Debt Free

Wouldn't it be great to be able to comfortably retire without the money worries typically associated with your sudden lack of employment? Many people would give about anything to know that it was already taken care of for them and they could just relax if they chose, or concentrate on enjoyable business interests or charities. Can Social Security provide this? You must be thinking this is April 1^st if you for one second believe anything close to that.

It is, however, eminently possible to achieve just that. Paul Merriman describes how you can do it in his book “How to Live it Up Without Outliving Your Money”. As with most things retirement related, it takes advantage of the principal of compounding and consistency. In one example Paul describes, he set up a retirement fund for his grandson so that at the age of 65, the grandson would be able to receive payments that would fund his retirement.

Mr. Merriman has the financial wherewithal and knowledge to pull this off, but he set some pretty ambitious goals for himself and the grandson's retirement instrument. First of all, and this is really great, NO TAXES! That's correct, he wanted no part of burdening the growth of the money with any tax liability at all. You've got to love that. Second, he wanted to make this happen with a single seed payment of $10,000 or less. Third, he wanted the money top be available in any case, no matter what happened. To top it all off, Paul wanted the retirement fund, in addition to the income it provides to his grandson, to donate at least $20 million to charity at some point in the future.

This is a pretty tall order, and yet readily achievable. How did he pull it off? Using a variable annuity combined with an irrevocable trust. Because you can give a one-time, tax exempt gift of up to $10,000, Mr. Merriman gifted his grandson that amount. After the money stayed in the grandson's possession for greater than 30 days, he was able to have the money transferred to the trust that was set up with the grandson as the beneficiary. The trust's assets, at the time $10,000, were invested in 50% U.S. equities and 50% in international equities. Assuming that the return on these followed long term historical averages, the growth would approximate 11%. This should, unless we have a repeat of the Carter '70's, more than out pace inflation.

Upon the Grandson reaching the age of 65, the trust would begin to pay out 5% of it's assets annually. These annual payments would equal about $700,000, give or take. Lest you think that's an ungodly amount of money, don't forget that inflation will have plenty of time to do its dirty work on that sum. It will only be worth $135,000 in today's dollars at the time of its disbursement. Now, this is still a pretty healthy retirement, especially combined with Social Security (I can hear you laughing now), and any other retirement instruments the grandson sets up on his own. At his death, providing he lives for 20 years after he turns 65, there should be plenty to leave to his heirs and slide the $20 million to a charitable cause.

Now most of us don't have this kind of time to grow our retirement portfolio, but this illustrates what you can do if you start early. I've seen it happen all to often when employee benefit plans are installed and younger employees opt out so they can spend more on their BMW or at the clubs. I know that you've got different priorities in your twenties, but this is your money, they are not taking it away from you when you contribute to your 401K or other retirement plan, it's just being diverted so it can grow for a while. It's going to grow for someone, weather it's the club owner or you, so it might as well be you.