The road to retirement can sometimes be complicated, full of twists and turns, traffic, and even a collision or two. But what if you had a GPS, or roadmap, to help you figure out where you are today, where you want to be, and the most effective and efficient way to get there? In this episode of Money Script Monday, Michael presents a step-by-step guide to building a successful retirement and the 5 critical areas to focus on to protect it.

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Video transcription

Hello, everyone. My name is Michael Clementi and, first of all, I want to thank you for attending this episode of Money Script Monday.

Today, we're going to be going over the five-step protected income process.

Before we get to the five steps, I want to pose a question to you. Have you ever planned a trip between you and some friends, you and your family, and you were in charge of the travel?

So, what's the next logical step?

Well, you pull out your phone, go online, and you go to the GPS and you type in your current address, type in your destination, and it's going to give you about two to three different options.

The first option, the path of least resistance, the most efficient way with the least amount of risk incorporated.

The second option, to lower your travel time maybe by 30 minutes but we're also adding a little more risk, going through some winding roads, maybe some mountaintops, some things we may not want to incorporate in our travel.

Third option, it's that smooth freeway drive on a newly paved highway but it's a little bit of the way, it's going to add about 45 minutes to our time.

And why am I asking this question? It's because we want to approach your retirement the same way we're approaching our travel. Treat it like a GPS.

Where are we today? Where do you want to be? And today, we're going to take these five steps and show you how you're going to get there.

Identify

The first step in the five-step process is identify. Determine your current financial status. Where are you today?

In managing your portfolio, we've typically seen a 401k, some Social Security, maybe some life insurance and some money in the market.

All working together on their own, but when you combine them into one plan, what does that really mean for you? What does it mean for your income you see in retirement?

So, you figured out where you are today and where do we want to go. And we want to separate that by your essential expenses and your discretionary expenses.

"Essential" meaning, "What do I need to have on a monthly or annual basis to keep my standard of living for me and my family in retirement?

Maybe my medical bills, my car, my food and my shelter. Everything to protect my family."

Once you take care of that, let's focus on that discretionary expense.

Let's see what hobbies and leisurely activities we look forward to as a family so we can keep maintaining that standard of living while we're in retirement.

Protect

So, once we figure out where we are today, where we want to go, we need to protect. Maximize guaranteed lifetime income.

And there's only three sources of guaranteed lifetime income.

One being a pension. And pensions are very unique, they're only offered by certain jobs, usually government-mandated jobs. Firefighters, police officers, nurses and teachers.

And if you don't have that job, you may not qualify for a pension. So, we're left with a Social Security plan and an annuity.

A Social Security plan, what we've seen, is the best way to maximize that benefit is to defer it, to push it back all the way until your full retirement age.

But unfortunately, most people don't have that plan in place to cover until they retire, until their full retirement age. So, there's an income shortfall right there.

We want to incorporate a fixed index annuity, which is going to give us that protected income stream that will never ever outlive.

Annuities have also come a long way since we started talking about them. One new feature being a cost-of-living adjustment.

So, based off our market returns, we can actually have increasing income based off what we're getting in the stock market.

It's also going to give us that protection, that income stream we can never outlive, and also account for inflation.

So, we've identified where we are right now, where we want to go. We've started protecting our income and giving us an income stream we can't outlive.

Reduce

The next step is reduce. Minimize income taxes. One thing we've seen is that the biggest bill you face in retirement is your income tax bill.

When we're identifying where we are right now, how much of that money is taxable money? How much of that is actually going to Uncle Sam when you start accessing it?

You may want to consider incorporating an indexed universal life insurance policy.

That's going to give you that tax-free income stream which is solved for lifetime income, also protected by stock market volatility, and so much more.

It's going to protect your family, so if you suffer any critical, chronic, or terminal illness, you can advance your death benefit to protect your family so it doesn’t have to come from your assets or take away from anything else.

It's also going to give you a tax-free death benefit for your family.

So, after you pass away and you look down on your family, you know that they're taken care of and they can maintain their standard of living once you're gone.

Invest

The next step after we minimize our income taxes, we actually want to invest. We want to grow our surplus assets. And there's a reason we put this as step number four.

Once we have a protected income stream, we minimize our income taxes, we know that that's going to be taking care of our essential expenses and part of our discretionary expenses.

We actually want to grow the surplus assets, swing the bat a little bit harder, get those high gains so that we can maximize our retirement plan completely.

So, once we've identified where we are, where we want to go, we've protected and maximized our guaranteed lifetime income, we've lowered our income taxes and we're growing our surplus assets, the fifth step is to manage.

Manage

You want to review everything on an annual basis. So, just like life changes, so does your plan.

Every year, you want to sit down with your financial advisor, go over the illustration, what was illustrated and the actual performance, and go over any new goals you have.

"Do we need to incorporate any long-term care?" "Do we need to incorporate any major capital purchases?" "Do we need to reallocate any indexes?"

All things you want to ask every year when you're reviewing your plan.

So, now that we've gone through each step of the five steps of the protected income process, if you're approaching retirement and you want to take a little bit of risk off the table and give yourself a predictable income stream…

I advise you to sit down with your financial advisor, review the five steps and make your own protected income process.

My name is Michael Clementi and I want to thank you again for joining me, and we'll see you next week.