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Post 1The last, and one of the most important, financial disasters that we will discuss in this Lesson is the threat of running out of money during retirement. In this chapter, we will focus on the type of investments you can make to ensure that you avoid financial disaster and don’t run out of retirement savings.
This may sound odd, but the reason this chapter is so important is because we don’t know when we will die. Because you cannot predict that day you will die, you can’t possibly know how much in retirement savings you need or know how much retirement income you can afford to take out each year. Many retirees operate in such fear of running out of assets that they make the mistake of never touching their principal. This leads to a lower quality of life in retirement and to unnecessary estate taxes at death.
One of two things will certainly happen. You will be like many retirees and either die with money leftover for your heirs (and for the government via estate taxes) or live longer than expected (or spend too much) and run out of money in retirement. If you die with money left-over, we assume you would rather leave it to your heirs than to the federal government (this is where this chapter overlaps with the estate planning topics discussed in Lesson #9). We also assume that you don’t want to have to rely on your children, your children’s spouses, or your grandchildren to support you.
In this chapter, we will explain how certain Doctors get the most out of their retirement plan assets without risking running out of money in retirement. These savvy physicians get the most out of all of their assets. They also make sure that they don’t have to experience financial and emotional disasters like running out of money in retirement and having to ask children or grandchildren to support them. A very valuable tool to help avoid this financial catastrophe is the Life Annuity.

Life Annuities
Retirement is a time for you to worry less, not more. You have already worked for thirty or more years, raised children, dealt with weddings (and maybe divorces), and handled thousands of day-to-day crises with your kids, among many other troubles. The last thing you want to do in retirement is worry about how you’re going to support yourself and still leave something for your children, grandchildren, or your favorite charity. The Annuity and Insurance strategy eliminates the risk, “guarantees” you an adequate income in retirement, and leaves as much as money as possible to your heirs and/or charities, if there is anything left. In our best-case scenario, we can do all of this while reducing, if not eliminating, the income and estate taxes in the process. The first part of that strategy mentioned above includes a life annuity.
The life annuity (not to be confused with the variable annuity) is designed by actuaries to pay interest and principal back to you over your lifetime. The amount the insurance company pays you is “fixed” and will not decrease if the stock market crashes or if interest rates fall. Moreover, if you outlive your life expectancy, the insurance company continues to pay you or your spouse for as long as you are alive. This is a good way to remove the investment risk of your retirement plan assets and “lock in” a fixed income in retirement.
You may be wondering how much income one can expect from a life annuity policy. To answer this question, simply look at the table below, which shows some numbers for clients of ours (some individuals, some couples) at varying ages. Of course, these numbers are only examples and may differ based on a variety of economic and medical factors. However, once a life annuity is purchased, the monthly or annual income amount cannot change (unless a cost of living rider that increases the annual payout 1% to 3% annually is also purchased).
If you are afraid of running out of money or are just uncomfortable with investment risk and how it may impact your retirement, you may want to consider what sophisticated clients have utilized for years—Life Annuities. Your multidisciplinary planning team can help you integrate life annuities into your planning to minimize risk, maximize after-tax retirement income, and maximize your estate. How life annuities can be part of an estate plan will be discussed next.

Using A Life Annuity To Leave Money For Heirs
Life Annuities also are a valuable tool in helping you give retirement funds to your children and grandchildren, without enduring financial burdens. In most cases, the life annuity policy pays you more than you need to cover your cost of living. We recommend you gift the “excess” to an irrevocable life insurance trust (more in Lesson #9, which focuses on estate planning) and buy
life insurance to replace the value of the pension assets. Because pension assets are only worth 25 %+ to your heirs after income and estate taxes (also discussed in the estate planning Lesson), this solution almost always gives more to the heirs, reduces income taxes paid on withdrawals, AND provides a fixed income stream in retirement. If you’re not sure how this solution would work in your situation, please feel free to call us and we will run an illustration for you.

The Exclusion Ratio Can Save Taxes
Interestingly, there is a way to get tax-free income with a life annuity. If you purchase a life annuity with non-retirement plan assets, you will receive a significant tax benefit. Savvy Doctors know this and consequently implement a life annuity policy into their financial plans so that they can save even more in retirement and avoid financial disasters.
Each life annuity of this type has what is called an “exclusion ratio.” This is the amount of the monthly or annual payment that is NOT income taxable. The older you are, the greater the tax-free percentage of the life annuity payment. For More

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Healthcare Professionals worried about LeverageMaking Your Money Work For You

Now that you understand the basics of Leverage and its importance in allowing you to get things done more efficiently and effectively, this chapter will apply those concepts to financial and legal planning. Subsequent articles will demonstrate how physicians can apply these lessons to Leverage assets and people to maximize and maintain wealth.

Financial Leverage: The Foundation Of Wealth

For thousands of years, every great construction project required the use of levers to complete the building process. This was true for moving the large stones to build the pyramids of Egypt and lifting the stones for Stonehenge. Levers were used to build all of the great castles, churches, synagogues, and mosques around the world. Financial projects are very similar to construction projects. They both can seem overwhelming at the beginning—a collection of complex tasks that must be executed with skill and precision. The success of both types of projects begins with significant and detailed planning. After the plans are drawn, they must be implemented accordingly. One person could never accomplish the implementation of such plans. Instead, the plan requires a team of people working together to accomplish the same goal—for us, that goal is building and maintaining wealth.
Without exception, every high income earner and wealthy family has relied on financial Leverage in one way or another.
Once you grasp the concept of Leverage and the financial applications of Leverage, it becomes impossible to imagine how affluence could possibly be built without it.

Type Of Financial Leverage

Physicians can use different types of financial Leverage to create and build wealth. These include:

Leverage of Effort
Leverage of effort is a way to get more out of your financial plans and investments. Since the goal of Leverage is to get more done with less effort, all forms of Leverage require that you Leverage your individual effort by including the efforts of others.
Leverage of Assets
Leverage of assets is one way to increase your financial status and get more out of what you currently possess. If you had an unlimited amount of money or land, you wouldn’t need to accumulate any more wealth; however, this is not the case for most people. Since we all have limited resources, we want to get the most wealth/asset accumulation and financial protection out of what we have with the least amount of effort and the lowest amount of risk.
Leverage of People
Savvy business owners know that they only have the capacity to do so much and that the Leverage of people is one way to get more than 24 hours out of a day. By leveraging other people’s efforts, you can increase the number of tasks you can accomplish in a day. By leveraging people with special skills and expertise you don’t possess, you can get things done in much less time than it would take you to do these same tasks—if you could accomplish them at all.
Generally speaking, physicians utilize Leverage to some degree, but they are not thorough in their application. They try to Leverage effort by working hard—we know that. Doctors also may try to Leverage assets in their practice through medical equipment for which they can bill and they may try to Leverage people through technologists, nurses, and physician’s assistants, who can generate income to the practice. Still, few physicians apply this concept broadly enough in their practices to result in any real wealth building. Even fewer Doctors effectively Leverage people or assets with respect to their personal finances.

The Diagnosis

Within each of the three categories of Leverage discussed above—Leverage of effort, Leverage of assets, and Leverage of people—there are a number of different applications. Click here to read on each of these categories, discuss how they can be used to generate wealth and explain which of these types of Leverage are more appropriate for creating wealth and which types of Leverage will best help maintain higher levels of wealth.

 

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