Oversaving:  An American Epidemic? There is an insidious contagion spreading itself across America. It seems to only affect adults, mainly those nearing retirement or already retired. Unchecked, this virus could sabotage the lives of countless Americans. What is it? Oversaving. It may sound crazy, but the trend of oversaving is very real. According to a study by Sudipto Banerjee of the Employee Benefit Research Institute, 1/3 of retirees die with more money than ever.  It also found that, on average, retirees only spend 25% of their savings during their retired years.   Of course, about half of the country does not need to worry about oversaving. In fact, if anything, they should start to worry about saving more.  I'm talking to people who have saved at least $200,000 for retirement.  You don't need to be a multi-millionaire to responsibly enjoy some of your hard earned savings.  Let's look with a very personal example. My grandfather, Papa, was a depression era baby (and an absolutely amazing guy). Papa was a school teacher in a small rural district and never made much money. My grandmother raised the kids and never worked. When Papa passed away at age 89 we were utterly shocked to discover that $900,000 remained in his bank account. As we reviewed his bank statements, we realized he had saved money each an every month up until the month that he died.  When Papa was in his 60’s he desperately needed hearing aids. His hearing was getting so bad that he became embarrassed because he couldn’t understand anyone on the phone. After going to the hearing specialist, he was given two options. He could buy the clunky, old-fashioned hearing aids which Medicare covers. Or he could buy the cutting-edge version which allowed for better hearing. The cost difference was significant; thousands of dollars. I’m sure you already guessed which pair he chose. The cheap ones.  Papa literally chose his own hearing over spending some of his savings. There is no way I am going to let you make the same mistake. We don’t want you to be irresponsible with our spending. We just want to find the perfect balance between spending too little and too much. We need to start thinking about what money is for. Why do people oversave? There are a lot of reasons people give for continuing to save during retirement, but they all really boil down to fear and misinformation. If you feel like you have to hoard every penny, you’re not alone and it’s not your fault. Your parents survived the Great Depression. You’ve watched pensions disappear, mortgages rates skyrocket, and banks fail. It’s no wonder you feel safer saving every last dollar until you die. But you don’t have to. You can spend money during your retirement.   Listening to the mainstream financial news on TV, you might think that most retirees are dying destitute, but that is not the reality. Only 12% (source: 2015 Kaiser Health News) of Americans die with no savings remaining (only social security to live on). What are the signs of oversaving? Oversaving has a few tell-tale symptoms to watch out for. If you are experiencing any of these, I advise you to read more Retirement Revolution articles and call me in the morning.   Symptoms of Oversaving You continue to work even though you have enough assets to retire comfortably. You worry about outliving your money, even though you have plenty of financial resources to live a long and fulfilling retirement. Once retired, you refuse to spend any of your savings because, well……you “just never know.” You feel like you’re broke, even though you may have hundreds of thousands of dollars in the bank. That money isn’t yours; it belongs to “retirement.” When your spouse suggests you splurge on an African safari, you spit out the water you were sipping on. A new way to think about retirement. Think about it. Many retirees and those preparing to retire are so preoccupied with saving, so worried about not losing any money, so afraid of running out of money during retirement, that they forget what the money is FOR. Your financial statements are not just made up of ink and paper. They represent much more: experiences, freedom, opportunity. Imagine, millions of Americans who have worked hard all their lives, saved their whole lives, only to waste what should be the best years of their lives during retirement by never spending any of the money they’ve so carefully socked away! You deserve an awesome retirement. But, you’re going to have to take it back. You’ll have to take it back from the financial news that wants you to stay afraid, and the financial planners that want you to keep saving because their compensation is based on your account value.  You have to take it back from yourself, changing your mentality and embracing the idea that you can spend money during your retirement without fear. That’s why I started The Retirement Revolution. I want to empower you to live the retirement you deserve. Don’t believe the fear-mongers. Retiring is not as scary or uncertain as you may believe. Instead of anxiously looking to the future, focus and prepare for the new life coming your way. Allow yourself to enjoy the fruits of your labor. Allow yourself to live the life you deserve. Be Blessed, Dave

Are You Bernie Madoff?

Jul 23, 2019 David Kennon

It’s a tough question to ask, but many of my brave clients have asked it: “Dave, how do we know you are not Bernie Madoff?”

You’ve heard a lot of scary news during your lifetimes, and the thought that some financial advisor could abscond with all of your money is terrifying.

So let’s look at how all of this works.

The investment advisory world is HIGHLY regulated, but also somewhat confusing to the consumer.

I am regulated by three separate authorities:

-The SEC (The Securities and Exchange Commission)

-FINRA (Financial Industry Regulatory Authority)

-The Florida Department of Financial Services

As a fiduciary, my activities are primarily supervised by the SEC.

Wow, this IS really confusing.  Let’s look at this a different way.  Let’s look at how Bernie Madoff got away with his shenanigans and pretty quickly I think you’ll feel better.

When someone signs on with me, we hold the electronic bond and stock certificates at TD Ameritrade.  Put another way, I don’t have your money. A big bank has your money. If you call TD Ameritrade directly they can answer any questions you have about your accounts.

As you can see, there are “checks and balances” in place.  I do not have direct access to your money. The money is not being held at Kennon Financial.  I am not a bank.

The SEC and FINRA closely monitor all activities in my office in Sarasota AND of TD Ameritrade.   If I were to ever have a lien on my property, or claim bankruptcy, or receive a customer complaint, or even get pulled over for DUI, I have to disclose the information to these governing bodies.  Put simply, they do NOT mess around. You can check out any advisor’s history at FINRA Broker Check and SEC Investment Adviser Public Disclosure.

So how did Bernie Madoff get away with it?

It wasn’t overly complicated, and Bernie wasn’t the guy who invented the concept.

You see, in addition to advising people on their finances, Bernie started his own bank.  Starting up a bank/custodian is not illegal in and of itself. But Bernie took things a step further.

At its essence, his crime was simple.  When you worked with Bernie you were signing over your money to the “Bernie Madoff Bank.”  There were no “checks and balances.” The only place to get any information about your money was by calling Bernie:

For Example:

You:  “How are the investments working out, Bernie?”

Bernie:  “Great! Would you like us to send you a current statement?”

You:  “Sure!”

They were faking statements, for YEARS. 

There were no checks and balances.  Bernie had all the control. When the crash hit in 2008, clients were asking for their money and the Bank of Bernie had run dry.   Bernie had spent the money on solid gold toilet seats and penthouse apartments. Then, and only then, did things come to light.

So relax.  You are safe.  Just never write any checks to “Kennon Financial.”  I even have to pay people to supervise my own business.  It may sound strange, but we need to do everything we can to protect the consumer.

Be Blessed,

The Dangers of Downsizing

Jul 12, 2019 David Kennon

A lot of Baby Boomers find that the majority of their assets comes in the form of equity in their home. In conversations with me, they say something to the effect of:

“Dave, a big part of our retirement plan is to downsize our house.”

Let’s think about that idea for a second.

Let’s assume:

• You own a single family house in the area.
• You enjoy living there. You’ve made it your home.
• You decide to downsize in order to fund your retirement and lower your budget.

Ok. So now let’s think about your options. Where are you going to move?

• A smaller, crappier single family home.
• A townhouse
• A condo
• A manufactured home

That’s not to say there aren’t situations where downsizing makes sense. There are. Keep reading and we’ll get there.

But first, let’s assume your house has been your haven for most of your adult life. You love it, but you’re considering downsizing to have more money for retirement.

The downsizing savings myth

For example, let’s say you own a $250,000 single family home with no mortgage.

You decide to move into a townhouse. A decent townhouse will cost you $150,000 at an absolute minimum. Don’t forget about the HOA fees. That could be hundreds a month. And don’t forget about moving costs, paying the realtor a commission, redecorating…..

You now own a $150,000 townhouse which you don’t like as much as your last home, paying a few hundred a month in HOA fees. You find yourself almost exactly where you started. Sure you have $80,000 in the bank (after fees, commissions, closing costs, etc). That $80,000 can produce about $300 a month in dividends and interest. Maybe you are saving a couple hundred dollars a month.

Is it really worth it?

Another example: Let’s say your own a $250,000 single family home with a $100,000 mortgage. You are paying $1300/mo on the mortgage which you’ve had for well over ten years.

You decide to move into a condo. You sell the house, pocket the $135,000 (after commissions) and find the condo of your dreams. Actually, that’s not entirely true. A $135,000 condo is not going to be as nice as the house you just sold.

Now comes the HOA fees. Condos are notorious for high fees, which can change at the drop of a hat. Also, don’t forget, you may get a letter from the condo board that says: “We decided to replace the roof and we’re going to charge you an assessment of $8,000.”

But now you have no mortgage! That saves you $1,300 a month in mortgage payments (minus the HOA of $300). So you now live in a condo that you don’t like as much as your house which needs a ton of work and you have an extra $1,000/mo.

Is it really worth it?

Maybe. It depends on your overall financial situation. Could that $1,000 be saved somewhere else? There are other ways to trim a budget which are much less painful. Remember too that your mortgage will be paid off at your original home if you can stick it out for a few more years.

Another example: Let’s say you own a $200,000 home with no mortgage. You decide to sell your house and move into a manufactured home.

A relatively nice manufactured home will cost you between $50,000 and $100,000. You retain $180,000 after commissions and moving expenses. You put $100,000 toward the home. The manufactured home is on a piece of land that is leased back to you. Lot rents vary but let’s say it is $500 per month.

You now have a new $500 monthly payment but you still have $80,000 in the bank, which will produce around $350 per month in interest and dividends. This seems like another situation where the savings is pretty minimal and you are living in a house you don’t like as much.

Of course there are always caveats to these conversations.

When does it make sense to downsize?

Here are some examples where it might make sense to downsize.

Your current home is too big. 

The kids moved out and you are left with a 3000-square-foot home with a big yard. Downsizing in this situation often makes sense. While you might not save a ton of money, maintenance free smaller town homes can be very attractive.

You plan on a major downsizing. 

Moving from a $400,000 home to a $100,000 manufactured home will create a significant difference in budget and spending needs going forward. Few people like this option.

You have the opportunity to move in with a family member.

This can be especially attractive if your child or relative has an apartment attached to their home, or a mother-in-law suite. This is a fantastic way to lower expenses and increase cash in the bank (not to mention bringing a family together).

You have no other retirement assets. 

This is not ideal, and NOT the situation for most retirees. But, for those folks facing this reality, selling their home and downsizing to a much smaller space can help them live comfortably throughout their retirement.

So before you think that downsizing could fix all your retirement worries, really consider the long term financial ramifications. Do the math. Consider the emotional consequences of moving. And move ahead with caution.

Be Blessed