, but consider savvy alternatives such as switching from a 30-year to 15-year mortgage. Monthly payments aren’t much higher, but the principal payoff is much greater. Second: Do the same with loans and credit cards, as high interest eats up income faster than termites chewing a log. A credit card balance of just $15,000 with an APR of 19.99 percent will take you five years to eradicate at $400 a month — and you’ll dish out a total of $23,764.48, the calculator on timevalue.com shows.

4. CONSIDER OVERLOOKED FINANCIAL RESOURCES

While it’s risky to count on unknowns such as an inheritance, you might have cash streams available outside the traditional retirement realm. For example, understand your options with respect to any pensions you might be entitled to or 401(k)s from current or previous employers.

5. INVEST EARLY AND AGGRESSIVELY

If you’re in your 20s and start investing now, you’re in luck. Due to the power of compounding, the first dollar saved is the most important, as it has the most growth potential over time. As an example, $10,000 saved at age 25 versus 60: the 25-year-old has 40 years of growth potential at the average retirement age of 65, whereas $10,000 saved at age 60 only has five years of growth potential.

6. MARRIED COUPLES: PLAY RETIREMENT ACCOUNT MATCHMAKER

The wisdom of taking advantage of a company match on the 401(k) is well established — but think about how that power is accelerated if a working couple does it with two such company matches. If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it. You are essentially leaving money on the table if you don’t.”

7. PRACTICE SOUND CASH FLOW MANAGEMENT

The methodology is simple, yet the results can be profound: Put money at least monthly into systematic investments during your working years. There’s no other element of investment planning or portfolio management that’s more essential over the long term.

8. JUMP ON EMPLOYER STOCK PURCHASE PLANS

How about some free money? The ESPP typically works by payroll deduction, with the company converting the money into shares every six months at a 15 percent discount. If you immediately liquidate those shares every time they’re delivered, it’s like get a guaranteed 15 percent rate of return. Add the after-tax proceeds to your supplemental retirement savings.

9. START THAT RETIREMENT ACCOUNT TODAY

That is, the earlier the better. Millennials who kick off retirement accounts early will reap big rewards later. A 25-year-old who socks away $4,000 a year for just 10 years (with a 10 percent annual return rate) will accrue more than $883,000 by the time she turns 60. Now then: Can’t you just taste those pina coladas on the beach?

10. PLAN SMART VACATIONS AND TRAVEL — AND INVEST THE DIFFERENCE

There’s no sense in depriving yourself of every single thing, especially well-deserved time off. You can save a ton in 150 countries through a service called HomeExchange.com. When you’re staying in someone’s home or apartment, you don’t have to eat out at a restaurant for every meal, so your food costs nothing more than if you were at home.

11. DON’T LET YOUR MONEY SIT IDLE

To get to an early retirement, you have to periodically revisit your IRA, 401(k) or other retirement account to make sure your money doesn’t grow cobwebs. For example, the way your retirement account is diversified shouldn’t put too much emphasis on low-yield investments — such as money market funds and low-yielding bonds. Dividends can pile up in the money market account, typically earning one one-hundredth of a percent. Make sure your cash is invested properly.

12. HOP OFF THE HEDONIC TREADMILL

In this curse of consumerism, you buy something expensive, feel excited and then scout for something else to purchase when the “new car smell” wears off. And it’s a huge trap if you want early retirement. 

13. LOOK FOR PASSIVE SOURCES OF INCOME

Early retirement doesn’t necessarily mean retiring all of your income, especially if you find ways to bring in money without hard work. Investing in rental properties is one way you can create a cash flow stream — and you can minimize the labor by hiring a property manager. Or: Set up an internet sales business and hire a part-timer to fulfill orders and track stock based on volume

14. ENLIST IN THE ARMED FORCES

Here’s an alternative way to get to “At ease, men.” By serving in the military, you can also serve yourself. Members commonly retire after 20 years, living off generous pensions and health insurance. Even though President Obama in March proposed sweeping changes to military retirement and health benefits, earlier-than-normal retirement should still remain an option for many men and women in uniform.

15. HIT THE ROAD OR GO JUMP IN A LAKE, INDEFINITELY

Some middle agers are selling the bulk of their possessions — including the home — and moving into tricked-out mobile homes and houseboats. These options also open the door to a life of leisure travel and can eliminate major expenses, such as property taxes and mortgage payments.

If you think of retiring early as simply walking away from everyday life — and thus a pipe dream — it’s time to take a step back and look at how others have done it. You might enjoy your job immensely and have friends in the trenches with you. But if work is taking too much away from your family time, community bonds, overall health and peace of mind, you might do well to consider one of the smartest alternative investments of all: yourself.$

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