Wealth Accumulation

What is the purpose of WA

To increase wealth - wealth is the aggregate of resources available to you

How to “increase wealth”

• Increase # of money (investing, dollars..etc)

• Increase “capacity” of money (ability to grow additional money)

Withdrawal rate

rate at which assets are withdrawn from an investment portfolio.

A higher withdrawal rate means

• Higher income

• Higher risk of money not lasting for duration of retirement

A lower withdrawal rate means

Less income

Higher likelihood of money lasts for duration of retirement.

4% rule

•4% of the initial investment account balance (plus annual inflationary raises) can be withdrawn from a portfolio and the portfolio can reasonably be assumed to last 30-50 years. 

Withdrawl rate calc. (including inflationary raise)

Mr. Couch has $1,000,000 in a retirement account.  According to the 4% rule, in Year 1, Mr. Couch can withdraw…

•If inflation is 3%, in year 2, Mr. Couch can withdraw $41,200 from his portfolio.

1,000,000 × 0.04 = 40,000 = Year 1 (no inflation)

Year 2

40,000×0.03 = 1,200 - Inflation of 3 percent

40,000 + 1,200 = 41,200

A $3mm portfolio is how much annual income?

3,000,000 × 0.04 = 120,000/year

A $100,000 income requires how much of a portfolio?

• If Inflation is 3%, what is the income in Year 2?

100,000/0.04 = 2.5 million

100,000 × 0.03 = 3,000

100,000 + 3,000 = 103,000

4% Rule Assumptions

4% of Initial Investment Balance can be withdrawn as income in the first year.

Inflationary raises can be added each subsequent year.

50/50 Stock/Bond allocation

Excludes management fees

Portfolio lasts between 30-50 years.

•Matters that impact withdrawal rates

Increased Taxes

• Requires additional income.

Increased Retirement Expenses

• Requires additional income.

Distributions during bear markets.

Legacy Objectives

Sequence of Returns

•Retirement planning requires considering the “sequence” of market returns.

• market has actual returns that can impact an investor’s actual performance. 

Legacy Objectives

exclude money for legacy objectives - take money out of total portfilo need

2mm - 400k = 1.6mm then you can get 0.04 rule

1.6× 0.04 = 64,000 per year

•One way of solving the problem of increased expenses in retirement is to

have a higher withdrawal rate.

How to solve tax issue - priotize tax free income when

early years of retirement when the income needs are larger

•If tax rates increase

How to solve tax issue - priotize taxable income when

•later years of retirement when the income needs are lower.

•In periods of low tax rates. 

For WA - the tax idea means you should have

Invest in a Roth IRA (or Roth 401(k))

Invest in a 401(k)

Invest in Whole Life Insurance

How to fight a bear market - •Assets that are growing when the market is declining.

•Whole life insurance - grow regardless

•Savings Accounts - interest rates are often high

How to fight a bear market - ••Assets that are income producing

•Bonds - treasury bonds are high

•Dividend Paying stocks, etc. 

•statistically, a person will have

9 years of bear markets. 

For fighting bear market - for WA this means

•Invest in Whole Life Insurance

•Invest in a Savings Account

Legacy objectives - whole life insurance

•The death benefit passes tax free to beneficiaries

•The death benefit passes outside the person’s estate at death.

•This means the beneficiary receives the money within a couple of weeks of the person’s death rather than months (or years).

•It is more costly to purchase when older. 

•Wealth Accumulation is (stability)

increasing stability through accumulating wealth.

WA Time Mang. - Short term

Buying a house

Increasing Cash Flow Fund to 6 months.

Marriage, etc.

Reduction of Non-leveraging debt.

WA Time Mang. - Mid term

•Larger purchases

•Financial Opportunities

WA Time Mang. - Long term

•Viable Retirement lifestyle - actually figuring out what income works for you not 10m a month

Equity can be

borrowed against to create liquidity (HELOC)

Equity: Whole Life Insurance

cash value of a whole life policy typically grows at 4–5% annually

You can borrow against the cash value at a ~5% interest rate (set by the insurer).

While the nominal rate is ~5%, the cash value still grows at 4–5% while the loan is outstanding

•Investment portfolios are created with two main objectives:

•Increase returns

•Minimize volatility

Growth is first, a question of

what you have

how you use what you have

What you have

•Savings

•Non-Qualified Investment Account

•Whole Life Insurance

•Retirement Accounts

• taxable

• tax free

•Four Types of Growth (Return types)

•Personal Returns

•Structural Returns

•Natural Returns

•Opportunistic Returns

Natural Returns

•Short Term Stability

• Savings Account

Mid Term Stability

• Whole Life Insurance

• Non-Qualified Investment Account

•Long Term Stability

• Retirement Accounts

Structural Returns

returns that happen from what you can do with your structure (allocation).

Structural Returns (time mag.)

•Short Term

• House

• Insurance

• Investment Returns

•Mid Term

• Market Swings

• Financing your own acquisitions

•Long Term

• Taxation

• Cash Flow

Increase stability through priotuizing

savings

non qualified accounts

whole life insurance

retirement accounts