How To Plan for Retirement in a Low Wage Career

Written by
Rebecca Smith

Published
Nov 13, 2020

Nov 13, 2020 • by Rebecca Smith

“The best time to plant a tree was twenty years ago. The second best time is now.” This Chinese proverb and its wisdom apply to a number of topics. But when it comes to retirement planning, the ancient piece of advice has never been more important. The best time to begin planning for your retirement was twenty years ago. But the second best time? Right now! With costs of living climbing in many parts of the United States and the average retirement age growing steadily each year, it has never been more important that savvy workers begin planning for a long-term retirement strategy.

One of the most common questions in the retirement planning sector: Can low-paying careers still result in a large retirement fund? The answer is yes. 

Compound Interest: The Key to Creating a Nest Egg from any Career

The importance of planning your retirement early becomes even more important when Americans really grasp the incredible math and potential behind secure compound interest accounts.. Albert Einstein is credited for calling compound interest “the eighth wonder of the world.” He expanded, saying that “he who understands it, earns it.” The idea behind compound interest couldn’t be simpler; the interest earned in a compound interest account is added to the principal dollar amount with the account, and this additional money also accrues interest. This means that compound interest is effectively money making money that grows exponentially with time.

But the key factor in this equation is time. While many people understand the basic idea of compound interest, very few retirement planners understand how this concept can alter the most important financial decisions they face daily.

The most important thing to remember with any retirement plan is that it requires time, patience, and persistence. Given 40 years or more, even a small investment into a secure compound interest-bearing account can result in a sizable retirement nest egg. This is important for people working low-paying jobs. Given enough time and a well-developed plan, any worker can end up with enough money to live comfortably in retirement. 

However, the cost of living without a consistent source of income only continues to rise. This means that workers should do what they can to ensure that they have all of the money they need to live a fulfilling and relaxed time when they finally reach their golden years. Consumers with careers that don’t pay as much as they should need to be especially cautious when choosing a retirement plan. The trajectory of a retirement plan can mean the difference between working late into your seventies—and retiring at sixty. 

Two of the most common mistakes that people make when planning for retirement are being too aggressive—and not being aggressive enough. Somefinancial experts are highly critical of traditional retirement options, including the 401k or IRA. While these models of retirement planning have been the standard in the industry for many years, they often fail to provide the kind of returns that the average retiree will need as they age. These plans begin with relatively respectable returns of around 10% on average. But as the plan ages, they become more conservative, their rates of return steadily decrease as one nears retirement, finally finishing with around a 4% ROI on average. Because of these 4% returns, the industry standard “safe withdrawal income” in retirement is known as The 4% Rule. This rule claims if you have $1,000,000 in a 401k, one should withdraw $40,000 a year, increasing annually with inflation. Following this method, the prevailing wisdom is that retirees will not run out of money.

MPI Retirement Plans Allow Low-Paying Career Savings to “Catch Up” Over Time

According to retirement planning expert Curtis Ray, traditional 401k and IRA models eventually “kill the rate of return and income potential simultaneously.” Evolving models for retirement seek to provide a more consistently exponential rate of growth. According to a growing school of financial leaders, one way to achieve a better retirement withdrawal rate is to invest in an MPI, also known as “Maximum Premium Indexing.” Unlike traditional models, which slow their rates of return as time passes, the MPI retirement model accelerates to provide higher returns in retirement, allowing for an increase in overall spendable retirement income. 

The key to the success of the MPI account is its strategic use of the RELOC feature (retirement equity line of credit) which can accelerate compounding interest returns over time. The account is secure because of a guarantee known as the “0% Floor” that exists inside of some life insurance contracts. This means that investors in this account are guaranteed to never earn below 0% interest in a year—regardless of how the market performs. Compared to traditional models, which often rely on investments and the state of the overall stock market, MPI can provide investors with an unprecedented level of protection against loss and growth potential of the market.

Ray claims that, by using the RELOC feature, the MPI strategy can start at a secure conservative rate of around 6% growth. As time goes on, the strategy uses compound interest and time to increase this growth to up to 15%. Because the account is built inside of a life insurance contract and has the guaranteed security of the “0% Floor,” the MPI never needs to convert to more secure strategies. This differentiates it from the stock-based plans dominating the industry, which turn toward safer strategies over time. The MPI can instead produce up to 15% annual retirement income, rather than the industry standard of 4%.

Another upside to the MPI is that it does not require investors to reach a minimum age before withdrawing money. Most plans require that retirees reach the age of 59 and a half before income can be withdrawn without penalty. By using an MPI, consumers can access the reliable income of their retirement plan whenever they need to. It might be worth noting that, while it is possible to withdraw from this account before the age of 59.5, the acceleration phase of the MPI means that users are advised to leave their money in the account for as long as possible for the best results.

Regardless of Job or Income, the Time to Start Saving is Now

A common misnomer in the financing world is that solid retirement nest eggs are reserved exclusively for people working high-paying and desirable jobs. In reality, this is not the case. Instead, workers in any industry—and with any salary—should begin working toward their ideal retirement. The best way to do this is to start early and take advantage of the secure compounding interest offered by the MPI. 

In the uncertainty of election season and the financial fallout sure to follow, American workers need to be sure that they’re marching steadily toward a peaceful and well-deserved retirement. Like the Chinese proverb advised, the best time to plant the tree of financial stability is twenty years ago. But as accelerating rate of return plans like the MPI establish, the second best time to begin planning for retirement is right now.

With time and dedication, and by using the power of secure compounding interest, any worker can walk into their golden years with a massive nest egg and increased retirement income!