Not The Millionaire Next Door

As inflation reaches further into our pockets, we sometimes find ourselves daydreaming about what we would do if we had a million dollars. 

While you may never reach this station in life, you can achieve financial security. The first step is to define what it means to you.

My definition - having the ability to pay my bills on time and purchase what I want when I want without going into debt. (I’m shocked my editing program did not suggest adding commas to this sentence.) 😱

But no kidding, this description sounds like it hits the mark. Right? 

Unfortunately, achieving this status seems like a losing battle for many of us. 

So, what can we do to make accomplishing this goal a reality?

Although I am not a certified financial advisor, my tip is to invest in defined contribution plans such as Roth IRAs and annuities as soon as you can. Specifically, investments that offer guaranteed lifetime income.

The costs associated with annuities vary, so it’s to your advantage to invest in those with lower fees.

Once you start to take advantage of the lifetime income guarantee, you will receive a percentage of the policy value along with a 1099, which shows the distribution and taxable amount.

Distributions follow this order:

• The policyholder first distributes guaranteed income from funds earned through market gains over the lifetime of the policy.

• You are taxed for the full distribution amount until you’ve exhausted market gained income.

• Once gained income has been distributed, you start to receive the money you’ve invested. You still get a 1099, but it will show the amount is NOT taxable.

• Distributions continue until your death; however, any funds distributed beyond the value of your policy will show as taxable on your 1099.

The lifetime income guarantee distribution process is essentially the same for a Roth IRA; however, earned income is NOT taxed.  But you are taxed for distributions over and above the value of your policy at the distribution starting point. 

Ideally, people turn on guaranteed lifetime income when retired and in a lower tax bracket. 

Other considerations apply with both types of investment, so it’s best to consult a financial advisor.

Now let’s return to the million dollars daydream. I don’t know about you but I’m not so concerned with becoming a millionaire. I think it’s much more important for everyone to define what financial security means to them and then develop a millionaire mindset.

But just for fun, let me know in the comments what you would do if you had $1,000,000. 😀