Your # 1 Threat to Building Sustainable Wealth

It’s no secret that your odds of becoming part of the wealthiest 1% in the world is reasonably achievable, as one in nine Americans accomplishes that every year.[i]   However, you have less than a 2% chance of remaining in that top 1% tier for more than 5 years and less than a 1% chance of remaining there for as long as 10 years. And that is because sustainable wealth is difficult to achieve.

There are some specifics as to why wealth, once you have created it, is so difficult to sustain. Interestingly enough, none of them have to do with assuming more risk, saving more money or working any harder. These three things that most financial planners and marketers will tell you are essential to building wealth, simply don’t pertain to building sustainable wealth.

To build sustainable wealth you must overcome market velocity, inflation, interest costs, fees, penalties, and taxes because these are the misfortunes that will ravage you, regardless if you ever make it into the 1% club. And that means, until you learn how to overcome these six hurdles your financial future will remain unsustainable.

Think about this. If you are between the ages of 55 and 64, you have on average, only $120,000 saved for your retirement![ii] Try to sustain your current lifestyle on that meager amount of money. You might last two years, as the average person only earns about $60,000 a year. What makes you believe you can live longer in retirement on that meager amount of savings if you can’t survive on it today? And don’t say, “I’ll be in a lower tax bracket.” Because statistically, that is a farce that simply doesn’t materialize. Nobody wants to live life at a lower level than what they have become accustomed to living. Many retirees find out too late that they pay more in taxes than they did while they were working…even if they do end up in a lower tax bracket.

So, why has the American Dream become an American Nightmare for so many?

In a word, consistency, or the lack thereof, is what makes the difference.

Here’s what you need to know: Saving $5,500 out of your paycheck every year from age 21 to age 61, (40 years) and being able to earn a mere 4% rate of return will produce $522,640 for you. Keep that up until you are 71 and you’ll have over $839,669 to sustain you in your retirement.

But the problem is nobody consistently saves $5,500 every year. You move, change jobs, get laid off, injured or take early distributions from your retirement account for expenses that come in your life. And even if you can save consistently, the average investor consistently earns less than the average return of the market. For example, “Over the last 10 years, the average fixed-income investor only earned 0.48%, compared to the BloombergBarclays Aggregate Bond Index of 3.31%.”[iii]

Simply put, consistent earnings on investments are lacking, even if you have mastered consistent savings. Not good!

So, how do you overcome this inconsistency so that you can build sustainable wealth?

In a word, guarantees. Only contractual guarantees can provide you with the security, safety, and sustainability that you need for your future. And remarkably, only certain participating whole life insurance contracts can provide the guarantees that you will need with the liquidity that you must have if you are going to continue to add assets along the way.

Consider using $5,500 from your paycheck every year from age 21 to 61. Only instead of risking that by investing in very inconsistent market returns, purchase a guaranteed participating whole life insurance contract. By age 61 you will have a guaranteed $397,342, and with dividends, you could have as much as $555,619. This is a very compatible return when compared to what you could have earned in your IRA or other investment over this same time period. Of course, if you continue doing this until you are 71 you will have a guaranteed $549,677, and with dividends $918,531. Again, a very comparable return compared to a traditional investment.

However, wouldn’t you like to know for sure that you are guaranteed to have $549,677 at age 71, and possibly $918,531, instead of expecting to have $839,669 and coming up short like so many people do?

Besides, your participating whole life insurance will allow you to use your accumulated cash values without having to pay more in taxes. That isn’t the case with money accumulated traditionally unless you have purchased a Roth IRA. With your participating whole life insurance, you will also be guaranteed a death benefit as well as access to your cash values. And your death benefit will create sustainability for your spouse or loved ones if and when you die. The Roth IRA won’t give a death benefit.

Finally, participating whole life insurance provides you a consistent opportunity, throughout your lifetime, to leverage your accumulating cash values and purchase other assets that produce passive income for you. This only adds to your ability to build sustainable wealth. And though you can risk other investments to create similar opportunities, you do so only by risking the loss of the interest your investment is compounding for you.

For example,

  • A $60,000 early distribution in year 5 from a traditional investment earning 10% will make you lose $595,909 over the next 25 years due to the decreased compounding annual growth rate. 

Wow! Is $60,000 really worth the $595,909 loss? Even if you take a loan from a differed investment account in year 5, and pay it back with interest, you could still lose $18,000 in additional taxes that you would have to pay in interest on that loan.

These costs can be eliminated or significantly reduced when you leverage participating whole life insurance cash values to purchase other assets. And that helps you continue to build sustainable wealth even while taking advantage of opportunities that come along in your life.

Consistency is critical to building sustainable wealth. And that consistency isn’t just about consistently taking on more risk, consistently focused on saving more money or consistently working harder. But is does mean, consistently evaluating the long-term costs associated with market risk, inflation, interest costs, fees, penalties, and taxes. Once you realize what these are costing you, you will appreciate the consistency that participating whole life insurance provides you to build sustainable wealth. And whether you are ever initiated into the 1% club or not, what you will have gained is the ability to sustain the wealth that you build. And that is the most important thing for you.

[i] MoneyWatch, February 23, 2015, Tom Hirschi, University of Cornell and Mark Rank, University of Washington