But I Don’t Want To Spend My Principal

As I speak with many of the callers to my radio show, one of the first things many bring up is that they are interested in hearing more about what I have been talking about, but they do not want to look at anything that may eat into their principal.

They are intrigued by the fact that I say their money can get an automatic bonus of up to 10% just for depositing it. They can also get guaranteed growth for income, often up to 7% a year or higher, and any market gains are locked in and never subjected to market declines.

This all sounds good, but they want assurances that their money will never go down. This is an understandable concern on the face of it, but it speaks more about the way most of us have been programmed to look at money.

During our working years, we want to accumulate as much money as possible to fund our retirement, so we contribute year after year to our 401(k) and IRA accounts. Over the past 15-20 years, we have experienced all the uncertainty of the market and its effects on our retirement savings. Many have seen losses of 30-50% or more twice since the year 2000 and now have seen almost a decade of nothing but upside in the market to the point where their accounts have recovered from all the losses and are back in the black again- some with substantial gains.

Now 15 years later and either close to retirement or already in retirement, the real fear that there could be another significant reversal is on the minds of almost everyone with whom I speak.

Being older now and with past bad experiences in the back of their minds, most people want to try and avoid another significant downturn that could ruin their retirement plans. They want gains but no losses, and when I show some of my clients’ statements over the past few years that have locked in profits from over 7% a year up to as high as a little over 16% without risk of loss, they become very interested.!

But this is usually when their concern about not touching their principal comes up.

Many people want a guarantee that they will have gains like this every year, and then they’ll take out the increases and retain their principal. Some products will guarantee interest higher than what you can get on a CD, for example. Fixed annuities can ensure a little over 3% a year if you lock the money up for five years- but what happens after that? That still does not resolve the concern of outliving your money, as 3% a year is insufficient for most people to live on.

Many people have financial advisors who have preached the 4% Rule to them for years, and so they look at their money as an account that they have to worry about for the rest of their lives. They fear that if there is a correction in the market of 40-50% as they’ve experienced before, or if something unexpected happens, they may run out of money in their later years. With all of these concerns, they don’t want to deplete any of their principal- just in case they might need it.

Of course, every situation is different, but for the most part, the only purpose for money is to spend it during your lifetime or pass it on to your heirs. I’ve used the analogy of planting an apple tree in your backyard and watching it grow for years, but then you want to enjoy the fruit at some point in the future. You don’t just look at the tree and watch it grow and bear fruit; never take the fruit to eat or share with family and friends and watch it wither on the vine untouched!

Similarly, with your money tree that you have been growing for all your working years. You have to change your thinking about that money from growth (accumulation) to income (distribution). This is the most complex concept I have to convey to my callers. In the traditional way of thinking, we need to preserve our principal at all costs in case we need them later. So we downscale our lifestyles to the 4% Rule (some reports have suggested that it be reduced to 2.8%) and hold off on enjoying some of the things in life that we hoped we would be able to do in our golden years- travel, time and gifts for the grandchildren, etc.

To continue with the apple tree analogy, people worry for the rest of their lives that a big storm may come (a significant market correction) and devastate the beautiful tree full of fruit they had grown through the years. This would destroy all their plans and even threaten their lifestyle entirely. When I speak with people and ask them about their main concerns for retirement, it usually turns out that they are afraid of outliving their money and don’t want to spend too much. They are so scared that if they take too much fruit off the tree, it may become depleted of fruit.

So they look at living off their Social Security and whatever their CDs can give them, or perhaps employ the 4% Rule and discipline themselves to live on less than they would like to. However, by doing a proper analysis, I have shown many of these people how they could take out up to 10% or more of their principal in retirement without ever having to worry about running out of the money that tree would never run out of fruit!

While enjoying this higher level of income, they can still lock in gains when the market goes up and pass on any remaining money to their heirs when they pass on. This answers all their concerns about touching their principal and creates real peace of mind in retirement. Studies have even shown that people live longer and happier lives when the stress of worrying about their assets is taken away.

Now they can concentrate on doing what they have always dreamed of with their retirement on auto-pilot! Contact me to set up your stress-free retirement plan to see what we can create together!