Better to Store Wealth or Generate It?

The Power to Generate Wealth

What’s the difference between a nest egg that generates long-lasting wealth and a limited supply of income that can be depleted?

It’s the difference between getting your power from a generator and getting it from a battery.

A battery can provide needed power but only for a limited time. A generator, with the right fuel, can provide power for a much longer period of time and usually in greater quantities.

In Doug’s 40 plus years as a financial and retirement planning specialist, he’s discovered that many financial advisors have a battery mentality.

It’s how traditional financial wisdom has taught them to think.

This means that they follow conventional wisdom in how they tell their clients to approach retirement. They encourage them to save in traditional IRAs and 401(k)s with the intent of charging up their financial battery by saving just enough.

This is one reason why many in the financial services industry have adopted the 4% rule which establishes how much you can withdraw from your nest egg each year.

They’re banking on 4% being enough to provide a slow but steady flow of retirement income without depleting your nest egg before you outlive it. Your life expectancy is being weighed against the amount in your nest egg.

This may be problematic for a number of people since, according to DALBAR, folks in the stock market have only averaged 3.49% over the past 20 years. If they’re taking out 4% every year but only averaging 3.49%, they will deplete their nest egg sooner than later.

Let’s illustrate what that means.

Factors That Drain Financial Batteries

If you had a nest egg of $1.25 million saved up, you’d realize a net spendable income of just $3,000 each month after taxes. That’s only $36,000 a year.

Why is there such a drain on our nest egg? It’s because of the effects of taxes, inflation, and market volatility. These factors can short out our money supply or run our battery dry prematurely.

A better approach would be to have a financial generator that never runs out; one that can provide twice or even ten times the juice of that battery.

What if, instead, we had a $1.25 million nest egg that was generating $100,000 to $125,000 annually of tax-free income? What if this generator was linked to inflation in such a way that inflation actually helped rather than hindered us?

How nice would it be if that generator protected us from losing principal when the economy or the markets were down?

That’s the kind of nest egg that will not run out of power. Instead, it will generate tax-free income for life and continue on for generations.

Instead of outliving our wealth, we can pass it on to our spouse and our children and grandchildren in perpetuity. Rather than being taxed on every dollar that’s being accessed like an IRA is, this income remains tax-free.

That’s the difference between a financial battery and a financial generator. It’s the difference between creating long-lasting wealth and a limited supply that can be quickly depleted.

There’s a reason the right principles and strategies lead to what’s called generational wealth.

Start by visiting with a wealth architect today.