Retirement Income Strategy W/ Power of "0"

Summary

In this episode of the WealthBridge Podcast, host Tyrone Harvey compares a stock market account to an indexing strategy account in a fixed index annuity. He analyzes the returns of the S&P 500 from 1928 to 2023 and demonstrates how the indexing account, despite having lower returns, outperforms the market account due to the power of zero. The indexing account preserves capital in losing years and is credited with zero, while the market account experiences ups and downs. This strategy allows for a more stress-free retirement income and the potential to remove more than the traditional 4% rule.

Takeaways

An indexing strategy account in a fixed index annuity can outperform a stock market account in terms of retirement income.
The indexing account preserves capital in losing years and is credited with zero, while the market account experiences ups and downs.
The power of zero, or never losing a dollar, can significantly impact retirement income and allow for a more stress-free retirement.
Distributing income from a secure retirement tool like a fixed index annuity can provide higher and more sustainable retirement income compared to the traditional 4% rule.

Keywords

Retirement income strategy, stock market account, indexing strategy account, fixed index annuity, S&P 500, returns, capital preservation, power of zero, stress-free retirement, retirement income distribution, higher income, 4% rule

Tyrone Harvey
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Transcript

0:00

Welcome to the wealth bridge podcast. I'm your host, Tyrone Harvey, and I'm here to guide you on a transformative journey, bridging the gap between your current financial status and your wealth goals. Together, let's navigate the paths of prosperity and financial wellbeing. Get ready to embark on this enriching adventure with me right here on the wealth bridge podcast. Please be advised that the content provided in this broadcast is for informational purposes only and should not be construed as an offering of securities, tax, or legal advice. Investing involves risk and individuals should conduct their own research or consult with a qualified professional before making any investment decisions. The strategies discussed may not be suitable for everyone and individuals should refrain from taking action without obtaining specific guidance tailored to their unique financial situation. We do not assume any responsibility for actions taken based on the information provided in this broadcast. Listeners are encouraged to exercise caution and diligence when considering investment opportunities.

riverside_tyrone_harvey audio_raw-audio_tyrone_harvey's stu_0086: 0:49

Welcome to another episode of the Wealth Bridge Podcast. In this episode, I'm going to be going over a retirement income strategy, and I'm comparing a stock market account to a indexing strategy account inside of like an IUL or a fixed indexed style of annuity. And what I did here is I took a very wide picture of all the returns of the S& P 500, S& P 500, just a bundle, the top 500 companies, they're bundled together and you can easily invest in them to get potential returns. So what I did here on a spreadsheet is I compiled the returns year by year all the way from, 1928 to 2019. To 2023 and the way this is broken down on the indexing strategy is for this example, I've used a hundred thousand dollars. I've used a hundred thousand dollars for the strategy starting out in year one. So let's assume a hundred thousand dollars in 1928, which be a lot of money., On the left here, I have the market account and on the right, I have the index account. And basically, uh, you know, if you're not seeing the visuals in this, what's happening is I've listed all the returns and all the losses for every single year in the stock market from 1928 all the way to 2023. And what happens is you can see the account goes up, count goes down, the account goes up, count goes down. And you know, there's periods of time where there's multiple losing years as the economy goes through recessions. So the market based account is going to go up and down, You know, over these 96 years that I've used for this illustration, I wanted a very wide pool of data to do this on the index account. This is a little bit different. So the way indexes work is usually the carriers that offer these, their insurance companies, what they do is they have caps and they have participation rates. in this example, there's one company in particular, they have an S and P 500 and it's a one year point to point. So what we're doing is we're taking The return, but it's getting capped out. So for example, you can see here in 1928, uh, the market accounts getting 37. 88%. The indexing account is capped out at 10. 99. And that's the cap that I use. It's going to vary from carrier to carrier. on what their caps are. So 10. 99 is the cap over here on the indexing account. And then every year, this is watch closely here every single year where the market account is taking a loss over here. These are all like, for example, here, 1929 through 1932 losses. Look at the indexing account. It doesn't take a loss. It preserves the capital inside of that account. And it's credited with zero. Now, of course, there's different strategies out there to even get a return in losing years using a carrier's fixed account, but I'm not going to go into that. We're going to assume worst case scenario, and it's zero instead of any type of fixed account where you could actually get gains in years where others are taking losses if they have a market account. So zeros on the indexing account and losing years, and then on years where it's higher than 10. 99. If it's higher than 10. 99, it gets capped out at 10. 99. So there's no, it's not, it's not competing for returns with the market account, like 1935 and 1936. You've got a 41 percent return and a 27 percent return. The indexing account, 10. 99. But one thing to take note of, look at the balance during those two years of the indexing account compared to the market account. The market account only has 76, 000 compared to the indexing account that has 136, 000. Why did that happen? Because the market account is playing catch up because it lost. almost all the money, almost all the 100, 000 was lost between 1929 and 1932. Okay. So over here, this indexing account actually has a much higher balance, 1936, it has 151, 000 compared to the market account that has 97, 000. It's a big difference, especially if you're retiring during that time. If you look at all the returns and you're wondering, okay, what does that look like at the end? One thing when I talk to retirees, they are, a lot of times, you're, you've been conditioned for accumulation and that's okay. All right. But there becomes a point where you have to consider what does retirement income mean to me and is accumulation What's going to get me to have the best and highest most stress free retirement income? And the answer is no. Okay. Accumulation is not going to get you retirement income. The accumulation actually is going to become irrelevant. And what becomes more relevant is how you distribute your income in retirement. And this strategy, again, we've taken 96 years of data in the S and P 500, no dividends in this, we're going to, I'm keeping it real simple. 7. 90 is the market account 96 year return without dividends. The indexing account only has 6. 18 percent 96 year return. It's less. The return in the indexing account strategy is less. It's less, but I want you to watch closely. Take a look at the final year, 2023, 96 years later, the 100, 000 has grown to 27 million. In the market account, pretty doggone good. It would have been great to have a hundred thousand dollars in 1928 set it and forget it. There's 27 million in that retirement account at that time. That's pretty cool. But what's even more interesting is when you look at the indexing account, the indexing account that returned. almost, almost 2 percent less, almost 2 percent less overall return. 96 years later, the 100, 000 has grown to 35. 5 million, 35. 5 million. So you're probably thinking how in the world did the 100, 000 in a strategy that's returning less actually beat the higher returning strategy by 8 million, 8. 5 million. How did that happen? And that's where strategy comes in. And that's where the power of zero really comes into this account. Again, the kicker that gets the indexing account to beat the market account is the fact that we take zeros. On this retirees account instead of ever losing a dollar. That's how powerful never losing a dollar actually is when you look at your retirement income. Okay. That'll get whatever retirement nest egg that you have to go much farther. That's super powerful. And it's just math. It's just math. There's no hocus pocus here. 35 million. 25 million in the indexing account compared to 27 million in the market account, okay? A lot of stress over here on the market account with the ups and the downs. And then over here on this indexing account, there's nothing but returns. That's all you're looking at is returns. And in those losing years, you're not stressed out because you're not having to change your retirement. lifestyle, you're not saying, Oh, we can't go on vacations because the market said, so you've worked too hard for retirement income. And at this point in your life, you want to make sure that you can have the retirement that you deserve. And the best way to get that done is to put your funds into a secure retirement tool, like a fixed index annuity, where you can distribute your income. To have the highest and best possible income that you can not outlive and you can actually end up removing a lot more than what the 4 percent rule where you can only take 4 percent of your income inside of an annuity. You can actually take much higher than that 4 percent rule for annual retirement income. So I hope this was helpful to just see like a Big picture on how is it possible to get lower returns over this 96 year period and beat a market account when you look at it, even though the market account has a higher 96 year average, the power is in the years that we take zeros hope this was helpful. I'll see you next time. Take care.

10:35

Thank you for tuning in to the wealth bridge podcast. If you would like more information for your specific financial situation, please reach out to me at Tyrone at wealth bridgefinancial. com forward to speaking with you.