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"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." Whether it was Will Rogers, Mark Twain, or someone else who said it, the point is remains clear. If we assume we have all the information, we may miss out on important truths.
Conventional financial planning focuses on building a "nest egg" through your working years and drawing from it during retirement. The amount you can safely withdraw each year is said to be determined by the "bulletproof" withdrawal rate, currently around 4%. For example, the bulletproof withdrawal rate for an investor with a $1 million retirement portfolio would be $40,000 per year (before taxes). As the market's volatility increases, experts say that withdrawal rate must be smaller or the nest egg must be larger (or both).
For years I contributed to my 401(k) plan, thinking it was the best way to grow my retirement nest egg. Reducing my quality of life in my retirement years (with a smaller withdrawal rate) did not sound appealing, but neither did the alternative of turning over even more money to the financial industry to manage throughout my working years—especially since that provided no guarantee that it would produce a bigger nest egg. More risk? Reduced quality of life now and in the future? No, thank you.
I wanted to build something guaranteed to last and provide for my family well past my own retirement. Thankfully, at some point I picked up a copy of The Richest Man in Babylon and Rich Dad Poor Dad. These books focused on building a system that produces ever-growing cash flow rather than the conventional nest egg approach.
I had no idea how to implement the lessons in those books, but it was enough to open my eyes. It wasn't until years later, when I read R. Nelson Nash's book Becoming Your Own Banker, that I had the answer.
The answer that has brought peace to my financial future, and the financial future of my family, is the concept of infinite banking. I learned that I could create a cash-flow system to finance everything in life through a series of specially designed dividend-paying whole life insurance policies.
In future articles, we'll discuss how infinite banking compares to qualified plans—there really is no comparison. There's more to building wealth than what we've been taught by the financial institutions!
Don't make the mistake of thinking you already know all you need to know about your retirement plan.
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The information presented here is solely for informational and educational purposes. Dan Watkins is not a registered financial adviser. He can be reached at: danwatkins@livingwealth.com.