The U.S. has a retirement problem. We all know it. But retirement is really just a math problem. Maybe you don’t like math. I do. So we’re going to do a little math that proves why it’s a good idea to trade options to boost your retirement.

We’ll assume you make an average income. In the U.S., that’s about $52,000 a year.

Of course, many financial planners say your expenses will go down in retirement. So maybe you can get by on less income. But that is a dangerous assumption that ignores health care expenses, which are only rising.

Assuming you’ll need at least as much income in retirement as you do while you’re working seems like a reasonable assumption.

So to be safe, let’s stick with $52,000.

Social Security will cover part of that. On average, Social Security adds up to $18,500 a year. That means you need to generate an additional $33,500 a year.

To keep this simple, I’ll assume you don’t have a pension. That means you need $33,500 a year from your investments. Based on current interest rates, you need a nest egg of $1,072,000 to achieve that.

To apply this math to your own circumstances, use your income, expected Social Security and pension account if you have one. Multiply the amount of income you still need by 32, the annuity factor based on the current investment environment.

The annuity factor is something large pension funds use to determine how much money they need to meet their obligations. It also applies to individuals. So if you want your investments to generate $33,500 a year, you need 32 times that to ensure you have enough money to meet your goals.

Based on current interest rates and inflation expectations, the annuity factor indicates the average person needs at least 20 times their annual income to enjoy retirement.

That’s a lot of money, more than many people have.

“Do I Need to Make Cuts?”

One option is to cut expenses in retirement.

Maybe you don’t really like your grandkids, so you may not need money to vacation with them.

Maybe you won’t need to see a doctor or take any prescriptions.

Maybe you can downsize to a small studio apartment in a small town where rents are low.

None of these options appeal to me (ok, maybe the grandkids one). I’m not cutting corners today and I won’t make sacrifices later in life. The idea of scaling back my lifestyle to retire is appalling to me. I’m way too old to fly in the middle seat in the row next to the rest room or to accept the discomfort that was part of my life 30 years ago.

The more you think about it, you probably can’t do much to lower expenses in retirement.

That means you need to increase your income and the only safe way to do that is to enter retirement with a larger nest egg.

Now, look at your current investment account balances. Then assume it grows by 7-10% a year. Are you on track to achieve financial security?

Probably not.

But you wouldn’t be alone. Almost every average investor is far from their goal. And with returns of 7-10% a year, they can’t reach their goals.

There is an answer. You need to earn more than 7-10% a year. But the standard balanced portfolio, maybe 60% stocks and 40% bonds, is unlikely to earn even that much.

To earn more than average, you need the kind of strategies hedge fund managers use.

Boost Your Portfolio With Options

The very best managers personally earn hundreds of millions or even billions of dollars a year by using leveraged investments. I realized this was important over 20 years ago and built that idea into my retirement planning. When I left the Air Force in 2005, I immediately structured my investment accounts like a hedge fund, and the results have allowed me to live in comfort.

Hedge funds use derivatives, futures or other contracts that allow them to increase their returns. Many of these investments aren’t available to individual investors.

Individual investors can use options, and this is the only form of leveraged investment that is suitable for many individuals.

With options, you can find a strategy that meets your risk tolerance. Conservative investors might like Chad Shoop’s strategy Pure Income with high win rates and small, short-term gains that are captured several times a month. Aggressive investors might find Chad’s higher risk strategies attractive, or they may be comfortable with my high-risk strategies.

Allocating part of your portfolio to options can increase your overall returns. And that could be the difference between a financially secure retirement and an average retirement where tradeoffs are required just to get by.


Michael J. Carr
Editor, One Trade

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