Living in the Walmart parking Lot (part 2)

Dec 30, 2019 David Kennon

Last week we examined the thoughts of a soon-to-be retiree.  I argued his thoughts were faulty; worrying and stressing about questions which have good answers.   Missed the article? Click Here Below you will find the same internal dialogue, but this time I am going to show you a realistic and healthy way of thinking. The following conversation took place between Mr. Jones and his brain shortly before his retirement. Name:  John Jones Age:  65 Retirement Savings:  $400,000 Cash in the bank:  $30,000 Married to Jane Jones, also age 65. <Begin transcript here> Hmmmmm…..  my last day of work is next week.  It looks like I will get my last paycheck on Friday. Ok.  With Jane’s social security and my social security we should be bringing in about $3,000 a month.  I had better put a budget together to get a real handle on my cash flow needs for each month…. <after spending a couple hours on a detailed and accurate budget> It looks like over the past year we spent $49,400.  That comes out to $4100 a month. I’ll round it up to $4500 a month to give myself some room. Ok, so if I need $4500 a month how is this going to work?  Where is the other $1500 a month coming from? If I divide my $400,000 in savings by 20 years I can pay myself around $20,000 a year.  That gives me about $1500/mo. That is cutting it close, and what if we live more that 20 years? Wait a minute, after reading David Kennon’s insightful articles, I now realize my retirement savings can be invested in such a way that my nest egg continues to work for me. It doesn’t make any sense to just look at the money and divide it by the number of years I expect to live.   I’m leaving out the most important variable. My money will continue to grow once I am retired. I know that while it is impossible to predict the financial markets in the short term, between now and the day I die, we have a very good idea of how a diversified portfolio will perform. Ok, so from the $400,000 I can start withdrawing $1500 a month made up of the money that the money is making.  By only taking the profits, it doesn’t matter how long we live, because we will always have the money we started with. Ok, that puts us right at $4500.  I guess I can still go to work part-time at the golf course.  That sounds like fun, and it would get me out of the house. That income can be our “vacation fund.” If we have some unexpected major expenses like a new roof or air conditioner, I have some extra money in the bank to cover those costs. Sure, nothing is guaranteed in this life.  I guess there is always a small chance that we will experience something as bad as the Great Depression in the next few years.  But what a terrible way to view my life! I don’t want to spend all my time worrying about something that has such a small chance of happening. I guess I should also worry about inflation.  But wait! Social Security increases lock-step with the rate of inflation.  If inflation goes up 2% for the year, my Social Security check will increase by the same amount.  Not to mention that I’m sure Jane and I will be spending a lot less money in our 80’s than our 60’s. Hmmmm…. I hope one of us doesn’t get Alzheimer’s and require comprehensive 24/7 medical care.  Maybe I will try to spend as little money as possible for the time being. I can act like I am broke with lots of money in the bank.  That care would be really expensive, and I don’t want to run out of money. Wait a minute!  There is only a 10% chance of needing round-the-clock care for five years or more in a nursing home.  Most people die shortly after entering a facility. I refuse to live the rest of my life preparing for a 10% possibility.  I am going to focus on the 90% probability that I will live a long and healthy retirement. Whew. I feel better.  I need to get back to figuring out what I want to do in my retirement.  I’m going to take my money each month from my investment accounts, spend my social security, and trust the process.  I’m going to turn off the financial news channel, stop my subscription to Money Magazine, and tune out the inflammatory fear-mongering around me. It’s time for Jane and I to enjoy the fruits of our labor.  I refuse to live scared and die rich! <End Transcript> You see?  It takes a little re-education, but very few retirees end up living in a van in the Walmart parking lot.  The retirees you see bagging groceries generally are not doing it to survive. They are just looking for something to do. Be Blessed, Dave P.S.- I’ve been having a difficult time getting people to share these articles on Facebook.  If you believe these writings are fresh and encouraging, please pass this along to friends.  They need to hear this side of the story.

How to make your wife (or husband) mad

Dec 23, 2019 David Kennon

Let’s walk through the thinking process of a newly minted retiree.

This week we look at someone who is going at this all wrong. Next week (stay tuned!) we look at someone attacking the retirement bogeyman with logic and planning.

Let’s expose this faulty way of thinking. How much does the following sound like you?

The following conversation took place between Mr. Jones and his brain shortly before his retirement.

Name:  John Jones

Age:  65

Savings:  $400,000

Married to Jane Jones, also age 65.

Begin transcript here__

Hmmmmm…..  my last day of work is next week.  It looks like I will get my last paycheck on Friday.

Ok.  With Jane’s social security and my social security we should be bringing in about $3,000 a month.  Let’s see…. is that enough? It doesn’t sound like very much.

My property taxes are $2000 a year and my homeowner’s insurance is $2000….car insurance $1,000.  Electric bill around $200 a month….

<adding up all his expenses>

Wait a minute, it looks like we are spending about $4500 a month now.  Crud. How is this going to work? I have that $400,000 in my IRA, but I can’t touch that.  I might run out of money!

I don’t know how this is going to work.

Wait a minute, I have my IRA invested in the stock market.   Is that still appropriate for a guy like me? What if the stock market crashes!  That guy on the radio keeps saying that we are “due” for a crash. I guess maybe I should put the money in a money market?  But that only pays 1%.

Maybe I should get a part time job?  I think Home Depot said they were hiring.  They pay around $10 an hour. So if I need an extra $1500 a month I would have to work 150 hours.

Wait a minute!  150 hours! That’s a full time job.

Ok John.  Think. Think.  I am 65 years old.  I am probably going to live at least another 20 years.  So, if I take the $400,000 in savings and divide that by 20 years, it comes out to $20,000 a year.  That is a little more than $1500 a month.  That could work.

But wait, Jane’s Mom is still alive at 95. Jane has great genetics.  What if I die at 85 and Jane lives another ten years? I can’t leave Jane destitute.  She has put up with me for forty years already.

So maybe I should divide my savings into 35 years just to be safe.  That gives me about $11,000 a year. So I guess if we cut out our yearly vacation, and stop going out to eat so much, we can get the budget down to $4000 a month. We should be OK then.

But wait!  What if one of us gets sick?!  What about a new roof, a new air conditioner, and other unexpected expenses? The roof is 20 years old.

Ok. This is getting serious. How is this going to work?!?! We need to have some money set aside.

I guess Jane and I could both go work part time.  But our health won’t let us do that indefinitely. Jane is NOT going to be happy if she needs to work a part-time job.

Wait a minute!  I’m not even considering inflation.  $4,000 a month may not be enough in ten or twenty years.  What are we going to do then?!

I need a stiff drink.  I feel my chest tightening.  Maybe I should turn on the financial news channel to get some ideas….

End of transcript….

Actually, Mr. Jones is in much better shape than he realizes.

Tune in for Part 2 next week.

Have a Blessed Week,

Dave

Every Social Security Fact You Need to Know in 5 Minutes

Dec 16, 2019 David Kennon

I’ve been teaching Social Security classes for over 6 years now.  In addition to that, hundreds of attendees have requested one-on-one strategy sessions.  I’ve seen the whole spectrum from those of you with no assets, all the way up to multi-multi millionaires.  Many of the strategies are the same.

This week let’s take a look at important Social Security facts and strategies.  Social Security for the vast number of you is the most important financial asset.  It’s more important than your pension or 401k or real estate. Let’s look at an example:

Mary and John are both retired.

Mary’s S.S = $1500/mo

John S.S = $2000/mo

That equates to $3500/mo or $42,000 a year.

The life expectancy for a healthy 65-year-old is around 90 years old.  It is distinctly possible for you to collect your benefits for thirty years.  So let’s do the math.

$42,000 a year x 30 years =  Over a million dollars! Maybe it doesn’t say at the top of your statement, “this benefit is worth a million dollars.”  But it is. Feeling rich yet?

Next…Social Security is not going insolvent.  I discussed recently how cutting S.S. benefits would create complete chaos throughout our society.  The benefits cannot and will not be cut for those nearing retirement or retired. Do my kids have something to worry about?  Maybe. But anyone reading this article is fine. Don’t believe me? Check this out.

Your “full retirement age” is based on your birth year.  This is the age whereby you are eligible for the full benefit listed on your statement.

Is your Social Security taxed?  Maybe. The simplest formula is this:  If you are bringing in less that $5000/mo of income once retired, your Social Security is not taxed.  For singles the number is $3000 or less.

Anyone can take their benefits as early as age 62 (restrictions apply).  If you take them early you get a permanent 25% penalty. You can also wait all the way until 70 giving you 32% more That’s 80% more compared to age 62.

The average benefit amount I see is around $1800/mo (at full retirement age).

The maximum benefit is a little over $3000/mo, but you’d have to make six figures for years to qualify.

If you make around $30,000 a year, your benefit will be around $1600 a month.

If you make $60,000 a year your benefit does not double.  That is not how the system works. You would receive around $2400/mo.

Still working while receiving Social Security?  Beware! If you are not yet your full retirement age, you cannot earn more than $18,240 a year.  This only applies to earned income. i.e. You go to a job and get a paycheck. It does not include IRA withdrawals, pensions, rental income, etc.

Once you arrive at you full retirement age there is no limit to your earnings.  Go ahead and make $100,000 a year. The world is your oyster! (What does that even mean?  Why would I want my world to be my oyster?)

Divorced?  Believe it or not, if you ex dies, you become a widow/widower and you are entitled to 100% of your ex’s benefit.  This does not work if you are remarried. Not sure where your ex is located? You better make sure he’s still alive.  You might be missing out of some cash.

Widowed?  You can begin receiving benefits as early as age 60.  Remember that the income limits still apply. You can’t make more than $18,240/yr and receive survivor benefits.

There is also an interesting quirk in the system that allows you to collect benefits from your deceased spouse while your own benefit is growing in the background.  You can them switch to your own benefit at age 70. If you become remarried then you can no longer apply for these kinds of benefits.

If you go on Social Security disability the amount you receive is the same as your full retirement age.  Let’s say you become disabled at age 50 and begin to receive $2000/mo. That is the same amount that you would have received at age 66.

Social Security contains cost of living increases that grow lock-step with inflation.

If your spouse dies, and they were getting a higher payment, you will begin to get the new, higher payment.  Your own payment would stop.

I hope that helps.  I teach Social Security classes every month.  Don’t apply for benefits without first taking this class!  You can sign up at www.SocialSecurityRSVP.com.

Be Blessed,

Dave

P.S.-  Have a friend that needs to sign up for these articles?  Have them visit:  www.StopLivingScared.com

5 Financial Myths The Media Wants You to Believe

Dec 9, 2019 David Kennon

For those of you who know me, you realize by now that I am a passionate guy. I passionately want people to live their best retired lives possible, and that all starts with sound financial planning. One thing that really gets my blood boiling is anything that derails my clients from living their best life. And oftentimes, my anger is directed toward the financial media. Don’t get me wrong, the financial media is not innately evil or working against you. But here is an ugly truth they don’t want you to think about: they only exist is to sell advertising. It takes a lot of content to fill all those hours on TV and radio programming, and much of the time the financial media is propagating ideas that are not only wrong, but harmful to your financial health. In fact, I find myself spending a lot of my time helping people tune out 95% of the noise out there that does nothing to help their financial futures. 5 myths the financial media wants you to believe. And why you shouldn’t. Myth #1: If you don’t pay attention to the markets, your investments will suffer. Of course CNBC wants you to believe that following the markets on a minute-to-minute basis is important—how else can they keep you watching all day? I think Warren Buffett put it best: “I would tell (people) don’t watch the market closely… The money is made by investing and by owning good companies for long periods of time. If they buy good companies, and buy them over time, they’re going to do fine…If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when the go up, they’re not going to have very good results.” Myth #2: You need to listen to the “super-smart Wall Street guys” in order to be a successful investor. Nope. Not remotely true. In fact, the longer I manage money for clients, the less I listen to anyone’s “opinion” on the markets. Here is an article titled, “‘It’s Going to Collapse: 5 Scary Stock Market Predictions From Smart Investors.” What is so comical is the fact that this article was written in 2017.  The markets are up 30% since then.  If you were one of the poor souls who read this article last summer you would have missed out on a big run in the markets. Nobody knows when the stock market is going to go up or down. There has not been a single human being in history who has been able to consistently predict the ups and downs of the markets. Every once in a while one of these guys gets lucky and guesses right. They then proceed to promote that fact for the rest of their lives. If you are right once and wrong 100 times, why does the financial media keep interviewing you? (Spoiler alert: It’s about filling air time.) Myth #3: Market experts know why markets go up and down. I hear it all the time … the market drops a few hundred points and the media has all kinds of rationales. “Bad unemployment numbers came in.” “Chinese currency fluctuations are affecting exports.” “Instability in the Middle East is unnerving investors.” I have a counter-cultural truth for you here. The vast majority of the time, nobody, not even after the fact, truly knows why the markets went up or down. They can hypothesize as to some reasons why it might have fluctuated, but at the end of the day, no one ever knows for sure. The reality is, most movements in the market come from irrational human fear and greed. And human behavior is notoriously hard to predict. Myth #4: It is important to continually buy and sell stocks inside your portfolio to maximize returns. Here they go, filling air time again. If Jim Cramer were honest, he would say, “These stocks might go up or might go down. Nobody really knows. But what we do know is that a long-term, disciplined strategy has proven to be incredibly effective at building wealth.” Of course, if he actually admitted that, there would no longer be any reason for him to have a show. Bad for Cramer, bad for advertisers. Better for you. By the way, people have been tracking Jim Cramer’s picks for years, and according to this study, you would have been better off putting all of your money in the S&P 500 and just letting the money sit. “Cramer Picks” under performed the market as a whole. Not to mention the cost of trading and the impact of taxes can be substantial when you are constantly buying and selling stocks. Myth #5: Financial advisors watch the financial media to get the information they need to help their clients. No, we don’t. I can’t speak for everyone in my field, but I can say that I have never met a fellow advisor who buys and sells stocks based on what some guy on Fox News Business says. With the advent of the internet, a universe of information is readily available at the fingertips of anyone with a cell phone. Nobody is going to say something on TV that hasn’t already been revealed and researched by thousands of investors on the internet. This is a big reason why the concept of a “hot stock tip” seems so antiquated. There really is no such thing anymore. Now, if anything, my main job is to help my clients determine what they need to save and what they can spend. It’s about planning, not frantic buying and selling. The other part of my job is sifting through the deluge of information my clients (and all of you) are subjected to, and discern what is actually relevant. Ninety-five percent of the financial information you receive is just noise. In conclusion, it’s important to recognize what the financial media is: Entertainment. Nothing more and nothing less. Don’t let them derail you from sound planning and long-term investing. Be Blessed, Dave P.S.  If a friend sent you this email, and you would like to sign up for my weekly commentaries.  Click here.

How to Battle Inflation in Retirement

Dec 2, 2019 David Kennon

Deflating the Inflation Bogeyman 

Inflation. It can be a scary word to retirees. I often hear concerns like, “Dave, I may have enough money coming in now, but what happens 30 years from now when gas is $20 a gallon and a loaf of bread sets me back $25? Am I going to end up living under the highway overpass with feral cats?”

No, you’re not. Don’t want to take my word on it?

Inflation, historically, isn’t a bank-breaker for retirees.

What were the prices for common goods 25 years ago?

A gallon of milk was $2.88.

A gallon of gas was $1.11.

A stamp was 29 cents.

Those were the days….

If you look back further into the early 1980’s you see inflation really rear its ugly head. In 1979 inflation soared to 13.3% and in 1980 is rose another 12.5%. Do you remember when you could get a CD paying 12%? Mortgage interest rates were also sky high. It was a great time to be a saver but a terrible time to be a borrower.

Since then inflation rates have moderately significantly. Over the past ten years, you saw inflation rates below 3%.

Do you need to worry? Are American retirees going bankrupt due to inflation?

I’ve never seen it, and the data points to the fact that very few retirees experience financial hardship due to inflation.

Why? Two reasons.

As you grow older, you will naturally spend less. In fact, according to the Employee Benefit Research Institute, people over age 75 spend 40% less than those ages 50-65. How could this be?

In the financial industry there is a rather crude saying:

Your 60’s are your go-go years. Your 70’s are your slow-go years. Your 80’s are your no-go years.

As you get older, mortgages get paid off, you buy cars less often, you travel less, spend less on gas, spend less money on food and going out, and you spend less on clothes. In fact, I’ve found that as you get older money means less and less to people. As long as there is enough to meet your basic needs, retirees are happy to live simpler and simpler lives.

The second reason is a big one that most Americans forget. Social security increases lock-step with the rate of inflation. Let’s look at some increases throughout history.

1980: 14.3% increase to Social Security payments

1990: 5.4% increase

2000: 3.5% increase

2010: 0% increase (we were in the middle of recession with no inflation)

Next year: 1.8% increase.

In fact, if you started receiving your Social Security in the year 2000 at $2000 a month, in 2019 your payment would have grown to $3100 a month. Those cost-of-living increases really add up.

This is amazing news! Inflation isn’t the bogeyman you thought it was. It’s just a lot of hot air the media likes to puff up to keep you living scared.

And while we are on the topic of Social Security…

Will the system be solvent? You will end up losing your benefits? Do we need to worry?

I could show you dozens of quotes from actual policy makers and academic institutions. I could show you simply and clearly that you don’t need to worry about the government cutting your benefits.

But instead of proving my argument in that fashion, let’s think about it more logically. 

Let’s say that a couple years from now the federal government announces that all Social
Security benefits will be cut by 50% for all.

You do understand that millions of retirees would end up on the streets, right? The political party at the time would never be heard from again. Eighty-year-old women would be protesting on the lawn in front of the White House. The country, socially and economically, would go into a tailspin.

Society as you know it would no longer exist.

It would be FAR more expensive to fix that mess than it would to keep Social Security right where it is. Every politician in Washington knows that fact. Which is why, for all the fear-mongering they do, they are never going to let Social Security go bankrupt.

So be encouraged! You are going to get what you have been promised.

Be Blessed,

Dave

Just Throw It in the Back of Your Car

Nov 18, 2019 David Kennon

What is financial planning?  When somebody says they do “retirement planning,” what does that really mean? Most people would agree with the statement: It is important to have a financial plan. But when asked, “What exactly does a proper retirement plan look like?” I get a lot of blank stares. Most “retirement plans” aren’t plans at all. Over the past 17 years, I have been to countless conferences, meetings, training sessions, and seminars on financial and retirement planning. And after all of that time and effort I have discovered two things: Many financial advisors talk a lot about planning, but at the end of the day, the vast majority of their focus centers around portfolio management. Investment portfolio management and retirement planning are not the same things. The way financial advisors are taught to execute financial plans is generally WAY overly complicated. Maybe it’s happened to you. You engage a financial advisor to begin a retirement planning process. After a meeting or two, you are given a two-inch thick binder with incredible amounts of information and data and projections. After about the 15th chart, your eyes start to glaze over. You may think to yourself: This is too confusing. Forget it. If you don’t understand your retirement plan, it isn’t a plan at all. It is a binder of information that you toss in the back of your car. So what IS a retirement plan? It is the process of taking all of the pieces of your financial puzzle and fitting them together in such a way that your LIFE and MONEY are maximized for your retirement. At its purest level, it only needs to contain two pieces of information. How much money do you need each month to live your life? How much money can you safely spend on a monthly basis? That’s it. Of course, it’s important to understand how all the pieces fit together. If you don’t, it’s easy to stray off course. If you haven’t noticed there is a lot of “noise” out there when it comes to managing your money. Having a financial plan for retirement is not enough. You need to have a financial plan for retirement that you clearly understand and believe in. But I have great news.  A clear, concise, flexible plan does not have to be 50 pages of indecipherable data and charts.  In fact, the financial retirement planning process I’ve developed over the past 18 years only consists of two pages. Your retirement plan should answer these questions. Can I retire? Can I take that trip to Ireland? Can I spoil my grandkids more? Do I need to tighten up my budget? Can I afford a new kitchen? Do I understand how I’m investing my money? Do I need to work longer? Can I help my kids out with their down payment? Do I need to worry? Retirement planning is about more than money. Do you want to make sure that all of your money is invested appropriately for your goals and life situation? Of course. But without an actual plan, a well-managed portfolio ends up just being numbers on a piece of paper that do not palpably affect your LIFE. I can’t tell you the number of times I have sat down with people who have done financial planning but when I ask them any of the questions listed above, they look at me with blank stares. Retirement planning should be clear, concise, logical, and actionable. It should be a plan not just for your finances, but for your retirement mentality. How do you want to live during your retirement? How will you make that life happen? That’s what your plan should answer. If you are nearing retirement or recently retired, you are standing at a crossroads. You have two options: Option 1: Life Without a Plan. The vast majority of Americans take the road where they live their retired lives without a plan. In a sense, they walk around the rest of their days with their hands in the air saying, “I hope this works. I hope I don’t run out of my money. I hope spending money on this trip isn’t a mistake.”  This is a pretty crummy way to live your “golden years.” Option 2: The Winning Way. You can take the time required to put together a plan. It takes a little bit of work, but, I assure you, it is worth it. With a clear plan in place, you are empowered to live the life you deserve, now. You get to live your life with a sense of opportunity and creativity, instead of one of fear. You WIN retirement! If you are not currently a client and would to look into a plan for yourself please reach out at david@kennonfinancial.com. Be Blessed, Dave

Surprise Taxes Once Retired

Nov 11, 2019 David Kennon

Human beings love to pay attention to the bad stuff and ignore the good.  It is wired into our DNA. If you are a caveman the good stuff doesn’t matter when a woolly mammoth is about to sit on your family.

So here is a quick reality check to remind you that investing in stocks and bonds isn’t all about crashes and recessions.

Year to date returns:

Stocks:  +23%

Bonds:   +8%

Remember that awful recession in 2008?  Worse one we’ve seen in 30 years? By the end of that year, stocks were down 37%.  But that was only one year. Here we are, in one year, making nearly ⅔ of what you would have lost in 2008.  And let’s not forget your money would have quadrupled between 2009 and now if you stuck it out in the markets.

The stock market actually does actually go up sometimes (no matter what the media focuses on).  In fact over the past 200 years it has averaged around 10%.

Retirement Tax Information You Need to Know

One of the biggest (and happiest) surprises many retirees enjoy is how little they are taxed once they retire.

Note:  I am not a CPA.  I am not licensed to give tax advice, so I am just going to give you some really juicy tax facts.

So let’s take a look at what taxes you can expect to pay during your golden years.

1. State income tax. If you live in Florida, there is no state income tax.
2. Social security payroll tax. You do not pay into the social security system once you stop working.  That saves you 6.2%.
3. Medicare payroll tax. You do not pay taxes into Medicare once you stop working.  That saves you 1.45%.
4. Federal income tax. This is the main tax you will be paying once retired.  I have more good news! You may be in a lower tax rate than you expect.

Generically what I’ve found is:

If you are married and bring in less than $5000/mo you will pay NO income tax.

If you are single and bring in less than $3000/mo you will pay NO income tax.

Let’s look at a scenario.

Bob and Lisa Wiggins are in their 60’s and retired.  Each month they receive income from:

Bob’s social security-                  $1500/mo

Lisa’s social security-                   $2000/mo

Mary’s teacher’s pension-             $1000/mo

Withdrawals from Bob’s IRA-     $500/mo

This equals $5000/mo.  When they file their tax return they will owe no income tax, no state income tax.  Nothing. That is $5000 cash in their pocket. That is amazing news!

What is happening here?  A big part is due to the fact that social security is only taxed if you reach a certain level of income.

This concept is incredibly important to understand.  Why? Many people with whom I speak are terrified of living on less income once retired than while working.

Let’s say Bob and Lisa were making $90,000 combined while working.  That could be a big problem, right? $7500 a month was coming into the household while working, but only $5000/mo once retired.

But at work, by the time they paid social security tax, medicare tax, federal income tax, and contributed money into their 401k’s they were bringing home around…$5000/mo.  So really their net income is the same in both scenarios. Also great news!

What happens if you make more than $5000/mo?  Taxes can still be pretty manageable.

If you bring in $5000-$6000 taxes are around $200/mo.  $6000-$7000 is around $400/mo.

If you want to look into your own retirement tax situation, Turbo Tax has a very helpful tax calculator.

Bottom Line:  You may have more money in your pockets each month than you were expecting.

Be Blessed,

Dave

Losing Money By Not Losing Money

Nov 4, 2019 David Kennon

I often hear people say to me, “I lost all my money in the stock market in 2008.” Or “I lost all my money in the stock market in 2001.”

Really?!  Did the stock market go to ZERO?

The Facts:

In the 2008 Great Recession, the S & P 500 dropped over 37%.  Remember this was a historically bad recession.

Never forget: markets temporarily go down and permanently go up. You had all your money back in a few years.

In 2001 the S & P dropped 12%, and went down 22% more in 2002.   It took about 3 years to get all your money back.

So, how are these people “losing all their money?”

What they really should be saying is:

“I got some hot stock tips from my neighbor.  I then went ahead and started day-trading those stocks.  I was really good at it! Then the stupid economy tanked and my stupid account ended up at zero.”

Or they should really be saying:

“I invested $100,000 in a hot, new stock focusing on crypto-currency, and then the stupid thing crashed and I ended up with nothing.”

Or

“I had all of money invested in company stock in my 401k and the stupid company went out of business.”

People who possess a well-diversified, balanced portfolio are not going to lose all their money.   For those who hang in there, it is just not a realistic possibility.

Next time your neighbor or Aunt Jenny tells you about how they lost all their money in the stock market, don’t let it infect your own thinking.  You don’t know the whole story. And not knowing the whole story can be harmful to your financial health!

In the same vein….

In the past week I have had three separate people say the same thing to me.

“I kept my money in cash since the 2008 crash because while I understand I’m not going to MAKE any money- at least I’m not going to LOSE any money.”

After the first person told me this, I thought to myself, “I guess that is reasonable.  At least they feel safe and secure.”

After the second person, I thought to myself, “I guess that makes sense, but is this really a rationale and logical way to approach this situation?”

After the third person, I thought to myself, “But you ARE losing money.  You ARE losing money!”

You are losing money in three different ways.

1. 1. While you may be eliminating market risk, there are other risks at play here. Inflation risk is a very real issue.  If inflation is increasing the price of goods and services by 3% per year and your money is making 1% per year, you are losing 2% per year of purchasing power.
2. 2. You are also exposing yourself to opportunity risk. If a balanced portfolio of stocks and bonds were to return 10%, you just LOST 10%.  Just because you didn’t see a red “minus” next to your account number, doesn’t mean you didn’t lose money.
3. 3. The biggest risk you face in retirement is “longevity risk” which is the risk that you are going to live much longer than you expected. You money needs to keep growing, period.  You can’t rely on a 2% CD.
4. 4. Here is a real gut punch to anyone who moved their money to cash in 2008.  $100,000 invested in the stock market in early 2009, is now worth $412,000.  That means you LOST $312,000. There is no other way to look at it. That is a much larger loss than the actual crash itself.

Ironically, if your money is “safely” working for you during your retired years, you could be dramatically increasing your chances of running out of money.

That’s right.  People who are trying to protect themselves from running out of money might run out of money by trying to protect themselves from running out of money (wow, that was a weird sentence).

Be Blessed,

Dave 

Stop Refusing Help

Oct 28, 2019 David Kennon

My wife fought through breast cancer three years ago. As you can imagine, we learned a lot about many different facets of life. The doctors were responsive and the surgery set quickly. We felt like the entire process was handled relatively well. That isn’t the part of the experience that surprised us the most.

When you face a life-threatening illness (with four very young children) certain thoughts run through your mind. “How are we going to make it through this? How can we raise these kids and provide the rest that Mom needs? We have some family down here, but they can only do so much.”

Then something amazing happened.

People came out of the woodwork to help us. While we knew some of these people as friends before the illness, most of them were mere acquaintances. Maybe someone we met once or twice. Sometimes we were served by people who didn’t even know us, but knew we were in a time of need.

It was an incredible experience. You don’t know what support is there until you really need it.

So what’s my point? Let me share it through an anecdote.

Sarah, a divorced woman in her sixties, comes to me in a state of terror. She hadn’t saved any money. Her social security wasn’t enough to cover her bills. She was in a very tight spot. Even I wasn’t sure of her best course of action. Next she mentioned, “My sister lives on the West Coast. She told me she would be happy to take me in. But I don’t want to be a burden. It’s embarrassing and sad and I’m sure she would resent having to bail out her older sister.”

Do you see the moral in this modern-day allegory? If not, here’s one more.

Debbie, a widow in her sixties sits with me in my office. “I poured my life into my kids. I wanted them to be productive, happy adults. I sacrificed so much for their well-being, I guess I neglected myself. I have almost no savings. I’m 68 years old. There aren’t many jobs available to me. I’m still renting my place. I have no place to go.” Next she mentioned, “At least my kids are all doing well. They seem happy, they all have good jobs and families. In fact, my oldest suggested that they convert the second floor of the garage into a mother-in-law suite. But I can’t do that to my kids. Do they really want their mother getting in the way of things?”

See it now? Both of these women were willing to suffer rather than accept freely given help. Don’t be like Sarah and Debbie.

Most people are not providers throughout their lives. Sometimes you have to be okay with being the receiver, rather than the giver. The world is filled with caretakers, ready and eager to help. As we learned during my wife’s bout with cancer, we realized that many people in the world are givers. They scan their immediate environment looking for people in need. And when they find someone they spring into action.

Why, then, do we assume nobody is willing to help? Why do we feel embarrassed and ashamed when we are unable to be the provider? There are people waiting to help you. There is no shame in asking for help. Let the helpers do their job.

During my wife’s trials, we found that many other people with cancer did not get nearly as much help and support. Why? Simple. You have to go out there, swallow your fear, and tell people. Talk to your family, your friends, your church. Get it out there. Few people will judge you, and you won’t believe the helpers that start coming out from the woodwork. If you try to go it alone you will struggle.

And let’s go back to the situations referenced above. Did Sarah’s sister really see her as a burden? For all Sarah knows, there is nothing more her sister wants than living with her sibling. Maybe her sister has been praying for this day for years. People generally don’t offer to help with significant life situations unless they really mean it.

Were Debbie’s kids upset that their Mom was “coming home?” No! Her daughter had three kids of her own. They were desperate for help. Who cares if Mom doesn’t have any money? That’s not what Mom is about. Mom sacrificed her whole life for her children. Why else would they extend such generosity?

You are not how much money you make. You are not only valuable to your family, friends, community if you are paying your own way. 

My wife comes from the Thai culture, and in that society it is assumed that as people get older, younger generations are there to help. It would be seen as blasphemy to turn away a family member in need. Almost every culture in the world has functioned this way for hundreds of years.

What a liberating concept! All those helpers out there are just waiting for someone like you to express a need. Let them do what they do best. Otherwise the helpers of this world have nothing to do.

Be Blessed,

Dave

How Much Retirement Spending is Too Much?

Oct 21, 2019 David Kennon

Over the 18 years I’ve spent in this field, I’ve had plenty of time and opportunity to think about the best ways to manage investment portfolios.

I’ve also answered a lot of questions in those 18 years. One of the most difficult questions I have to answer is also one of the most common. “Dave, how much money can we safely spend once we retire?” As you may or may not know, the vast majority of Americans have no idea how to answer that question. I’m guessing you probably struggle with that question yourself.

Here is the problem: You don’t want to just sit on your money, living in fear, only to one day die with more money than ever but with little to no fulfillment or joy from your retired years. That is not an acceptable solution.

So, what other options are there?

You could take your nest egg, divide it by the number of years you think you are going to live and dole out that money throughout your retired years. The problem with this line of thinking is obvious — you don’t know how long you will live. While you deserve to enjoy the fruits of your labor now, you don’t want to do it at the expense of your long-term financial health.

We don’t want to die rich in cash but poor in fun, and we don’t want to run out of money.  What is the solution?

This is a tough question, isn’t in?  Luckily, I have an answer. While no answer is perfect, this is the best technique I can muster:  You spend the money that the money is making.  

Let me say that again: If your CD is making 3%, spend the 3%. If your portfolio of stocks and bonds is returning 5% on average, spend that. If you have all your money buried in the backyard … I’m afraid I can’t help you there.

This is completely logical, right?  If you only spend the earnings, you will never run out of money.  You will always have at least the principal. It is the perfect balance between spending too much and spending too little.

“What if I have to go to a nursing home?”  You still have the principal. You still have the original amount.

“What if I live to 105?” You still have the principal. You still have the original amount.

Once you agree that you can safely spend the money your money is making, the next question is: Where do I put my money to maximize the “money that the money is making?”

This is where nearly two decades of research, study and experience come in handy. The answer: A diversified and balanced portfolio of stocks and bonds. Period. While some people are so ultra-conservative that they are happy with the 2% return on their money market, I think it is the wrong answer. I always recommend that you utilize the stocks and bonds strategy, and then withdraw 5% per year. The growth of the portfolio will fill it back up each year and then you do it again.

“But Dave, my portfolio doesn’t have the same return every year. Do I spend more money the years that I make a lot of money on my investments, and no money of the years they go down?”No, you take out 5% per year, regardless of the year’s return.

Hundreds of years of data point to the same fact: If your portfolio doesn’t average 5%, it is the first time in modern economic history where it hasn’t.

Remember, if the stock market is down on the year, bonds are almost certainly up. Bad year in the markets? Take your 5% from the bond part of the portfolio that year. Stock market has a great year? Pull the money from the stock part of the portfolio that year. This way you can literally “take the money that the money is making.” If stocks are down, you take the profits from bonds. If stocks are up, you take the profits from stocks.

“But Dave, sometimes I see my portfolio values going down AND I’m taking out my 5%.”  I know it feels strange, but the strategy holds true. If you want a more thorough investment discussion, I’ve written dozens of articles on the subject. Just go to www.KennonFinancial.com.

So spend that money that the money is making without fear.  Be empowered to know that you are spending the perfect balance between too little and too much.

Be Blessed,

Dave