Your Unbiased Advisor: Safest way to build a nest egg

Which is the safest way to build a nest egg?

A recent survey listed the most popular places to save for retirement. Unfortunately, most of us do not understand the safest way to build a future nest egg. My readers have shared their experiences over 20 years with me. Here are the pros and cons of each place the survey listed: Building a successful business. Most businesses fail even those established for years. Competition is fierce. An annuity is a very expensive bank savings or CD. It is not good for building a future nest egg since the earnings are low or reduced by costs. A health savings account has tax advantages and can help us pay for future expenses. It can be a supplemental savings vehicle since it is not the best for long-term investments. Rental real estate has built tremendous wealth for many generations of Americans, including my readers. Some readers have managed their own buildings and done very well. Others have part of their 401k invested in a REIT fund like Vanguard’s. This low-cost investment has earned over 9% over time. Survey respondents like saving for the future in their own home. Some readers have done this as a supplement to investment since they primarily use it as their residence. Long term, earnings have averaged about 5% but most readers feel this asset is not the safest way to build an asset for retirement income. They can’t sell part to cover expenses in retirement. Permanent life insurance may provide you with a legacy to your heirs but is an expensive savings vehicle. A 401k at work or a self-directed IRA holding low-cost stock funds is the safest way to build a nest egg, my readers agree. There are two flavors: contributions can reduce current taxes or much more tax-advantaged, all future earnings (11% a year is average) are tax FREE.

https://www.amazon.com/New-American-Retirement-System-Reserve/dp/1461030072/

How large a nest egg will you need to live on?

The same survey above shows that 29% think they can make through 20 or more years with less than $100,000. However, most people have never done the math—they guessed.

Many think they will work past age 65. Depending on their current income and assets, each group of responders said they will need higher amounts in retirement:

$2 million or more: 17% of respondents’ amounts

$1 million to less than $2 million: 16%

$500,000 to less than $1 million: 16%

$100,000 to less than $500,000: 23%

Less than $100,000: 29%

My readers said they spend about 3.5% of their nest eggs each year so they have enough for 30 years. $1 million provides about $35,000 in addition to their Social Security and other income stream. My readers used a Monte Carlo estimator to help them plan for their spending in retirement.

Learn more: https://www.amazon.com/What-your-RMD-much-spend/dp/1718946716

Investing is not gambling

Professional gamblers love to say that if you find gambling exciting, you are doing it wrong. The same wisdom applies to investing. The myth of making a fortune by buying the right stock at the right time is fake news; broadcast hype to enrich the media. The real story is how steady contributions to a low-cost index account use the Miracle of Compounding to turn $9 a day, $250 a month, $3,000 a year into $2,000,000 during your lifetime. A $2 million doesn’t come overnight. Most of us couldn’t manage $2,000,000 if we won it at once. Most lottery winners are broke in a couple of years. Compounding is money making money on itself. $3,000 becomes $50,000, then 210,000, then $660,000, then $2,000,000 in each 10 years. Warren Buffett proved this by beating 5 hedge funds with the Vanguard 500 Index Fund. In the last 10 years, investors gained 11% total return in their mutual fund investments. For those who gambled on timing—buy and sell—Morningstar found they earned 9.3%. Pay less; earn more—boring—buy and hold.

https://www.amazon.com/Miracle-Compounding-Turn-day-into/dp/1470176513

One account to invest for tax-Free benefits now and for the rest of your life

This account provides you with best way to save for all your financial needs. And the earnings can be used without taxes. You can keep making contributions so you have more later and you can leave a legacy with any remainder. You don’t need to take money out to be taxed like a pension. You can make contributions each year up until tax time of the next year. You can take out contributions for emergencies anytime. You can use your money for a home down payment. A non-working spouse can have their own account which the working spouse can fill so you double your benefits. You can use some of the money to pay for college. This account, §408A was created by the IRS so that working people could have tax-FREE retirement income. It is available through any financial institution and operates like a ‘tax haven’ without the expense of an overseas trust.

https://www.amazon.com/Your-Tax-Haven-Tax-FREE-Americans/dp/1482659441

Our readers have survived the 2022 market downdraft by looking away. As long as they don’t sell, they don’t have a loss—it’s only a paper loss. They conclude that unemployment and consumer buying are still strong, so they can wait markets out.

2022 Total Return Fund Long-term Return Longevity

-17.5% 500 Index 11.2% since 1976

6.5% Energy 8.8% since 1984

-25.1% Extended Market 10.7% since 1987

-5.8% Health 15.8% since 1984

-29.7% International Growth 11.4% since 1981

-15.3% PRIMECAP 14.0% since 1984

-19.2% Small Cap Index 10.6% since 1960

-9.9% Wellesley Income 9.6% since 1970

-7.8% Windsor 11.4% since 1958

-15.4% Windsor II 11.2% since 1985

-13.92% Average 6 months 2022 11.5% *

*Average Annual Returns as of 6/30/22

Help your child, grandchild start a $1 million fund

They will need a million dollars since inflation can reduce the buying power by 50% in just 20 years. Since common stocks have the best history of keeping ahead of inflation, a broad portfolio has the best chance of delivering steady returns. Since 1871 a basket of stocks (dividends reinvested) has provided 11% returns. Ordinary inflation is 3% not 8.6%, so right now stocks are cheap. If you show your kids that an 11% long-term return can turn $250 a month into $1,000,000 in about 34 years, they will not try to beat the market with fast trades through a $0 commission broker. Show them the math: $250 per month for 34 years costs $102,000 in contributions. They earn $898,000 in dividends and capital gains. If they use their special IRS tax-FREE account, they avoid about $225,000 in taxes when they take their money out to live on. Remind them that Warren Buffett bet a million dollars on a low-cost market index fund to beat 5 super stock pickers. Buffett recommends you use the Vanguard 500 Index Fund. Why? You can waste up 63% of your returns when you use an advisor/broker. And if the kids trade to beat the market they may end up with the historical broker account average of 3.79% not 11% a year. That’s $208,865 instead of $1,021,768 after 34 years. Show them the Way.

https://www.amazon.com/Give-your-child-leg-up-manage/dp/1096505355

You don’t need an advisor if you start investing early

The method of investing above in “Help your child, grandchild start a $1 million fund” shows that it is easy; but hard to stick with. Learning how to manage money early makes it clear that you don’t need an advisor taking up to 63% of your long-term accumulation by charging you every quarter and trading on hot tips. Those who start SS benefits early are missing out on 8% guaranteed accumulations from age 62 to 70. If you start early, your nest egg has grown enough to take out money for an emergency. Same with the IRS requirement to take IRA distributions (RMDs) by age 72. If you are contributing to a tax-FREE version of an IRA, you never have to take RMDs until you really need them. Even then you avoid extra taxes. By the time you retire, you can have a non-commission one-fee financial planner scope out your income and expenses so you will never run out of money. They can advise you on taxes, charity, legacy, etc without having to pay for an expensive annuity for the rest of your life. Retirees cite early start as their best advice.

Start NOW: https://www.amazon.com/Best-Robo-Advisor-Ultimate-Automatic-Management/dp/1537111957/

Another business subsidy paid from our taxes

We taxpayers will pay for the pensions of workers who were left with almost nothing by their employers. Workers’ pensions are backed by the govt’s Pension Benefit Guaranty Corporation when their employers fail to pay what workers were promised. Usually retirees receive 60-75% of what their contract promised. Treasury gave $90 billion to rescue troubled multiemployer pension plans. The Butch Lewis Emergency Pension Plan Relief Act will save an estimated 268 plans and the pension benefits of millions of workers and retirees. These multiemployer pension plans have been in trouble for years as more employers walk away from their obligations to retired workers and their spouses. Like the Social Security trust fund, future obligations were not supported by the firm’s management contributions. Future SS benefits will be cut by 2034 because senior management with salaries over $142,800 is exempt from the SS tax. Current political trends do not support tax proposals to save fully funded benefits.

We are on our own: https://www.amazon.com/Americas-Socialism-Rich-little-people/dp/1535218584

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