The Secret to Creating Lifetime Wealth (Part 2)
Image sourced by Kyle Glenn @kylejglenn
Welcome back!
This blog post continues covering one of the most important and fundamental financial concepts and money concepts about building lifetime wealth; what wealth is; and what wealth can do for you.
I want you to think wealth, prosperity and abundance. Let’s get to it!
If you’re just joining this blog post series, click here to see Part 1, Part 3, Part 4 and Part 5.
Picking up from where we left off in Part 1, while we’re at it, to succeed you should create a comprehensive financial plan, a financial roadmap. . . to help guide your way and achieve your financial goals.
This analysis begins with creating yes the B-word or budget, a personal budget, which guides how much money you can spend. Or should spend.
For what it’s worth, I believe that the US Government will continue to pay Social Security and Medicare Benefits for the foreseeable future, despite the continually mounting Federal Government deficits.
No guarantees from the Budget and Grow Rich® Management though.
But let’s assume that Social Security will provide some sort of source of steady income hopefully for all your retirement years. And that for the moment that our Social Security income will start when we receive the first payment until the month in which we die.
Then, we can treat Social Security payments as annuity income since we expect it to pay us every month.
An annuity means a cash flow stream that is designed to provide periodic, for example monthly, quarterly, semi-annual or annual income. We expect this annuity income to be a reliable source of income – cash flow to help – support us.
Note: financial companies offer a variety of annuity products including fixed annuities and variable annuities. So be sure to meet with your financial advisors to understand how annuities work and determine whether annuities fit your needs and financial goals. And if so, what kind of annuity – variable annuity or fixed annuity – is suitable for you and your family.
But let’s return to Dear Old Dad for the moment and analyze the wealth he’s accumulated over his lifetime and his investment income.
Thankfully, he built up a decent amount of assets (net worth) and extinguished all his debt – paid off his debts – before he retired. Although, my stepmom leases a car, which means a monthly cash outflow.
To cover his living expenses, Dad uses his Social Security payments (Social Security Income) and the investment income his investments generate.
So far thankfully, he’s been relatively healthy and has not had to dip into the principal.
Principal, according to Investopedia.com, means the original sum of money that's placed into an investment or the amount borrowed under a loan.
This definition of principal is consistent with my understanding. But let me modify the definition slightly for our discussion:
Principal is the amount of money amount of capital or investable assets (money) that you can invest today.
It’s very likely, hopefully, that You have invested money – principal – over time, to build wealth for retirement. If not, start doing so today, without fail. And keep in mind that saving even a few dollars can add up over time.
And here’s the modification of the definition. . .
On the day you retire, the amount of wealth, the amount of money, the amount of capital, you have accumulated over your lifetime becomes your ‘new principal’.
New Principal means the amount of money you have available to invest today to generate investment income to cover your living expenses during your retirement, assuming you don’t take a part-time job or fulltime job.
Assuming you stop working completely when you retire, let’s assume that your Social Security income will cover a portion of your living expenses.
Your investment portfolio – investable assets – will have to generate enough income (cash) to fund the rest of your living expenses.
Although unlikely, you could take a lump sum withdrawal from your retirement plans. But most likely, no one would do that, absent perhaps a medical emergency or other dire situation.
Continuing our example, suppose Dad accumulated $1,000,000 in total assets (his net worth) across his cash savings, 401(k) plan, IRAs (Individual Retirement Accounts), investment accounts outside his retirement plans and real estate.
And by the way, turning to You:
It should be feasible for You to accumulate $1,000,000 or more if you start investing early enough; and,
Invest the maximum allowable contribution to your 401(k) plan, 403(b) plan, IRA, etc.; every year and take Full advantage of your employer match – 401(k) employer match or 403(b) employer match; and,
Create a sound investment plan that includes a diversified portfolio of investments.
Be sure to consult with your financial advisers and create an investment plan that’s suitable for you, your financial goals and personal goals, risk tolerance and investment time horizon.
Absent changes in the investment markets, Dad’s “new principal” equals the amount of money or capital he has available to invest or spend beginning on the day he retires.
Let’s starting thinking wealth, prosperity and abundance and design a plan to help us get there. Right now!
See you next week.
Arthur V.
P.S. To Create More Free Cash, Save More Money on Groceries Every Day – click here.
To grab the other blog posts in this special Budget and Grow Rich® wealth-building series, click here to see Part 1, Part 3, Part 4 and Part 5.
Disclaimer: OH and Please Remember, we are Not attorneys or financial advisors and are Not providing any specific financial, tax or legal advice here. Be sure to consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances!
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