Many Americans are concerned by the recent stock market volatility, primarily due to the COVID-19 pandemic. Those closest to retirement are among the most vulnerable. They do not have time on their side when it comes to salvaging lost assets. In this episode of Money Script Monday, Kevin presents a retirement vehicle that generates guaranteed lifetime income throughout periods of uncertainty.

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Video transcription

Hey there. This is Kevin Nuber. Thank you so much for watching today's Money Script Monday video where I'm going to be talking about how to get back money that you just lost in the stock market.

Over the last 30 days or so, we've seen some extremely volatile markets. We've gone from historic highs to very recent lows and swings that were completely unexpected.

Nobody could have predicted that a pandemic, a global pandemic, would have caused the economy to become so anemic.

Imagine what it feels like if you're a 60-year-old who was getting ready to retire in the next five years.

They've been saving up their money their whole entire life. Suddenly, they see their 401(k), or their portfolio balance reduced by a substantial amount.

They have a dilemma at this point. What do you do?

Well, you can sit around and wait and hope that the stock market recovers so that at the time you retire, that all that money comes back, or might not and you simply end up retiring with substantially less money.

So, that's what most people are feeling like or thinking about right now. But I'm going to show you what you can do today in order to make sure that you get that money back.

Overview

Over the last 11 years, 10 to 11 years, we've seen a historic bull market and stock market. We've never seen anything like this before.

The last two to three years, it's been a huge year over year increase. The recent high on the Dow was 29,568.

That was just within the last 45 days or so from the time of this recording. But, with this historic high, we've seen this giant decrease. And at the time of this recording, the price is 21,256.

Now, whenever you watch this video, I guarantee you this is going to be a different number. The Dow is going to be a different number.

It might be higher, it might be lower, but my point and the lesson that you're going to learn from this is going to be the same no matter what the current price is today.

This decrease of 20%, if you take action today with your portfolio, we can get it back in the next five years.

Example

So, let's say that you're a 60-year-old male or female, and you have $500,000 in your 401(k) balance and you decided to go and purchase an annuity that has a guaranteed income rider that will produce a guaranteed income for the rest of your life at some point in the future.

Well, at age 65, so 5 years into the future, it will guarantee that you can have an income stream of $29,000 per year, which seems like a good number.

This is if everything goes perfectly wrong. So, the stock market never goes up. You never earn any interest inside of your annuity.

This has never happened over a five-year period. But let's just assume the worst-case scenario.

That's where we get that $29,000 per year. Now, the annuity is going to earn some sort of interest rate in reality between now and five years.

If it earns a historical interest rate of 3% or something like that, then it'll give you an income of $34,712.

This number is somewhat meaningless to us. What is $29,000 mean of income? What is $34,000 of income mean?

Because we always think of how much money we have in our portfolio, which is the $500,000, we never think of how much income that this portfolio is going to produce.

So, what I want to do is I want to take that income stream, the $29,000, and I want to come up with an equivalent amount of money that you need to have in your 401(k) or retirement portfolio to give you that same income stream.

In the financial planning world, there's something that we call the 4% rule.

This video is not about the 4% rule or debating about its merits or the things against it, but it's something that we get taught when we get designations, and our securities licenses, and things like that.

It basically states that if you're a 65-year-old, if you want your money to last your entire life, and never run out, that the safe withdrawal rate that you can take for your portfolio is 4%.

That's all you can take. If you take out more, then you're going to run the danger of running out of money.

And if you take 4% or less, then you'll have enough money for the rest of your life. So it's really easy for us to take this $29,000 of income.

We're using this 4% rule and derive an equivalent amount of money that you would have to have in that retirement portfolio to have that same income.

So, for $29,000 of income, that's the same as having $725,000 inside your retirement portfolio.

To produce the $34,000, you would have to have $867,000 inside of your retirement portfolio, which is a pretty big gain from the $500,000 that you have today after the stock market went down.

Necessities

But to make this a little bit more concrete, what I want to do is I want to say, what rate of return is that? What's the equivalent rate of return?

How much does my money have to grow from $500,000 to $725,000 or $867,000 in order to have that same growth rate?

That math is easy too. If we took that money for five years, it grew to this $725,000, it would have to earn 7.71% every year for the next five years no matter what.

There's nothing out there in Wall Street that can actually do this, but that's what you would have to do to get that same equivalent amount of income.

On the non-guaranteed income stream, which is the $34,000, it would have to produce a rate of return of 11.65%.

So it's a much, much higher rate of return.

To bring this all together, the question I'd like to ask is if the Dow 21,256 today, what would the Dow have to grow to in five years in order to have the same rate of return and to give you the same amount of income on the day that you retire, assuming that you just put all your money into the stock market?

The guaranteed amount that it would have to grow to, the Dow would have to go to $30,814. The non-guaranteed income would be the same as the Dow growing to $36,826.

That is a pretty big increase. In fact, if you look at the historical values, the price was 29,568.

What we're saying is that if you put your money into an annuity today, you don't have to sit around, and you don't have to hope that the stock market recover.

It might recover, it might not recover. What you can actually do right now, is you can take your retirement portfolio or a portion thereof, you can put it into an annuity.

If you defer it, then you can produce an equivalent income stream as if that asset value was in the Dow Jones Industrial and it grew to 30,814.

That's what you can do today. Completely guaranteed.

You don't have to worry about the stock market. You don't have to lose any sleep tonight if the stock market goes down.

Everything is completely taken care of. All that risk and uncertainty is completely removed from your retirement.

So, thank you so much for watching this video.

The information presented here is not specific to any individual's personal circumstances and the scenario described is for illustration purposes only. These videos are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials or may change at any time and without notice. Each individual should seek independent advice from a insurance and advisory professionals based on his or her individual circumstance.

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The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States. The index results neither include dividends reinvested nor reflect fees and expenses. Investors cannot invest in any index directly. Guarantees provided by insurance products are backed by the claims paying ability of the issuing carrier.

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