How to Plan for Retirement in a Volatile Economy

May 07, 2022 00:47:50
How to Plan for Retirement in a Volatile Economy
Retirement Results
How to Plan for Retirement in a Volatile Economy

May 07 2022 | 00:47:50

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Show Notes

On this week’s show, Ford responds to a story about the current state of affairs with housing and mortgage costs. He also discusses some key strategies for building a successful retirement during volatile times. If you are interested in getting a complimentary portfolio review, you can reach The Active Wealth Team and Ford at ActiveWealth.com or by calling Ford at 770-685-1777.

Request your free copy of Annuity 360: www.Annuity360.net
Schedule a conversation with Ford now: ActiveWealth.com
Watch more episodes: www.ActiveWealthShow.com/podcast

AWS How to Plan for Retirement in a Volatile Economy Transcript: Audio automatically transcribed by Sonix

AWS How to Plan for Retirement in a Volatile Economy Transcript: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to the Active Wealth Show with your host. Ford Stokes Ford is a fiduciary and licensed financial advisor who places your needs first. You’ll help you protect and grow your wealth. The Active Wealth Show has grown because activators like you want to activate their retirement planning with sound tax efficient investing. And now your host Ford Stokes.

Ford Stokes:
Hey Activators its Ford Stokes your chief financial advisor. And welcome to the Active Wealth Show. I’m joined by Sam Davis, our executive producer. Sam, say hi.

Producer:
Welcome to the Weekend Activators. We’ve got a lot of fun, important conversations to have on the show today. And if you miss any part of today’s show or any episodes, be sure to subscribe to the Active Wealth Show. Wherever you listen to podcasts, it’ll be available for you whenever you want to listen.

Ford Stokes:
Also this weekend, the Brewers are in town and let’s do everything we can braves to take as many games as possible. We, you know, we’re kind of sputtering along, but still staying within earshot of the New York Mets. And I was glad to see that the Braves evened up the series with with the Mets on Wednesday. That was helpful to see that. So go Braves and good luck against the Brewers this weekend we’re saying I’m going a lot more games now because we’ve got Active Wealth tickets there in the dugout level. We kind of entertain our clients and some of their their friends and family. So that’s been a really great deal. We kind of start picking up inside information to and from ushers and all kinds of stuff and who’s coming up, who’s going down and and just said it’s just been kind of fun. It’s you know, I think everybody’s super excited to get Matt Riley hopefully back on on the tear that he was on earlier. But I had a little whisper that when Ronald Acuna was coming in, that was the night before. So that was pretty fun stuff. And I’m just really excited about our hometown Braves. Hopefully they can start winning a few more series instead of just win a game every time. But they’ve avoided the sweeps, which has been really helpful.

Producer:
Yeah. I mean, if you’re a sports fan in the state of Georgia, you’ve likely had a pretty fun last couple of years with the success the Braves have had and UGA football just finished up the NFL draft. It felt like half the UGA team went to some team in the NFL. And now with that being done, it’s all eyes on baseball and we all get to enjoy the summer.

Ford Stokes:
Yeah, and I kind of like the draft of Desmond Ridder. I’m hopeful that the Drake London, the wide receiver for the Falcons, is going to be a good pickup. I would have rather seen Garrett Wilson from Ohio State as the wide receiver we picked because I felt like he created separation during college. We’ll see how that goes, but probably more sports info and commentary on the Financial Show than you normally get. But we at least wanted to at least share kind of what’s going on. The weather is getting warmer. Hope everyone enjoys getting out there and playing golf. I was able to play golf with my brother yesterday, Sam, over at the River Club where I’m a member and shout out to the great folks at the River Club. They just do a great job taking care of us. And it’s been kind of cool because Jeff Francoeur is on my on my alpha tennis team. And, and it was just cool to see Harvey Lopez lives out there and stuff. So it was kind of kind of been a neat group to kind of hang out with. And Mark DeRosa lives there as well. Anyway, go Braves, we’re pulling for you and let’s do a market update.

Producer:
Your Active Wealth market update.

Ford Stokes:
Federal Reserve Chairman Jerome Powell alleviated some concerns of a looming economic recession after he rejected the possibility of an even larger interest rate hike than the one the US Central Bank announced on Wednesday. Bond yields fell and stocks recorded the best day since 2020, after Powell helped to calm investors who worry that the Fed’s aggressive tightening of monetary policy in order to tame the hottest inflation in 40 years could tip the economy into recession. So here’s the deal, guys. Here’s how it affects you. How it affects you is it’s going to keep mortgage rates lower. It’s going to hopefully help the economy and also give access to companies to borrow money more easily and more readily, and therefore should help stock prices as well. One thing that also that that Jerome Powell said, here’s what he said. He said a 75 basis point increase is not something that the community is even actively considering. So that’s really good. Really glad to hear him say that. And so that’s that’s helpful information because a 75 basis point increase would be a really distressing thing for the markets because we are looking for the ability to borrow money to enable growth for companies as well. So that’s really your market update for the week. I wanted you to understand what was going on with the Fed and the comments that came from Federal Chairman Jerome Powell this week. All right. Now, let’s kind of share what we’re going to talk about on today’s show.

Ford Stokes:
So, yes, there have been some volatility in the market and kind of what’s the solution? Number one solution is we want to stay invested. We’re also going to play out a housing news article from Matt McClure, who’s our reporter with the Retirement Radio Network. We’re also going to talk about whether you should consider downsizing or not. Segment two We’re going to we’re going to play our game. The rate is right. And I think you’re going to like the new additions to this. Sam did a great job on on on this get developing some sound for you. I think you’re going to like it. And then segment three, we’re going to talk more about annuity 360. Kind of a new way to look at the 6040 portfolio, the typical modern portfolio theory with 60% stocks and 40% bonds. You might want to consider what you’re doing with that 40% of bonds and trying to do a bond replacement and replace it with either annuities or structured notes. And we’re also going to talk about kind of a little bit about Roth conversion and how beneficial it can be if you divest the IRAs out of being your partner in retirement. And of course, we’ll recap it all with our final countdown. And so. Sam, go ahead and play the news article from Matt McClure, our retirement radio reporter. On the current situation with housing in the United States.

Producer:
Is your home an asset or a liability? I’m Matt McClure with the Retirement Radio Network, powered by Emera Life. In 1950, the average home cost about $7,400. Wow. That’s about $88,000 in today’s money. But those days are long gone now. The National Association of Realtors says the median home price is around 370,000 bucks. Bu buying a home or being able to afford your mortgage payments just keeps getting more expensive these days. For example, mortgage rates are at the highest level since 2009, and home prices are still rising by double digits. In March, prices rose nearly 20% over the same time last year. From an affordability standpoint, things have not been this dire since the middle of 2006. Mortgage data provider Black Knight says 35 markets in the US are the least affordable they’ve ever been when it comes to buying a home. And with the Federal Reserve raising interest rates to try to tamp down on inflation, it doesn’t look like that’ll change any time soon. One thing people seem to be turning to adjustable rate mortgages, also known as arms. CNBC reporter Diana Olick says these types of loans used to be considered much riskier than they are now.

Diana Olick:
Arms can be set fixed rate for five, seven, even ten years. But yes, we did see arm demand literally double in the past three months. That’s huge. People are looking for a lower rate. So rate on an arm is about 4.28%, whereas you’re looking at well over 5% for the 30 year fixed.

Producer:
The pandemic gets much of the blame for the current situation. Of course, low supply and demand that’s through the roof are leading some potential home buyers to seek out alternative and riskier sources of financing. According to the New York Times. Those arrangements often do not have the consumer protections that are available with traditional home loans and are lightly regulated by a patchwork of federal and state rules. Adding to the confusion, they go by different names in different places. One example is a channel loan, which Pew Research says often comes with higher rates and shorter terms. With home costs continuing to increase, many retirees and pre-retirees are rethinking their monthly expenses. If you fall into those categories, should you consider doing something like maybe downsizing to cut costs? That’s a key question to consider as home prices and mortgage rates keep soaring. I’m Matt McClure with the Retirement Radio Network Powered by a Life.

Ford Stokes:
Okay, so that was a great article, news article from Matt McClure, who’s our retirement radio reporter. I my take on this is, you know, rates are really high. I mean, prices are really high in housing. And if you can get into a 55 plus home, that’s like 200,000 or 250,000. You can sell your. Sandy Springs or Dunwoody or. Buckhead or Alpharetta or. Coming Georgia or Roswell or Marietta or Peachtree City Area Home, that is obviously increased incredibly in value over the last two years. Then I would encourage you to consider doing that. It’s your call. You need to make the right decision for you and your family, but I wouldn’t recommend just holding on to the family home just so you can entertain everyone at Thanksgiving dinner once a year, just so you can hold on to the larger dining room, I would encourage you to do everything you can to minimize your costs, also maximize your the principle within your portfolio, and therefore maximize the income that can be generated from your portfolio. I think that is a really good idea and downsizing is a really good part of that and it’s something to consider. Also, with mortgage rates increasing, you got to be careful about what you’re doing on mortgages and stuff like that. We’re also going to we’re going to play the rate is Right. In the next segment. I think you’re really going to like this game, obviously. Sam and I are both big prices, right fans. So we we try to entertain a little bit here on the Active Wealth Show And so we’re going to play the rate is right next. And we’ve got three things we’re going to be talking about the traditional 6040 portfolio. The idea when there’s on liquidity and also we’re going to talk about is retirement income. Really one of the more important things during retirement right here on the rate is right. When we come back from the break, you’re listening to Active Wealth Show right here on AM 920, the answer.

Producer:
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Producer:
Listen to the number one show on the weekends on AM 920. The Answer to Protect and Grow Your Hard Earned Money. The Act of Wealth Show with Ford Stokes. You are Chief Financial Advisor Saturdays at 12 noon and Sundays at 11 a.m.. Are you concerned about US tax rates being raised by the Biden administration and how that will affect your retirement? Tune in to the Act of Wealth show with Ford Stokes, your chief financial advisor, to learn how you can reduce the taxes you pay before and during retirement. The Active Wealth Show Saturdays at noon and Sundays at 11 a.m..

Ford Stokes:
And welcome back, Activators, the Active Wealth Show. And we’re so excited about this segment. It’s going to be a fun, entertaining segment. So, Sam, let’s go ahead and play the right is right.

Producer:
Number one on the rate is right today. We’ve got the traditional 6040 portfolio. You know, the idea here, Ford, is that 60% stocks, 40% bonds, inversely related investment options, that’s the way to go. What do you think?

Ford Stokes:
Well, let’s play the sounder wrong. That’s right. It is wrong. Thank you, Donald. The 6040 portfolio, the modern portfolio theory was and you guys have heard this on the show quite a bit, but it was basically given credit to the founder of Modern Portfolio Theory was Harry Markowitz. In 1952, he was given credit for being the founder of that of that theory, 60% stocks and 40% bonds both traded on the same exchanges, but negatively correlated or at least not correlated at all. And the premise was or is when money rushes out of stocks, it rushes into bonds, and therefore you still get the uplift. And also that the bonds are there to give you income and the stocks are there to give you growth. And. Now bonds are taking significant hits. We’re in a slightly rising interest rate environment keeps rising and. Therefore, the bonds that you that you used to hold or you held recently, that you purchased recently, maybe are now worth even less. I mean, bonds are taking like a ten, 11% hit this year. And the S&P 500 has taken 10 to 11% plus hit this year. So if you’re holding a 6040 portfolio, you could be down 20 plus percent this year. And so I would say that it’s I would focus on the income portion.

Ford Stokes:
And what I would like to do is try to say, hey, let’s look at that 40%. Instead of putting 40% in bonds, maybe we replace that 40%, delete the advisory fee in the portfolio fee out of it because there’s no advisory or portfolio fees with fixed indexed annuities. And let’s really generate some good growth, some market like gains without market risk. And let’s get to some safety on income because that’s important during during retirement. Also, you can always invest in things like structured notes as well that we’ve covered on this show in the past that can give you significant rates of growth. Now, those don’t do involve risk because they are securities and there is market risk involved. But structured notes is another thing to consider as well as a bond replacement. We like to do a little bit of combination of both of those things and if you are interested in that, I would encourage you to visit ActiveWealth.com. That’s ActiveWealth.com and click that schedule a consultation in the upper right corner. There’s a button, the upper right corner says that reads Schedule a consultation and you click that and you get placed directly in my calendar and we look forward to working with you.

Producer:
The next one here on the Rate Is Right is the idea that there’s not enough liquidity with annuities.

Ford Stokes:
Wrong. And thank you, Donald, again for letting the folks know that it’s wrong because with most annuities, you’ve got up to a 10% penalty free withdrawal that you can make. So let’s say you do you invest in a 600,000 annuity. I mean, you could take out 60 grand a year if you needed to, which would give you plenty of liquidity for the year. It’s absolutely wrong that there’s not enough liquidity with annuities. You can get enough liquidity because they allow for you can annuitize the annuity and pay out retirement income. Or you can also take out 10%, up to 10% penalty free withdrawals because they’re set up to be armed, friendly, so that you can withdraw money to pay your RMDs, to distribute your RMDs to yourself and then pay the taxes on those required minimum distributions as well. So absolutely, that is wrong. There is enough liquidity for most folks when you invest in a portion of your assets into annuities.

Producer:
And the last one up here on this episode of The Rate is right on the active wealth show is retirement is more about income than it is about building up a nest egg.

Ford Stokes:
And it’s absolutely right. It’s important. I mean, obviously, it’s great to have as much money as possible, but retirement is more about generating income. It’s also about generating the right type of income. Wouldn’t you rather generate tax advantaged income or tax free income from, say, a an index, universal life policy or from withdrawals from a Roth IRA instead of withdrawals from an IRA? Because the only two types of tax free investments out there are one life insurance and two Roth IRAs. That’s it. And what we like to do is work with our clients to help them implement Roth Ladder Conversion. If they’re in their thirties, forties or fifties or even early sixties, we try to consider investing in a ten year indexed universal life policy, what’s called a ten peg that can generate significant income when they retire. And that’s done as a loan against the policy and the Internal Revenue Code. The RC code that allows for this is called a rule 7702 planets. It’s the RC code 7702. And so we’re here to help you generate significant income, but also try to do tax advantage or even tax free income if we do it the right way. And planning for retirement is really just much more about planning for retirement income than it is about just building one big nest egg, because obviously we’ve seen market volatility out there. But if you’ve got a plan for your retirement income.

Ford Stokes:
And sometimes it doesn’t even involve investments into the stock market. It can involve investments into things like, you know, in fixed indexed annuities that can generate retirement income for you. That’s almost like building your own personal pension. And that’s a really good idea. That’s something that also. May not have you may not feel the effects as much of extreme market volatility because with a fixed indexed annuity, zero’s your hero with most fixed indexed annuities. All fixed indexed annuities. Your principal and the gains that get locked in each year or every two years or every three years, depending on the length of the protection period. Those are all protected. You. You never go back. You can only go forward and only go up. So let’s say with a fixed indexed annuity at 100,000, invested in a fixed indexed annuity, and it went up 10% in 2021, and let’s say it goes down, the market goes down 10% in 2022. Let’s say you’re up to 110,000 at the end of 2021. Guess what? At the end of year two? Even though the markets fell off or the index that you were tied to fell off 10%. Your fixed indexed annuity is going to be worth still 110,000. It’s not going to go backwards. So again, yes, I believe it is right that retirement is more about income than it is about just building up one big nest egg.

Producer:
And that was the rate is right.

Ford Stokes:
I love that segment. We’ll have more of those. It’s kind of fun. So great job, Sam, putting all that together. Thank you for doing that. We like to entertain here on the Active Wealth show. The other thing we like to do is serve our clients. We like to we want to put your needs ahead of our own. We’re going to help you build a tax efficient, fee efficient and market efficient portfolio. We also want to help you really build a successful retirement and protect and grow your your hard earned wealth. But you’re also your hard saved wealth. I mean, it’s pretty easy for a lot of folks to make money. It’s much harder for them to save it. And so we want to do everything we can to help you save and help you grow your money and help help you really get your money working as hard as you did and also as hard as you did to save it. One of those things. Let me just tell you what it’s like to work with us. So if you come in and meet with us here in the King Queen building, we’re in the perimeter overlooking Perimeter Mall over here in Sandy Springs and Dunwoody. You bring your most recent financial statements. You bring your Social Security income statement or your benefits statement from, and you just get that by going to support gov. That’s SRK govt and put in your information and they’ll give you a report that statements that shows you, hey, here’s what you’re going to make at your full retirement age.

Ford Stokes:
We can then help you determine what your benefit is depending on which year you plan to take. Start taking Social Security income. Also, we like to see people get to their full retirement age and then start taking it. We don’t like to see a lot of withdrawals that put too much downward pressure on the portfolio either. So we’ll help you and we’ll we’ll generate a Social Security maximization report for you. Absolutely. At no cost to you. We’ll also give you a financial plan in your 95th birthday with your current assets, your current portfolio. We’ll do one with our recommended portfolios. And then we’ll also do a financial plan with our recommended portfolios and a Roth Ladder Conversion plan at no cost to you. This is about a $4,500 value, and we do it at no cost to you on the front end because we want to help you make an informed financial decision about your retirement future. We think that’s important, and we want to do everything we can to help you. So you’re going to get basically a portfolio analysis. You can understand the risks you’re taking and the and the fees you’re paying currently. That has nothing to do with us current with your current plan, we’re also going to help you get the financial plan to your 95th birthday so you can really plan your retirement in advance.

Ford Stokes:
We call this results in advance planning and we’d love the opportunity to help you do that. Right now. And also Debora, our office manager and her team are standing by to take your call. You can feel free to pick the phone up and reach out to Deborah and our team even this weekend at (770) 685-1777 (770) 685-1777. They take calls during our radio show and shortly after it. And they’re here to help you for sure and help you get booked onto my calendar. We come back to the break. We’re going to talk about more about annuities, about how you can generate your own personal pension and how you could use that as a great bond replacement. Also, the type of annuity you really should buy and the one that you should definitely avoid. I think you’re really going to like this next segment. You’re going to learn a lot in this next segment about what you can do, especially with all this market volatility out there. Thanks so much for listening to Active Wealth Show. Also, thanks for listening to our Great is Right segment. We love that segment. We love entertaining. We also love helping our clients protect and grow their wealth. Let’s Active Wealth Show right here on AM 920 the answer and we’ll be right back.

I see. Rising. I’ll see. Trouble on the way.

Ford Stokes:
All right. And Sam is going to play chapter one from my book and 8360. You can get my book Annuity 360 at Annuity 360 net. You can download it. We’ll send you a hard copy. You’re just going to put in your name, email, phone and mailing address and we will get that hard copy of signed copy out to you. No problem, no questions asked. So I’d encourage you to visit Annuity 360 Net. And Sam, go ahead and play chapter one for my book, Annuity 360 Chapter one Why You Should Consider Investing Some of your hard earned wealth into a fixed indexed annuity. A fixed indexed annuity can help you do the following with your wealth. Number one, protect your money from market loss. Fixed indexed annuities offered by highly rated annuity carriers did not lose a dime in account value in 2000, eight or 2009. During the worldwide recession caused by the mortgage loan crisis that resulted in the S&P 500 losing 50.1% of its value from March one, 2008, to March 31, 2009. Number two Grow your money with market like gains typical annual growth of 5 to 7%. Number three, generate a lifetime income. Your retirement will likely last 30 plus years. It might be a good idea to place some of your assets into a fixed indexed annuity, to set a safety net around a portion of the retirement income that you wish to generate.

Ford Stokes:
Number four, eliminate market risk associated with bonds by replacing the fixed income bonds in your portfolio with a fixed indexed annuity. Number five, eliminate the advisory fees you’re currently paying to generate fixed income with bonds in your portfolio by replacing them with fixed index annuities. The annuity companies pay the advisor you don’t. This is called a bond replacement. If the above fixed indexed annuity benefits sound appealing to you, then I invite you to listen to the rest of this book and ultimately invest a portion of your hard earned wealth into a fixed indexed annuity to build a successful retirement. For more important information on annuities beyond this book, I also invite you to visit our website Annuity360.net. Let’s consider a 100,000 investment in the S&P 500 versus a 100,000 investment in a fixed index annuity with a 50% participation rate in the S&P 500 from 2000 to 2013. Here’s a hint, folks. The annuity wins from January one, 2000 to December 31st, 2012. The S&P 500 experienced -2.943% growth over those 13 total years. People who retired prior to 2000 experienced zero growth, over 43% of their estimated 30 year retirement. Question Do you want to live your life during retirement without any growth over 43% of your retirement years? I didn’t think so. Conversely, if you had invested into a fixed index annuity with a 50% participation rate in the S&P 500 in January 2000, you would have seen a growth of 65.53%.

Ford Stokes:
That’s a significant total account growth difference of 68.473%. The account value growth chart below shows the 100,000 invested into an S&P 500 spider in January of 2000 versus 100,000 invested into a fixed index annuity with a 50% participation rate in the S&P 500. Also in January of 2000, the fixed indexed annuity achieved a total growth of 90.038%, versus just 25.786% growth in the S&P. Spider by December 31st, 2013. This chart shows the power of one year protection periods called annual point to point features. The gains from each year were locked in on each anniversary of the annuity policy effective date when the S&P had negative years. The S&P Spider 500 spy experienced losses in those same years. The fixed index annuity experienced zero losses. This proves that you don’t need double or triple digit gains if you don’t experience losses. In this author’s opinion, every sound portfolio with a smart financial plan includes fixed indexed annuity investments with tactically managed portfolios in hopes to minimize market risk, reduce advisory fees and deliver a reasonable rate of return. The annuity can also deliver consistent income with or without the added feature of an income rider that also charges fees within the policy. I recommend avoiding income riders. I strongly recommend investing a portion of your hard earned wealth into a fee efficient, accumulation based fixed index annuity with no more than 5% annual penalty free withdrawals to allow your money to grow and to generate important income during retirement, refer to your audiobook companion PDF that comes free with the purchase of this audio book see chart.

Ford Stokes:
1.14 Annuity Account Growth Examples. Green Line A 100,000 investment into a fixed indexed annuity showing the net growth of the annuity with a 50% participation rate with zero withdrawals from January one, 2000 to December 31st, 2013. The resulting account value is $190,038 by the end of December 31st, 2013. Red line $100,000 investment into the S&P 500 spider. Ticker symbol spy. This investment carried 100% market risk with a 100% opportunity for market gains. On the performance of the Spy from January one, 2000 to December 31, 2013. The resulting balance of the account is $125,786. Your human capital versus your wealth capital. Human capital is an intangible asset or quality not listed on a company’s balance sheet. You can think of this as an economic value of your work. Your human capital will decrease over the course of your career. Your peak amount of human capital is at the start of your earning years. Whether that be right out of college at 22 years old or at age 30 after completing your advanced degrees. This is the time where your productivity levels are high and you are contributing to your company’s wealth.

Ford Stokes:
You have all of your earning years ahead of you. During this time, you have to protect your hard earned wealth capital. This is not something you can recoup. You can’t go back and relive your prime earning years or the years where your human capital was the highest. There are many barriers to going back to work at retirement age. Unfortunately, age bias is a real issue, especially in certain industries. Those who might have been an engineer during their younger years might be forced to take a retail job to make some extra cash because companies in their field won’t invest in older employees. Many employers focus on what you can’t do when you’re older. Instead of thinking about the experience and the expertize you could bring to a project. You will most likely have to rely on your wealth capital during retirement. The idea of losing capital as you go farther in your career sounds a little scary, but you can rest easy knowing that this new form of capital will kick in as your human capital dwindles. As you earn and invest throughout your career, your wealth, capital will grow exponentially. You’ll need this wealth capital for your retirement. So it is important to choose investments that will protect and grow your wealth. Annuities, specifically fixed index annuities can offer you market like gains without the market risk.

Ford Stokes:
Your money never goes below zero. By investing in a fixed indexed annuity, you are taking money out of the Wall Street casino, and we think that that’s a good thing. Annuity guarantees like guaranteed lifetime income and the guaranteed growth of your principal are based on the claims paying ability of the issuing annuity company. It’s a good idea to buy annuities from highly rated annuity carriers that are rated by Standard Poor’s and am best. We consider a highly rated annuity carrier to be rated at least a triple B rating by S&P or with a B plus rating by and best. The impact of loss on your portfolio specifically, it can be devastating to your retirement. When we look at market volatility risks, the risk of loss and the potential impact on your retirement income is an important thing to understand. This chart shows the impact of losses on your retirement accounts. If we take a look at an example, let’s say you have an account that is at risk. If you start with 100,000 and lose 20%, you lose 20,000 and you were left with 80,000. If you gain back the same 20%, are you back to even? As you can see in the graphic below. The answer is no. In order to get back to your original 100,000 investment, you would have to gain back 25%.

Ford Stokes:
If we add an additional 5% for RMDs, we would now have to gain back 33.3% to get back to even. Understanding this concept is one of the keys to a successful retirement income distribution plan because you no longer have time on your side. The last thing we want to do is run out of money when we are 90 or 100 years old. How much do you have to gain to make up for a market loss? See Chart 1.2. After reviewing the above chart, I’m reminded of Warren Buffett’s two rules of investing. Number one, never lose money. Number two, never forget. Rule number one when you invest in a fixed index annuity with a highly rated annuity carrier that has a high financial solvency ratio, then it is likely that you will be able to follow Warren Buffett’s two rules of investing. Exactly. You will likely not lose any money with the amount you invest in a fixed indexed annuity offered by a highly rated annuity carrier with a high solvency ratio. A good financial solvency ratio is any solvency ratio over 104. The solvency ratio expresses financial soundness and a company’s ability to meet policy obligations as they come due. Assets divided by each $100 in liabilities result in a financial solvency ratio expressed in a dollar figure. Assets are bond stocks, cash and short term investments. Liabilities exclude separate accounts.

Ford Stokes:
The higher the amount, the stronger the company’s position to cover unforeseen emergency cash requirements. So my number one goal in writing Annuity 360 was to educate American pre-retirees and retirees on the extreme value of investing in an accumulation based annuity. In the book, you will learn how you can eliminate the advisory fees that you pay on bonds you may currently hold within your portfolio. If you have a financial advisor, I mean, a lot of financial advisors are charging one and one half up to 2%. We don’t charge anywhere near that on the money they manage. So it’s it’s a great way to save and to try to eliminate some advisor fees you can save each year. Also, we’ll discuss the metric power of a strategic bond replacement, the power of zero, and the current price to earnings ratio of bonds, which spoiler alert it’s it’s at 135 plus right now. We’re going to talk a little bit more about all of this in segment four. But you learn all that stuff. If you just get my free book Annuity 360, all you got to do is visit Annuity360.net. And we come back from the break. We’re going to talk more about bond replacement as a strategy and how fixed indexed annuities could play into that strategy. Let’s see, Active Wealth Show right here on AM 912, The Answer. And we’ll be right back.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

Ford Stokes:
And welcome back activators a segment for this the last segment of our show this week. So glad you’ve been with us. Sam and I really enjoy spending time with you all every week. And because we’re trying to do everything we can to help you build for successful retirement, we’re trying to help you get better educated on what’s out there and what’s going on and how you can also deal with all this recent market volatility and give you strategies. Also, how can you reduce the fees you’re paying and the risks you’re taking with all of your assets? But one of those risks is tax risk, specifically an increase in potential taxes in the future. You know, keep one hand on the wheel, but raise your hand if you think taxes are going to go up in the future. Sam and I both raised our hand here on this show today, and we think taxes are going to go up in the future. And if you do, then what you probably want to do is do everything you can to reduce the potential exposure to that, those future tax increases. And the way to do that, listen, you have a lot of money built up in your for on K or IRA. You’ve done a great job of saving. You also did a great job working. So therefore you earn the right to have your employer match the funds up to 3 to 6% of your income each year.

Ford Stokes:
And we think that’s a really good deal, really big deal. And you’ve done a great job of saving. That’s also harder than earning the money. Saving is actually the hardest thing to do. 80% of folks basically have a difficult time saving. And I just would tell you that you need to do everything you can to do a better job at saving and to live within your means. Sure wish our US government would feel the same way. But here’s the one issue you’ve got. If you’ve got all of your retirement funds, let’s say you’ve got a million. Dollars in an IRA. And you’re about to retire. Well, congratulations. You’re a millionaire. You’ve done a great job, except for you could be sitting on a big tax problem. And also, unfortunately, with that million dollars. The IRS is your partner in retirement and they are not the kind of partner you want to deal with. They’re the ones that have the hand out. They want to take more money from your foreign K and IRA. Or your four or three B or your 457 your SEP IRA or simple IRA. We want to help you deal with that. And that’s just with a Roth conversion. So. Sam share the Roth converter sounder for everybody.

Producer:
It’s time for an act of wealth Roth converter.

Ford Stokes:
So here’s how Roth IRA works. You basically are going to take a certain portion from your IRA and move it to your Roth IRA each year. But in that year, when you move, let’s say you move $100,000 from your IRA to your Roth IRA. You’re going to have to pay tax on that. Let’s say you’re in the 20% tax bracket. That means 20 grand is going to go to the IRS and 80,000 is going to go into your Roth IRA. Now, I’ve got a hint for you. Here’s the best way to do that. Let’s say you’ve got an investment account of a of a couple of hundred thousand dollars plus you’re $1,000,000 IRA. But what you can do is use your taxable account, your investment account that’s got 200 grand in it. You can take $20,000 out of that account, pay the taxes on it. And therefore, you’re going to move 100% of the money you withdraw or you’re converting from your IRA to your Roth IRA. So it’s going to move dollar for dollar. You’re going to take out 100,000. You’re going to convert it to your Roth IRA. So 100,000 moves from your IRA into your Roth IRA, then your IRA will then decrease to 900,000 and your Roth IRA will go up 100,000. The next year you’ll do the same thing. And the year after that and the year after that and the year after that. Eventually, though, you’re going to want to convert between 150 to 200000 because you want to outpace the growth.

Ford Stokes:
Let’s say your average rate of return is 7%. You’re looking at $70,000 would be added in growth on that million dollars. And if you only moved. 100,000, it would be difficult for you to eat into a lot into the principle you’re eating, into the principle 30,000 at a time if you’re paying the taxes from your taxable account. But the best way to minimize. The taxes you’re going to have to pay in the future is to implement a Roth Ladder Conversion and the best way to maximize the amount of money going from a tax deferred bucket into a tax free bucket. Is by paying the taxes with a different source other than your IRA. Now you can do that. I don’t want. I also don’t want you to think that that stands in your way here. If you want to just do a conversion, you don’t have to save up money to do the conversion. You can still just take it out of the amount of money that’s being converted and pay the taxes from those funds. And therefore, you don’t have to get any additional funds or any additional income or any additional assets or liquid assets to make that happen. You don’t have to go sell a property or anything like that to go generate money just so you can pay the taxes on your conversion. You can just take it out of the IRA if you’d like and the conversion you’re doing each year.

Ford Stokes:
This is called a Roth Ladder Conversion. The latter is each year is a rung on the ladder that you’re converting money from your IRA to your Roth IRA. A lot of financial advisors don’t talk about Roth Ladder Conversion because that means they’ve got less money to manage, because when they move money from your IRA, your Roth IRA, and you take taxes out, that means they’re not getting a chance to manage the taxes, the tax money that just went out of the account. We think it’s not a good idea to not share Roth Ladder Conversion with our clients. We want to make sure they understand the full picture. Also when income is so important. We talked about income earlier on the show today. Did you know in 1984? 65% of. The income that was generated for retirees was generated by Social Security income. Today that is only 27%. So what that means is you are responsible for your own retirement. It means that you’re the one that’s going to have to generate income from your IRA or from your annuities or whatever, or from rental income or whatever you’re going to do. It’s not you know, people aren’t just living on Social Security in a in a retirement they’re going to thrive in. So that’s really important. The other big. Back to my key hint here on how to implement a Roth Ladder Conversion correctly is again use that taxable account or using a savings account or using checking account money that’s outside of the IRA so you can grow your Roth IRA dollar for dollar that you’re reducing your IRA from by doing the conversion.

Ford Stokes:
So when you move 100,000, you put 100,000 a year Roth IRA, and you take you take money out of your checking account, savings account or investment account and pay the 20 grand you owe. If you’re in a 20% effective tax rate, you sit there and pay the 20 grand to the IRS from that account. But the main point I want to make here is you’re growing. I mean, you’re growing the tax free bucket. By taking money out of the tax deferred bucket and you’re using taxable money to pay the taxes on that conversion. So, again, I want to recap here. You’re moving money from your IRA, which is tax deferred. So eventually going to have to pay taxes on that. And we’re concerned about tax rates going up higher in the future because between 1960 and 1963. During the Kennedy years. Guess what? The current 24% bracket was 56%. That is 8% higher. 8% higher. Then to ex of where we are right now. So if you don’t think taxes are going to go up in the future, I would beg you to reconsider and now say let’s go ahead and hit them with our final countdown. It’s the final.

Producer:
Countdown. So let’s recap what you may have missed. It’s the final countdown.

Ford Stokes:
So in today’s show, we talked about Fed Chairman Jerome Powell actually saying, hey, he’s not going to go up there, that the Fed is not going to go up 75 basis points. So that’s good news. We talked about different solutions for volatility in the market, one of which would be to invest in a fixed indexed annuity. Also, you can consider structured notes as well. We didn’t talk in detail about that on this show, but we we will on future shows. Also we we had our retirement radio reporter Matt McClure share a very detailed report on what’s going on with the housing market and mortgage rates and why you make now may be the time to consider downsizing. We played our great the rate is right Trump’s sounder and we talked about traditional 6040 portfolios and how that actually may be the wrong strategy these days. Also, the idea that there’s not enough liquidity with fixing the next annuities, that is also something that is a misnomer and a myth because you can take up to 10% penalty free withdrawals at no additional cost or surrender penalties. And also that retirement income is really the most important part of retirement planning. It’s not just about building one big nest egg. And we also played chapter one from my book Annuity 360. And you can get that a free copy of the book at Annuity 360 net. Just put your name, email, phone and mailing address in there and we will send you a free copy of my book Annuity 360. And obviously in the segment four, we’ve gone over Roth conversions. Hope everybody has a fantastic week. Remember when you’re when you’re planning for retirement, if you’re going to be a bear, be a grizzly, seek out all the information you need to plan for successful retirement. And thank you so much for listening. Active Wealth Show visit us at ActiveWealth.com and we look forward to meeting with you. Have a great week everybody and go Braves.

Producer:
Thanks for listening to the Active Wealth Show. You deserve to work with a private wealth management firm that will strategically work to protect your hard earned assets. To schedule your free consultation. Call your Chief Financial Advisor Ford Stokes at (770) 685-1777 or visit Active Wealth Investment Advisory Services offered through Brookstone Capital Management LLC. Become a registered investment advisor BCM An active wealth management are independent of each other. Insurance products and services are not offered through BC but are offered and sold through individually licensed and appointed agents. Investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Please refer to our firm brochure the ADV to a page four for additional information. Any comments regarding safe and secure products and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by BWA.

Producer:
Thanks for listening to the Active Wealth show. If you like what you’re hearing, make sure to rate our show on Spotify or wherever you listen to podcasts.

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