Page 3 - GDO Residual Income brochure

LET’S CUT TO THE CHASE AND JUMP RIGHT IN.
WHAT IS RESIDUAL INCOME?
Residual income is income that continues to be generated after the initial effort has been expended.
Some of the most common forms of Residual income • Social Security
• 401(k) Retirement Account
LET’S FIRST TALK ABOUT SOCIAL SECURITY INCOME.
Recently I received a statement from Social Security. For the sake of demonstration let’s use those numbers as our example. Starting in the year 2049 my monthly payment will be $2,280. That’s a lot of money, right? Then you pause, and realize that those are dollars in the year 2049.
I know what you are thinking right now. If you’re not, you should be thinking, you must take the present values of those future cash ows by using the discounted cash rate of the average annual in ation to arrive at today’s dollars. Yes, you are right! So, I looked up the in ation rate which is 3%.
Average In ation rate of 3% annually which makes the present value only $850 per month in 2016 dollars.
Not so good huh? For some that might just pay for the monthly ER order! More on this later.
NOW LET’S TALK ABOUT 401(K) RETIREMENT.
During the year 2015, the median balance in the 401(k) of a retirement-age individual was $72,000. These are people in their 60s who are ready to retire and are expecting this money to take care of them during their retirement years.
Again, this sounds like a lot. But remember this needs to be our residual income. We are going to live off this cash stream. So, we can’t touch that. So how do we do that? We put it in the bank and generate interest off it.