How To Get Maximum Returns In Retirement Using Life Insurance

When you're in the accumulation phase, dollar cost averaging plays a significant role. The difference between average returns and actual returns becomes less impactful, allowing you to benefit from purchasing stocks at discounted prices during market downturns. However, this dynamic changes as we start delving into the ripple effects on your portfolio, particularly during the distribution phase. This is when the divergence between average returns and actual returns becomes more pronounced. Todd Langford joins us today to discuss these rippling effects and why it's crucial to factor them in when planning your financial strategy.

The Importance of Context in Financial Decisions

It’s essential to not only compare one asset against another but to also consider the broader context and the ripple effects these assets can have on your portfolio. Here are some considerations when it comes to taxes and stress:

• Should you pay taxes now versus deferring them to an unknown future date?
• Consider the impact of stress on your health—is managing financial uncertainties something you want during your retirement years?

The ultimate question is: Why are we saving? Is it just to accumulate wealth, or is it to ensure we have something to spend in the future?

Averages vs. Actuals: What You Need to Know

The financial world often talks about average returns. For example, the S&P has averaged over 12% for the last 40 years. However, average returns can be misleading without context. Here's why:

1. Average returns don't account for the variations in actual annual returns.
2. Things like taxes, fees, and the bond portion of your portfolio (the certainty asset) impact actual returns.
3. The significant difference between returns during the accumulation phase versus the distribution phase can drastically affect your financial outcome.

The Role of Life Insurance and Investment Strategies

When comparing life insurance policies with equity investments, it's essential to acknowledge that they are different types of assets:

• Life insurance policy cash value functions as a savings vehicle and offers benefits like death and disability coverage.
• The perceived 4-4.5% return on life insurance is net, accounting for taxes and fees—unlike the gross return often cited for equities.

Considering the ripple effects of these coverage options in your financial strategy can provide more comprehensive financial security by addressing multiple needs simultaneously.

Unpacking the Numbers with Todd Langford

Todd Langford walks us through the numbers, highlighting how modern portfolio theory and asset allocation play out over time. Here are the key takeaways:

• The assumption of a fixed average rate can lead to vastly different outcomes compared to actual historical rates.
• During the accumulation phase, the impact of variability in returns is more subdued than in the distribution phase.
• Incorporating bonds in a portfolio (a typical recommendation) significantly alters expected returns.

Stay tuned for more insights from Todd Langford as we continue to explore the nuances of financial planning and the strategies that can help you achieve your financial goals.