A Different Type of Retirement Plan

Os Money|Life|Politics

Years ago many American middle class workers that worked for the government or private corporation for 30 years or more could look forward to having a pension pay them x amount of dollars upon retirement.  That amount would be paid to them until they died.  You could say that most Americans were content with that outcome or tradeoff for all their years of service provided.  They at least knew they would not be destitute.  It was a security blanket they would have and they needed not worry about how or what investments were made to make it so.  They had what is called defined benefit.  Now, fast forward to 2015 and you do not much see any defined benefit programs anymore, especially not in the private sector, and if you do they are not as secure for recipients, either because of insolvency of the backers or because politicians now want to change the rules.  We are largely in the age of the defined contributions era with option you know as the 401K.  The 401K is the new vehicle for American workers to provide for their own retirement.  The corporations are no longer providing that option, much to the delight of shareholders and CEO's pocket enlargement.  As Americans, we are free and independent, so no biggie right?  Maybe, let's look at this history briefly though.  

We are going from no need to worry about investment strategies used to giving us defined contribution where you're having to pay a financial adviser to provide and implement an investment strategy for stock and bond investment or you doing so yourself.  I graduated from college in 2006 and defined contributions was well into effect then, would you believe, there were no financial education classes offered to allow me to learn about what would be such a big stake for my financial future (more to be written later on this topic)!  There probably still is not any financial education around retirement in institutions of higher learning.  As you know from the stock market crash of 2008 - 2009, even if you did everything you were supposed to, you are in a financial position for retirement that feels so much more uncertain, but you are being preached to that the 401K path is your best or only option.  I disagree and object to the notion.  I have a different message and focus that you probably rarely hear mentioned.  So, forget your 401K and the company match, if any, and take control of your monies direction.  A different type of retirement starts when you have better control of your money positioned for safer returns than the stock market.  

A different type of retirement can be three-pronged, two-pronged or one-pronged depending on circumstances I will mention later and even these can be limitations that I will leave to you to decide.  If possible, the bedrock of your different type retirement plan should be cash value life insurance from a mutually held company (a company that does not have shareholders) like New York Life.  The policy should be optimized for cash value accumulation and there are agents that specialize in doing so at Paradigm Life and The Insurance Pro Blog.  This can be used effectively if you or your spouse is insurable and the younger you implement the policy the better.  If you are not insurable, then your bedrock should start with positive cash flowing rental real estate.  This can be single family houses, apartments, commercial buildings, etc. I do realize that education may be needed and I will mention where you can get started later.  So why these two investment vehicles? In 401K strategy, the aim is accumulation of money and then extraction of it for cash flow for living expenses which is so backwards.  In this strategy, the aim is not accumulation, but instead, is for continual cash flow.  No need to sell a stock because you need to pay the light bill.  I provide the options of cash value life insurance and real estate as retirement plan vehicles and I am using these two options currently for my retirement plan and I feel much more certain about my financial future than with the 401K plan.  I use the two options together, which is preferable, or individually is possible.  The life insurance can be looked at as similar to a defined benefit because some can be structured for you to pay premiums until say 65 and then you can draw down x dollar amount via policy loan income tax free until x age (I usually guesstimate average life expectancy for male in design), unlike the 401K which is taxed as ordinary income tax rates upon distribution, and should you pass still provide a death benefit to your loved ones.  Real estate is a means on which you can build a great stream of cash flow where the insurance option is not even needed.  If you see your working career span as being 30 plus years, during this time, you could and should be buying investment properties that cash flow $200, $300, $400 plus per month and if you extrapolate that out how many properties you need will depend on the income you figure to need to live a comfortable lifestyle. The other option which I would not use without the cash value life insurance is to buy stocks or distressed assets when they are cheap and sell at the highs.  There is a component of cash value life insurance that you can borrow against the cash value via a policy loan.  The loan has no term but does have a small interest rate applied from time the loan is out, but think of the scenario where you could arbitrage the difference.  The crash of 2008-2009 would have been optimal time to use this tool, but surely your money was all tied up in the stock market at its crash.   

So, I've outlined above some of the options for a different type of retirement plan and the designs as three-pronged plan would be cash value life insurance, real estate, and arbitrage of distressed assets, the two-pronged is cash value life insurance real estate, the one-pronged could be either cash value life insurance or real estate. In my humble opinion, these options provide a far safer, more reliable, and controllable outcomes than investing via only the 401K.  You have better control of your monies and how you are going to invest it and add value and you do not have to take the utmost risk in order to retire securely in the future using this different type of retirement plan!

Note:
I learned real estate investing principals via Lifestyles Unlimited in Houston, TX.  They provided education to out of state investors as well.  http://www.lifestylesunlimited.com/

I will be expounding on points mentioned in this blog in future writings with more details on the benefits provided by this approach and examples.


Os