Banks Going Out of Business?

David Kennon Kennon Financial

Here’s a good question:

What happens if I have my mutual funds and investments with a bank and the bank goes bankrupt?  (JP Morgan Chase, BofA, Merrill Lynch, etc.)

I’ve had several people express this concern to me over the past couple weeks- so let’s take a look.

Whenever you buy a stock or bond or mutual fund, that investment has to be “held” somewhere.  Back in the good old days, many people would actually hold stock certificates inside a safe in their house.

Nowadays, with modern technology, stocks and bonds are held electronically at a “custodian.”  A custodian is simply a financial institution that holds your investments.

So what happens if the custodian goes bankrupt?  First of all, this is an extremely rare occurrence.  In 2008, when Lehman Brothers went bankrupt, JP Morgan Chase purchased them and took over the custodial responsibilities.  Not a single account holder lost a penny due to the bankruptcy of the custodian.  It simply meant was that JP Morgan Chase started to hold the stocks and bonds instead of Lehman Brothers.

But what you really need to know is the following:  whoever is holding your investments has no financial claim to your money.  Your assets are held separately from the bank’s assets.

For most of you who work with me, you know that we employ the Bank of NY Mellon.  This particular bank holds 1.5 trillion dollars in client assets.  The part of the bank that acts as a custodian is called “Pershing, LLC.”

So if the Bank of NY Mellon comes out tomorrow and says they are going bankrupt, what happens to your money?!

Let me answer that question, by asking another question.  Let’s say you purchase 100 shares of Disney stock, and you request the actual paper stock certificates, and you put those certificates in a safety deposit box at a local bank.   If that bank went bankrupt, would you lose your stock certificates?

Absolutely not.  You would go to the now-bankrupt bank, open up your safety deposit box, and take your stock certificates.

The same thing applies to you and your investments now.

There are actually several additional layers of safeguards for consumers, including SIPC insurance, but at the end of the day, you really have nothing to worry about. (click here for more technical info)

So if you are concerned about the bank holding your investments.  Please stop.  There is nothing to worry about.

Be Blessed,

Dave

Yelling at the Television

David Kennon Kennon Financial

Family Update:  My son Chris turns 9 this week.  I have four kids and he is my oldest son.  In the past month he has gotten obsessed with football.  He is collecting NFL trading cards and is always cheering on Daddy’s favorite teams.  As a Steeler fan, born and raised in Pittsburgh, having a life-long football buddy is priceless.  I am a very lucky guy. 

Dave’s Rant for the Week

In my house I am infamous for yelling at the TV (or radio or computer).  Whenever I see irresponsible financial reporting in drives me bonkers- and I found a couple examples this week that really got me annoyed.  

The first article comes from MarketWatch, which is a large, relatively mainstream organization.  The title reads: 

“Five Charts That Say All Is Not Well in Markets” (link) 

Now, I want to be clear, I don’t know whether or not the markets are going to go up or down in the near-term.   But neither do they– no matter how many scary charts they have.

If you read the article, you will find them referring often to the “VIX.”  The VIX stands for Chicago Board Options Exchange Volatility Index.   Academic research has not shown the VIX to be predictive on which way the stock market is going to go.  There is no correlation.   When the VIX is high, sometimes the markets go up and sometimes they go down. 

You may ask yourself, “Well if this article is based on….well….nothing.  Why did they write it?”  You probably already know the answer.  It’s all about the money!  They are trying to get more people to go to their website.  If more people read their articles, their advertising revenue increases. 

Now, I don’t want to only pick on the doomsday crowd.  How about this article:

“After four years of declining revenue, Caterpillar is due for a rebound” (link)

Positive articles about the markets are much harder to find than negative ones.  Why?  Because they don’t get your attention as effectively.  Look at the local news!  90% bad news, right. 

But just because the article is positive, doesn’t mean it is true.  It you actually read the article, you will find that some Very Smart analyst has an opinion.   Unfortunately, there is no evidence that anyone’s opinion is consistently right enough to help you make more money. 

My advice to you:  Ignore this stuff, and then bask in the knowledge that a diversified portfolio of stocks and bonds, with a long term perspective, is a remarkably consistent and powerful tool. 

 Be Blessed,

Dave

 The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

Worst Case Scenario

David Kennon Kennon Financial

Family Update:

I’ve had several of you ask about my wife.  For those of you who don’t know, she was diagnosed with Stage 2 breast cancer last February.  She immediately had a double mastectomy, and has since gone through radiation and three additional surgeries.   But the news, at this point, is all good!  The cancer is gone, the treatments are over, and no more surgeries.  Praise God!  Her body has been through a lot, and she is slowly getting her strength back.  Thank you for all the kind words and well wishes.

Dave’s Financial Rant for the Week

New York University has some fantastic long-term historical financial data, which I am using this week.  You can see it here:  NYU Data.

As always, I want to delve into the world of data, statistics, history and probability (it may sound boring, but it’s not!  Read on).

I am constantly battling against the concept that investing is unpredictable and risky.   This week we are going to look at what would have happened, historically speaking, to someone with a portfolio of 50/50 stocks1/bonds2.

I am attempting to show you that your concept of volatility may be out of whack.  Most people I meet with believe that in any given year, a balanced and diversified portfolio of stocks and bonds might lose 50% or more.  Hmmmmm…..  Is that true?  Let’s take a look…..

Let’s look at the time period stretching from 1940 until 2016.  During that 76 year stretch, what was the worst single year result of a 50/50 stocks1/bonds2 portfolio?

The worst year?  1974.   The combination of a worldwide oil embargo, and the resignation of Richard Nixon made for a really bad year in the financial markets.

In 1974 you would have lost 12%.  The stock market was down 26% and the bond market was up 2%.  So if you had $100,000 in your portfolio, half of it would have lost $13,000 and the other half would have made $1,000.  During that year, your portfolio would have dropped from $100,000 to $88,000.  That was the WORST.

Here is every year the stock market has gone down since 1940- combined with what the bond market did that same year.

Year	Stocks (S and P 500 Index)	Bonds (10 Year T. Bond)
1940	-11%	+5.4%
1941	-13%	-2%
1946	-8.4%	+3%
1953	-1.2%	+4%
1957	-10.5%	+6.8%
1962	-8.8%	+5.7%
1969	-8.2%	-5%
1973	-14.3%	+3.6%
1974	-26%	+2%
1977	-7%	+1.3%
1981	-4.7%	+8.2%
1990	-3%	+6.2%
2000	-9%	+16.6%
2001	-12%	+5.5%
2002	-22%	+15%
2008	-37%	+20%

Of course, I can’t guarantee what will happen in the future.  But these patterns are hard to ignore.

Takeaways

1. Losing 50% of the value of your diversified investment portfolio is not a realistic expectation.
2. A “balanced” portfolio can often times be pictured as a “see-saw.” Stocks go down, bonds go up.
3. Over this period, the stock market was down 16 out of 76 years. It was down by more than 15% only three times.
4. A balanced a diversified portfolio of stocks and bonds is a remarkably powerful way to grow your money. You are not speculating.  You are investing.

Be Blessed,

Dave

1- as measured by the S & P 500

2- as measured by the 10-Year T Bond (NYU Data).  I am using this data instead of the Barclay’s Aggregate Bond Index because that bond index only goes back to 1974, while the T. Bond data goes back to 1926.

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

Ten Biggest Retirement Planning Misconceptions

David Kennon Kennon Financial

David Kennon’s Ten Biggest Retirement Planning Misconceptions

After 15 years of “in-the-trenches” planning experience, I can tell you that I consistently see the same misconceptions come up time and time again among the Baby Boomer generation.  Do not trivialize these misconceptions.   It only takes one or two to really mess up your retired years.

For example, a very nice woman, who was about to retire, once told me that she didn’t plan on ever spending any or her savings and investments.  When I inquired as to why, she said, “You never know, I worry about medical costs.  There is a history of cancer in my family.”

I replied, “If you are enrolled in Medicare and if you have a Medicare supplement, the most you can be ‘out-of-pocket’ is less than $10,000 each year.  If you get cancer and have a $400,000 medical bill, you are only responsible for less than $10,000 of it.”

Without that tiny tidbit of information, this woman would have made every financial decision for the rest of her life based on a faulty understanding of the facts.  She would have lived small, worried about money, and feared the future- for no reason.

So let’s make sure you live the life you deserve.

Misconception #1

“I need to have $1,000,000 to retire.”  There is no standard amount of money that you need to possess in order to retire.  It all depends on your savings, your monthly budget, and your expectations.  Someone with $200,000 in savings and a budget of $3000/mo is probably going to be just fine.  Someone with $2,000,000 in savings and a budget need of $20,000/mo is probably in trouble.

Misconception #2

“The stock market is unpredictable and dangerous.”  If you still believe this fallacy, please go to www.DavidKennon.comand read my past commentaries.  The stock market has a remarkably consistent (and successful) track record.

Misconception #3

“Once I retire, I am too old to invest.”   The life expectancy of a healthy 65 year-old is around 90 years old.  Without utilizing growth investments, such as stocks, you are missing out on a powerful tool.   I’m not promoting that you put all of your money in the stock market, but a diversified portfolio of stocks and bonds is usually appropriate throughout your entire lifetime.

Misconception #4

“Super Smart People are able to make more money investing than Normal People.”   There is zero academic evidence that anyone can outperform the markets.  In other words, no one has a magical secret that will make your money grow faster than everyone else.

Misconception #5

“If the stock market crashes it could take me 10 or 20 years to recover.”  Not true.  It took less than four years for you to recover your losses from the 2008 crash.  2001 crash- four year recovery.  1987- one year.  1973/74-  four years.  1939/40-  three years.   The Great Depression- 4 ½ years.  Just get that belief out of your mind.  Markets recover faster than you probably realize.

Misconception #6

“Social Security is going to go bankrupt.”  I stay very close to developments within the Social Security Administration.   I can find no evidence that your benefits are going to get cut.  Luckily for you it is easier for politicians to kick that can down the road.  My kids need to worry.  You do not.

Misconception #7

“I need to have my house paid off before I retire.”   While it might feel nice to be debt-free, it is not a prerequisite for retiring.  As long as your retirement budget can handle the payment, many people retire with a mortgage.

Misconception #8

“I need to stay on top of my portfolio.  I need to continually adjust my investments, watch financial news shows, and check my phone ten times a day to see what the Dow Jones is doing.” No you don’t.  Believe or not, people back in the 70’s and 80’s only got market news once a week (gasp).

Misconception #9

“I shouldn’t spend any of my retirement savings until I absolutely have to.”  If you still believe this widely-held misconception please read my past commentaries (or listen to my radio show).  It is absolutely responsible and prudent to withdrawal a reasonable amount of money from your retirement accounts each month.

Misconception #10

“Some people who invest in the stock market lose all their money.”  While this may be possible if you put all of your money into a single stock or a single bond; a diversified portfolio of stocks and bonds has never gone to zero.  In fact, in the past fifty years, the WORST year for an investor with a 50/50 stock1/bond2 portfolio was 1974.  You would have lost about 12% overall for the year.  By the way, the same portfolio would have been up 20% the following year.

Be Blessed!

Dave

1- as measured by the S & P 500

2- as measured by the Barclay’s Aggregate Bond Index

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

Does History Repeat Itself?

David Kennon, Kennon Financial

Hello again!  It is time for this week’s installment of David Kennon’s Retirement Reality Check.

As an aside, having a dog is not cheap.   Our beloved new puppy, Odie, has already been to the vet three times with bills totaling over $1000.  So far he has sprained his ankle, had gum surgery on his mouth, and developed “cherry eye”- which is like a permanent eye infection.     How can something that weighs 10 pounds be so expensive?!

This week we are going to talk distant history.  We are going waaaaaay back.

Warning:  What I am about to share with you is not my opinion.  What I am about to share with you is simply data.  Facts.

I often talk about how, in the past 100 years, the stock and bond markets have shown remarkable consistency.  The patterns they exhibit are so clear that it’s impossible to ignore.

But let’s dig deeper.  Maybe this past century was an anomaly.  What about the 1800’s?

That’s right, we are going back to the days of the Louisiana Purchase and the Civil war.

In past articles I have spoken at great length about how stocks had returned an average of 10% during the 20thcentury, but what about the 19th century?

Now remember, the lightbulb wasn’t invented until 1879, and the leading cause of death in 1900 was tuberculosis.

So, how did the stock market hold up?  We have good data from Dr. Jeremy Siegel who wrote the fantastic book, Stocks for the Long Run.

His data shows that from 1801-1900 the stock market returned an average of 6.51%.

At first glance that appears to be a little disappointing, especially considering that from 1901-2000 the stock market returned an average of 9.89%.

But all is not as straight-forward as it seems.  You see, in the 1800’s the country saw very little inflation.  In fact, something that cost $1 in the year 1800, cost a little less than a dollar one-hundred years later in 1900.

That means that after inflation, stocks from 1800-1900 returned 6.76%.  And from 1900-2000, after inflation, the stock market returned a real return of 6.45%.   You need to subtract out inflation from stock returns to get the real return- the amount of purchasing power your money has grown after inflation.

Takeaways:

1. The stock market, after inflation, has had a similar average return for over 200 YEARS.

2.  Going forward, while no one can guarantee what will happen, don’t you want to base your financial decisions on an incredibly consistent pattern that has persisted for centuries?

3.  If you invest in a diversified portfolio of stocks and bonds you are giving yourself the best chance, statistically, to succeed. Investments such as gold, commodities, certificates of deposit, and currencies can have wild and inconsistent returns.  Don’t make this more complicated than it is!

Be Blessed,

Dave

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

Joe and Frank: A Fairy Tale with a Moral

Kennon Financial

Joe and Frank:  A Fairy Tale with a Moral

Here’s a story about two guys named Joe and Frank.

They both retired 25 years ago (1991) at age 65 with $1,000,000 in savings.   Two different people in two different parts of the country except for one big difference- Joe made his decisions based on fear, and Frank based his decisions on realistic expectations.

When Joe retired he went to the local bank and said, “I’m retired now, I can’t afford to lose anything.   I want to put all my money in a money market.”   In 1991 money markets were paying an average of 3.9% and Joe felt pretty good about that.  Of course, there was no way he could have known that interest rates would drop so low later on in his retired years.

Joe was fearful.  “I don’t want to spend any of this money unless I HAVE to.  I know my wife has been bothering me about getting a new kitchen, and I would love to visit the grandkids in Rhode Island, but…  I’m not making a salary anymore.  I have to be very careful with this.”

Over the next 25 years Joe scrimped and saved- never once needing to take anything out of his savings beyond a few thousand dollars here and there.  When he died in 2016, there was quite a bit of money still there.  Over 25 years of compounding interest inside the money market account had turned his $1,000,000 into $1,800,000.  Joe and his wife never actually got to enjoy any of his savings, but at least they didn’t run out of money.

Now Frank looked at things completely differently.  “I’ve worked my whole life so that I could enjoy the fruits of my labor in retirement.  We are going to put a pool in the backyard.  Both Mary and I love to swim and it will keep us active and healthy.  We are going to travel as much as we can- especially in our 60’s and 70’s.”

Frank went to a local advisor and said, “I want to invest in a diversified portfolio of stocks and bonds.  I want my money to keep working for me even though I am no longer making a salary.”

So Frank put 60% of his savings into stocks1 and 40% into bonds2– a very common portfolio asset mix.

Frank then starting taking out $70,000 a year from his portfolio; or 7% of the original value.  His friends called him crazy.  “You are too old for investing,” they would say.  “You are going to run out of money!”

So Frank starting spending the $70,000 each year on things that made him and his wife happy.  They spent an entire month in Australia.  The traveled up north for each of their grandkids’ birthdays.  Frank even bought himself a 1969 cherry red Chevy Camaro.

When Frank died in 2016, his kids gathered and looked at his investment statement.  How much money did Frank have left over in 2016?  He had taken out $1,750,000 over those 25 years.  His kids smiled at each other as they remembered all the crazy adventures him and Mom had with that money.

At Frank’s death $3,250,000 remained.   He started with $1,000,000, took out $1,750,000, and ended up with over three times the amount he started with.   He also ended up with twice as much as Joe.

The Moral of the Story:  You may be able to spend more money each month than you realize.

Moral #2:  Being “safe” with your money may not actually be safe at all!

Moral #3:  A well-diversified and balanced portfolio of stocks and bonds is a powerful wealth creation tool.

Be Blessed!

Dave

1- as measured by the S & P 500

2- as measured by the Barclay’s Aggregate Bond Index

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

What are we all so worried about?

David Kennon, Kennon Financial

I am about to blow your mind.  Are you ready?

Here is the scenario:

Mr. Dickey retires in 1940 with $100,000.  He then proceeds to take out 5% per year ($5,000).  Each year he increases the amount by 3%.  Meaning, the 2nd year Mr. Dickey took about $5150, and the 3rd year he took $5300.  Etc.

Mr. Dickey also put all of his money into the S & P 500 Index (the 500 largest American stock companies).

So the question is:  If Mr. Dickey lives 30 years, will he run out of money?  Well let’s take a look.

So he started with $100,000, took out his withdrawals for 30 years, and ended up at the end of his life with $1,750,000.

What a minute…….What?  How is that possible?  He must have just gotten lucky, right?  Hmmmm…. Let’s look at some other examples.

Years Money is Withdrawn	Original Amount	Total Amount Received	Ending Value
1940-1970	$100,000	$237,000	$1,750,000
1950-1980	$100,000	$237,000	$1,200,000
1960-1990	$100,000	$237,000	$474,000
1970-2000	$100,000	$237,000	$1,275,000
1980-2010	$100,000	$237,000	$1,100,000
1990-current	$100,000	$162,000	$598,000

Even I, a seasoned financial advisor am amazed at these numbers.  And it begs the question: What are we all so worried about?

Plan. Invest. Live.

Have a Blessed Week!

Dave

 The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

The Trump Effect?

David Kennon, Kennon Financial

It’s the Christmas season!

What a great time of year.  I remember when I still lived in Pittsburgh.  We would get the kids all dressed up to go outside.  Gloves, hats, coats, boots.  It was a major process, to say the least.  Once outside, they usually lasted about three minutes.

Reality Check Time

This whole presidential election pointed out; yet again, that no one knows when the stock market is going to go up or down.

Please repeat after me:  No one knows when the stock market is going to go up or down. 

For months now, article after article warned that a Drumpf victory would bring on stock market disaster. 

Some examples:

A Huge Hedge Fund Says Stocks Will Crash if Donald Drumpf Wins

Stocks Will Likely Crash If Drumpf Wins

A Drumpf victory would cause a stock market crash and plunge the world into recession

Now I am certainly not going to turn this into a political discussion, but it perfectly illustrates the number one misconception among my clients. 

Here are some common refrains I here in my office each week:

“Dave, nobody can time the markets exactly, but you can still ‘stay on top of things’ to increase your return.”  (False)

“Dave, wouldn’t it be better to keep all the money in cash for a while?  It looks like the market is going to go down.”  (It might.  Or it might not. ) 

“Dave, I try to catch a little bit of the financial news each day so I can keep an eye on things.”  (Why?)

I know this might be hard to accept.  Everything you hear from all the financial pundits is based around one central premise:  Super smart Wall Street guys can make you more money than a good, old-fashioned, diversified and balanced portfolio.

They can’t. 

I could list literally dozens of academic studies that bear this out.  Here is a great, and lengthy, presentation debunking almost every market timing theory ever (via NYU):  

http://people.stern.nyu.edu/adamodar/pdfiles/invphiloh/mkttiming.pdf

So if you can’t time the market, what do you do? 

Answer:  You create a balanced and diversified portfolio of stocks and bonds appropriate for your age and life situation.  (I certainly didn’t invent this strategy.  Why reinvent the wheel on something that has been rolling along quite well for a very long time?)

Don’t make this more complicated than it is, and stop listening to anyone who predicts the market.  You are stressing yourself out and wasting your time.

Be Blessed,

Dave

Dying Rich

Oct 22, 2018 Kennon Financial

Hello again.

This week I unveiled our new company name.  I no longer operate under the name “Gulf Coast Wealth Advisors.”   

Welcome to :   Kennon Financial

 I am creating a multi-generational business (that hopefully includes my children) to serve you for the rest of your life- so I might as well have my name in the business. 

PLAN > INVEST > LIVE.  What does that mean? 

In order to “get the most life from your money,” you must go through a process.  Without going through this process you will probably end up dying with more money than you had on the day your retired.  I know it sounds crazy, but now I have some academic proof of this phenomenon.  

The Federal Reserve’s Survey of Consumer Finances has been examining how a retiree’s wealth changes during their retired life.  (link)

The conclusion:  The average retiree is passing away with 75% more assets than they had on the day they retired.  Put another way-  Someone who retires with $122,000 is dying, on average, with over $202,000. 

What great news!  It means that you may be able to actually spend MORE than you realize. 

So how do we get the maximum enjoyment from our money?

 Step #1- Plan

First and foremost you need to create a plan so you can understand the parameters by which you can live your best life.  It requires creating a budget, and piecing together a strategy that shows where the money is going to come from.  It usually looks something like Social Security + Pension + Investment Income – Taxes = What You Can Spend.

 Step #2- Invest 

You can’t escape it.  You need to invest your money so that it continues to work for you, even though you are no longer making a salary.  Your money needs to continue growing in order to make up for the withdrawals you are making.  As I’ve touched on dozens of times before, you need to accept the fact that a diversified and balanced portfolio of stock and bonds is an essential component to any sort of long-term plan.

 Step #3- Live 

This is the best part!  Once you’ve done the heavy lifting of creating a budget and setting up a predictable monthly cash flow, you get to live with confidence.  You don’t need to listen to the hysterical financial news media anymore.  No longer will you have to spend all your energy worrying about money.   You see, if you understand where the money is coming from, and if you have a plan that makes sense to you– it is much easier to loosen the grip and allow yourself to live the life you deserve. 

That’s it.  Don’t make this more complicated than it is.  Plan.  Invest.  Live. 

Also please check out my most recent radio program at https://soundcloud.com/living-scared-and-dying-rich.

 Be Blessed! 

Dave

David Kennon: My Grandfather’s Last Bank Statement

Oct 5, 2018 David Kennon

For loyal readers, at this point, I think I have made my position on retirement planning pretty clear.

1. Many retirees are not spending enough money during retirement.
2. An inordinate number of people are dying with more money than they’ve ever had before.
3. I believe you should spend 5% of your retirement savings on an annual basis starting the very first year of retirement.
4. Make sure the money’s working for you. If you have all your money earning .01% in a checking account, my advice does not work.

Usually, I discuss the power of using stocks and bonds to keep your money working for you. But I can’t ignore the fact that some people do not have the risk tolerance for ANY temporary losses in their accounts.

So today’s lesson is aimed at the ultra-conservative investor. The investor that is willing to give up the opportunity for significant gains, in order to keep their money guaranteed and safe. I don’t want you to have the impression that the “Spend More, Worry Less” movement doesn’t apply to you.

Even to these people, I proclaim: “It is still ok to spend the money the money is making.”

Let’s do some simple math.

You are 65 years old with $300,000 in your IRA. You put the money in a 5 year CD at a local bank. As of this writing, the best rate I can find on a five year CD is around 3%.

That means, each year you would make about $9,000 in interest.

My suggestion to you? Spend the money.

Even if you are not investing your money in stocks and bonds, it is still okay to spend the interest your money is making.

Quick Story:

My grandfather (Papa) was a dearly loved elementary school principal. He retired in the 1980’s with a modest teacher’s pension. Papa never made more than $40,000 a year during his working life.

Papa lived a full and satisfying retirement all the way up to 89 years old. He was a great man, and still terribly missed.

Anyway, here’s the story. We were going through his legal documents and financial statements after the funeral. We were rather shocked to discover that this very simple, humble man had somehow died with $900,000 in the bank.

As were searched through bank statements we made a startling (and typical) discovery. Papa had never stopped saving. Every month of his life, up to and including the last month, Papa scrimped and saved and spent as little as possible. I imagine he was quite proud that he was able to continue saving once retired.

When my Mom and my aunt learned of the money they remarked, “Why would Dad save all of this money? He and Mom could have done a lot more with it themselves. Of course, we appreciate this inherited money, but we wish they had spent more of it on themselves.”

Papa was a teenager during the Great Depression so his views on savings and money were deeply ingrained. After several failed attempts, I have discovered that it is almost impossible to convince someone who was alive during the Great Depression to spend any of their money.

But your retirement doesn’t have to look like your parents! You are going to reinvent and reimagine what this new and exciting stage of your life looks like.

You are going to have the attitude of, “I am not going to live in my fears. I am going to put a sensible plan together, and then focus on what I should be focusing on. Living my most awesome retirement possible.”

Be Blessed,

David Kennon, Kennon Financial