The Power of Generational Wealth

A Generator Beats a Battery

A handy way to visualize the difference in ways to power up your future can be found in examining the differences between a battery and a generator.

You don’t need an advanced degree in electrical engineering to understand that a battery provides power for all kinds of electronics but only for a limited time.

You car battery, for instance, can help keep your vehicle going for a few years before it has to be replaced. Your phone battery can usually only go a day or so without needing to be recharged.

A generator, on the other hand, can provide power for a much longer longer span of time and for much bigger needs. All it needs is the right fuel, typically some type of gas, and you can use a generator’s power for all kinds of things.

In the 40 plus years that Doug has been a financial and retirement planning specialist, he’s noticed that a lot of financial advisors seem to have a battery mentality.

This is the result of how traditional financial education has taught them to think.

They tend to follow conventional wisdom which tells us to approach our retirement future by charging up our financial battery just enough. The intent here is to see to it that we have funds enough to last as long as we do, with our fingers crossed that we don’t outlive our battery.

Many in the financial services industry have this 4 volt mindset. It stems from the industry standard 4% rule which determines how much you can withdraw from your retirement nest egg each year.

The idea is that the 4% rule helps provide a steady flow of retirement income while keeping your account balance sufficient for the years to come based on your life expectancy.

The bottom line is that they don’t want you to take out any more than 4% a year or you may outlive your money. The idea is to slowly deplete your nest egg so that it doesn’t finish before you do.

This could present some real problems for some people since, according to DALBAR, the average over the past 20 years for people in the stock market has only been 3.49%.

This means that if you’re taking out 4% yet you’re only averaging 3.49% each year, you will eventually deplete your nest egg.

Tax-free Wealth Is Key

In real world terms, that means you’d need a nest egg of $1,250,000 to generate a net spendable income of $3,000 each month–after taxes. That’s $36,000 a year.

Does it make sense to you to have $1.25 million saved away just to generate a mere $3,000 a month for your living expenses? It doesn’t to most people.

Especially when we factor in conditions that can cause a drain on our financial battery like taxes, inflation and market volatility. Those are the things that will short out or drain our battery dry.

You’d be better off to have a generator that never runs out. The kind that provides twice or even ten times the voltage of that battery.

Think about it, what if that $1.25 million nest egg were generating $100,000-$125,000 each year of tax-free income? What if your nest egg was a powerful generator that generated predictable tax-free income where your money was linked to inflation so inflation helps rather than hinders you?

What if it protected you from loss when the economy or markets were down?

This means your nest egg doesn’t run out of power.

It generates tax-free income for life and will continue on for many generations. This is why we call it generational wealth.

You don’t outlive your wealth but instead pass it on to your spouse and your children and grandchildren into perpetuity. Instead of being taxed on every dollar of that nest egg that is being accessed, such as happens with and IRA, it remains tax-free.

It’s the difference between generating long-lasting wealth versus creating a limited supply that will be exhausted.

Once you understand the principles and strategies that go into creating a wealth generator, a battery will never hold the same appeal.

Start by visiting with a wealth architect today.