Help, I Have Not Properly Saved for my Retirement!

My name is Dr. Mark Parisi. I am a practicing healthcare professional and licensed insurance producer. I specialize in helping to secure the financial futures of the clients I work with against death (including COVID-19), disability, critical illness, and terminal illness and providing tax-free #retirement saving solutions that can help my clients retire, on average, three to five years earlier than expected. For years, as a Clinical Psychologist, I counseled clients who's lives were devastated by poor financial decisions and they were left to pick up the pieces of a shattered financial dream. I now work on the other side trying to prevent my clients from falling into financial ruin in the first place.

I would like to share a common scenario I am confronted with you based on actual consultations I have had. We'll call this client - "Mary." She consulted with me about retirement and was feeling pretty distraught and hopeless that she would ever be able to retire. Here's the scenario:

"Help, Dr. Parisi, I have not properly saved for my retirement. I am a 58 year-old nurse practitioner who has mostly worked contract jobs to maximize my income over the past many years. Despite making a very decent income - around $105,000 before taxes - I have very little to show for it and feel like I have not always been the smartest money manager in the past. It did not help that I put two kids through expensive schools and also went through a costly divorce several years ago. My job is physically and emotionally draining and I just don't want to do this much longer, but I am thinking I will probably have to work at least part-time well into my 70's because of my poor planning. Ideally, I would like to stop working within the next ten years. Here's what I have managed to save up so far - I have about $100,000 in savings and have an older Roth #401(k) from a previous employer where the value has grown a little bit to around $20,000. I have managed to pay off my entire mortgage this year and also paid off all of my credit cards and one line of credit that were a remnant from my divorce. I think I should be able to put aside as much 50%-60% of my paycheck into retirement planning and would like your ideas as to what to do. I also have a modest term life insurance policy with $250,000 that goes through 63 years of age. I did recently talk to my financial planner who seems to have come up with a pretty good plan."

I see clients like this with more regularity than I'd like to admit. The Psychologist in me tries to listen to them, allows them to vent their frustrations and fears, and then provides reassurance that there are many ways to prepare for retirement even when getting a late start - the key is having a sound plan based around personal goals. There are some areas of strength in Mary's situation. For example, I would congratulate Mary for have the sensibility to have some income protection in place in case she dies unexpectedly. Admittedly, the coverage she has is much too low and does not adequately insure her human life value for all of her remaining working years. But, some coverage is better than none, right? Also, I would commend her for putting aside a full year of rainy day money which is more than most of her peers have done - most of whom do not even have the recommended six months set aside.

Now, Mary came to me already having talked to her financial planner, but she heard that I might be able to offer some different, non-traditional retirement products that could do a little bit better. So, we started out by discussing what Mary was told by her financial planner. This is the plan that was put forth.

It was recommended that Mary consider leaving half of her savings account alone which could be used for emergency funding and also to help bridge the gap to retirement in case of the unexpected when Mary's term life insurance coverage went away after age 63. Mary already had a Roth 401(k) in place, but it was not actively being managed and was performing somewhat poorly as it was a bit overly aggressive. The financial planner's goal was to minimize Mary's tax exposure in retirement and to put her in a position to stop working by age 70 - maximizing both her social security income and personal savings-based distributions in retirement. He suggested rolling the Roth 401(k) into another Roth 401(k) retirement product that was medium risk and yielded an assumed interest rate of around 6%. Now, because of limitations on maximum funding (maximum contribution of $26,000 per year after age 50 as catch-up), Mary would need to open up another retirement vehicle - in this case a Roth Individual Retirement Account (IRA) - in which she would be able to put another $7,000 per year (again, allowing a little extra based on Mary's age). Now, at that point, Mary had exhausted her tax-free "buckets" in retirement and was advised to consider opening an annuity which would allow for up-front funding of $50,000 and allow her to continue contributing monthly to this non-qualified plan. It was decided that Mary would be able to comfortably fund an additional $12,000 per year in this annuity product. This annuity paid a guaranteed 4% interest rate on her initial deposit for four years and then offered an assumed interest rate 2.5% on subsequent deposits along with a 10-year penalty on early withdrawal of her money.

This is how the cash flow worked out based on rough calculations. For the combination Roth 401(k) / Roth #IRA, Mary would be able to enjoy approximately $27,000 / year in tax-free distributions based on the 4% rule of retirement income. From her annuity, Mary would be able to realize a taxable, lifetime income of approximately $9,800 / year. It was estimated that if she worked until 70 years of age, Mary would collect about $43,200 / year in social security benefits. She would preserve her emergency fund of $50,000 and could supplement her social security income to the tune of around $34,900 / year with additional retirement distributions. This would successfully replace more than 70% of Mary's pre-retirement income and allow for a fairly comfortable - although not extravagant - retirement.

Sounds pretty good, right? Not so fast. When I examined the analysis that Mary produced, I immediately had concerns about her not having adequate protection against death, disability, critical and terminal illness while she was still working until age 70. This seemed to be an fundamental error in judgment on the part of the financial planner because Mary's protections would go away when she turned 64 and if she was forced to medically retire much sooner than expected - say 64 instead of 70, Mary's distributions during retirement might be a lot less - as in probably covering less than 20%-40% of her pre-retirement income and fostering a much more stressful retirement. I also knew that - given her robust earnings history and access to a sizable amount of money to fund a retirement product - we should be able to get a much better return for her. Also, I knew something that the financial planner did not. I knew there was an amazing product out there - the #Kai-Zen Executive Life Insurance Plan - that had helped many people and could help her too.

Mary had never heard of this plan before which did not surprise me. I explained to her that Kai-Zen is a permanent life insurance plan based on the principle of using bank-leveraged loans to maximize cash accumulation and tax-free distributions in retirement. Because of the bank would match Mary's contributions 3 to 1, Mary would only need to contribute $32,850 for five years for a total of $164,250 and she would be done funding the policy. The bank would go on to contribute a total of $425,140 over a period of ten years. This would allow Mary to amass a very sizable amount of cash value in her policy. The bank loans would automatically be repaid by this cash value in the fifteenth year of the policy and Mary could start taking tax-free distributions at age 73 of $54,000. Because Kai-Zen is a permanent life insurance policy, Mary would immediately enjoy $1M of coverage upon approval of her application and payment of her first premium. Also, she would have protection against disability, critical illness, and terminal illness where 70%-90% of her death benefit could be paid out in a lump-sum, tax-free benefit while she was still living. Lastly, Mary would have the safety and security knowing that she would not lose her hard-earned money because the Kai-Zen plan features a "0% floor" - meaning that when the stock market turned negative, Mary would would not lose money because her return would never dip below zero. This downside protection against stock market volatility is incredibly important in retirement.

Sounds pretty good, but I know what you're thinking - wait a minute, this requires Mary to work until 73 to start receiving distributions. Ah, remember, though, Mary is only contributing about $33,000 to the plan for five years. Based on her income and ability to save, she has a lot more in reserve that she can invest for retirement and seek return. I was able to tell Mary with some confidence that she should be able to retire by age 67 with some degree of comfort and an intact emergency fund of $50,000. She was happy to hear this because she was growing weary of working and not looking forward to having to work another ten years or longer.

Here's how the cash flow works out.

Mary would have money left over to invest in the same Roth 401(k) strategy highlighted by the financial planner and could contribute about $192,150 over nine years producing a yearly tax-free return of about $7,700 starting at age 67. She could also take advantage of the same annuity strategy but plan on annuitizing the product at 68 versus 70. This would reduce her taxable, yearly distributions somewhat down to about $8,000. Mary would have reached her full retirement age at 67 and would be eligible for about $36,000 per year in social security income. Her combined retirement income at age 67 in this scenario would be around $44,000 - nearly all of which would have limited tax exposure. In the following year, her retirement income would jump to just over $52,000 per year - which would replace about 50% of Mary's pre-retirement income; but, she would also be completely protected against the unexpected as she continues working past age 63. Now, Mary would have to live within her means for the first several years of retirement, but starting at age 73, Mary would receive an additional $54,000 per year of tax-free retirement income. This would put her combined income starting at 73 to $106,000 which actually would replace 100% of her pre-retirement income. She would enjoy this level of comfort in retirement basically for the remainder of her life.

In this scenario, Mary enjoys unmatched tax-free retirement income, #protection against the unexpected, and a staggered retirement income that eventually replaces 100% of her pre-retirement earnings for much of the rest of her life. Best of all, Mary can look forward to working less than ten years and being able to retire with some degree of confidence and comfort.

Does this scenario spark interest for you and you would like to learn more?

Please contact me at (773) 707-6726 or visit my website at https://bestinsurance-rates.com/lirp for a free, no-obligation consultation.