Okay…  The first thing you have to do is look into a mirror and admit to yourself that some day you will get old.  You may never act old but your clock will tick past the big 65 and that’s when you really plan to start living big, right!... Travel, golf, another college degree, spoil the grandchildren, whatever.  For the first time in your life, you will have the time to do everything you want.  But will you have the money?

When you plug the numbers into one of those retirement calculators, it could get really grim.  Since the government limits us to depositing only $3,000 a year (going up to $5000 by 2008) in our IRA or ROTH retirement accounts, the only way we can retire and live big is if we hit some real winner stocks.  And that’s not a great way to plan for the future.

Read on for all the details…

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So how do you get more money into your retirement account without breaking the rules?

You can use covered call equity options to rake more cash into your account then use that cash to buy more stock.  With covered calls, you sell someone the right to buy your stock at a set price (strike price) anytime before a certain date (expiration date).  And they pay you for this right in cash, today.  If the stock does not hit that strike price you can sell another call option.  And, the best part about this extra cash is that you don’t pay taxes on it for a very long time. 

Here’s the seven steps to make this work... (NOTE: This article was written in late November)

Get a piece of paper (or a computer spreadsheet) and:  (see example table below)

1. Identify the stocks in your retirement portfolio with over 100 shares and list these stock symbols with the number of shares in the first column of a six column table.

2. In the second column, write down the current share price of each stock.

3. Next, think about where each stock price should be by January at least a year away.  Write that projected target stock price in column three.  

4. In the fourth column, write the option call price for the January option (about two months away) one or two strike prices above each of your estimated prices.  (You can get this information from the option chain display your broker should have or from the www.cboe.com )

5. In the fifth column, list the calculated probability of the stock exceeding your target price. (See 4 above on where to get this important indicator) You need to decide if this probability is within your risk tolerance.  If not, go to the call option at the next strike price up.

6. In the sixth column, multiply the per share option price by the number of shares you own (in even 100s) to see how much cash you will get for each stock.

7. Add up the amounts in column six to see how much extra cash you will get in your retirement account.

Here’s the example table with some fictitious stocks.... 

So…  With this example you could put another $1,695 into your retirement account and the average probability that your stock could get called away on these is less than 15%.  If you repeat this strategy every two months (6 times a year), it could add up to an extra $10,170 a year.  When you put that extra money into one of those retirement calculators, I think you’ll find there’s no question you should have enough money to “Retire Big.”

 

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