• Joshua Crowe, Contributor

  • December 19, 2019 views: 30,239
  • Hi, I am Josh Crowe the owner and founder of Sunpath Financial, a retirement specialist firm in Newport Beach. I hope you find our website and services useful!
  • Opinions expressed by Sunpath Contributors are their own.

1. Leverage the power of zero

For most Americans, retirement income is generated from a combination of social security, pensions, and retirement savings. Social Security and pension income do not fluctuate outside of an annual cost of living adjustment (COLA), that’s because they’re annuities, which is a promise to pay a person a guaranteed lifetime income. That income stream is guaranteed, but the annual increase is not.

Retirement savings accounts, such as a 401k or IRA, do not provide a guarantee, but instead attempt to provide an income stream that’s equal to or less than the interest the account generates. Since most retirees end up in bonds for safety, and since bonds only yield 4% per year on average, their income stream is equal to 4% – this is known as the 4%-rule.

So, in order to maximize your retirement income, you have to BREAK the 4%-rule. This can be achieved by utilizing something known as “the power of zero”. The power of zero is an analogy for an account that provides a guarantee against financial loss in the event the market results in a negative return.

In other worlds, you cannot lose money in this type of account, and because you cannot lose money in this account, you don’t have to move to bonds and seek a lower reward, and instead can invest aggressively, seeking a higher return.

A higher return means a higher annual income withdrawal rate. The income increase is dependent upon several internal factors within the account, but it’s not uncommon to see a 25% to 50%+ increase in income.

2. Increase Mortgage Term While Bridging Inheritance with Life Insurance

To the majority of retirees, paying off their home is important , but why? When asked, most respond with two reasons, a. to reduce my expenses, b. to leave my children an inheritance. If you’re within 10 years of paying off your home, it may be a good idea to stay on that trajectory, but for those with more than 10 years, there’s another option.

The option works by modifying or refinancing the mortgage loan out to 30-years, this frees up additional cash. That cash is then used to buy a life insurance policy with coverage equal to the balance of the mortgage. The remaining cash is used to increase your monthly income.

It’s not possible for us to estimate the average increase to income with this strategy because of the variables involved with home loans and life insurance, however, it has been an effective plan for many retirees.

3. Opting for ‘Single Life’ to Maximize Pension Income

If the company you work/ed for offers a pension, you’re going to be faced with several options in regards to how you’d like to receive your benefit. The first, and most coveted option, is the ‘single life’ option, which offers a maximum benefit amount on a single life, but it does not provide an income to a surviving spouse or beneficiary after you’re passing.

The remaining options offer your spouse a benefit, but reduce the benefit you’ll receive…so the question becomes “how can I receive the maximum benefit amount while granting my spouse an adequate income in the event I pass away?”

We use a strategy known as ‘The Pension Maximization Plan.’ The plan allows you to claim ’single life’, taking your maximum benefit. A portion of that benefit is used to buy a life insurance policy that will pay your spouse the monthly income they would have received had you opted for another option. The goal, is to find a life insurance policy with a premium that cost less than what’d you’d lose in opting for one of the other options…every dollar above that amount, will increase your monthly income.

If you’d like a customized review of your retirement snapshot, and how one of the three options could be used to increase your monthly income, press the message button to speak with us.

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