Life Without a Plan

Sep 30, 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:

1. 1. 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.
2. 2. 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 5th 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.

1. 1. How much money do you need each month to live your life?
2. 2. 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.

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 17 years only consists of two pages.

Your retirement plan should answer these questions.

1. 1. How much am I spending each month now?
2. 2. When should I take social security?
3. 3. How do I most effectively get my money to work for me once I am no longer working?
4. 4. How much money can I safely spend from my retirement savings each month once I retire?
5. 5. How much will I have to pay in taxes in retirement?
6. 6. What happens if my spouse passes away?  What will my finances look like then?
7. 7. Do I have any “play” money above and beyond my budget each month? (Can you splurge?)

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!

Be Blessed,

Dave

Not Sure What to Wear

Sep 23, 2019 David Kennon

In this week’s article, I’m going to discuss practical, actionable tips to help those of us who live to work, instead of work to live.  Retiring for people whose identity rests in their professional work can be extra challenging. I heard a heartbreaking story one time.  A woman was telling me about the first day of her husband’s retirement.  Her husband was an executive at a Fortune 500 company most of his life.  When he retired at age 65,  she will never forget what he said on the first morning he woke up. As he rubbed the sleep out of his eyes, he swung his legs down onto the floor, looked a little confused and looked at his wife.  “What am I supposed to wear?”  He asked feebly.  His wife thought for a second and said, “Well, I guess dress just like you were going to go play tennis today.” He had no idea what to do with himself.  He had neglected to plan for his retirement. Don’t let this happen to you!  I have found, especially with men, that retiring can be a very challenging experience.  Women seem to be more relational and usually quickly find things to do with their time, such as babysit grandkids, volunteer, and help anyone in the family who is in need. I think about this myself sometimes.  I’m a “Type-A” individual.  I’ve been called lots of things: driven, dedicated…..kinda nerdy.  So am I one of the people out there who lives to work?   I’m not sure that I ever plan on retiring.  I am blessed to own a business that I intend to run multi-generationally with my children.  I fully plan on working until my 70’s and 80’s. So, without further ado, here are Dave Kennon’s Six Tips to Living an Awesome “Type A” Retirement. 1.You have to PLAN for retirement (both financially and personally).  Don’t’ expect retirement just to “happen.”  When you go on vacation, you usually will put some time into the itinerary, activities, and schedule.  Retirement is just a really LOOONG vacation. 2.For the first year or so, you may feel a little out-of-sorts.  You may not know what to do with yourself.  You may find the changeover from working to retired to be stressful.  This is normal.  You are not strange or unique.  This is a big transition.  For many people, it takes time to settle into the retirement of their dreams. 3.If possible, look into a consulting role once you retire.  It is a nice way to slowly and gently transition into retirement.  Plus, consulting is usually an awesome job.  You are the boss.  You work your own hours and usually get paid a reasonable income.  Check out sites like  FlexJobs.com to find this type of work, or just utilize the connections you already have. 4.Keep moving!  Retirement is NOT sitting by a pool drinking margaritas.  The advice I receive from nearly every happy and healthy retiree is this:  If you stop moving you die.  Pick up tennis, golf, biking, hiking, bird watching…whatever is interesting to you.  Just make sure it involves physical movement. 5.Volunteer.  Or better yet, start a small non-profit for a cause you love.  Start an animal shelter.  Build homes for the homeless.  Start an exotic cacti club.  Be proactive.  Use your “get er’ done” business skills. 6.Lastly and possibly most importantly: mentor.  The happiest and most fulfilled “Type-A” retirees whom I know have taken a few younger people under their wing.  The best place to start his process is a church.  If you do not attend church, there are many community centers that are in desperate need of talented retirees to build up the next generation of workers and citizens. Be Blessed, Dave

50% Tax Penalty?

Sep 16, 2019 David Kennon

BREAKING NEWS:  STOCK MARKET ALERT

Year to date returns:

Stocks:  +18%

Bonds:  +9%

How is the media not talking about this?!

Moving on…..

I am often asked by my clients who are over 70 about RMDs or Required Minimum Distributions. I can understand why RMDs could cause concern. Let’s take a quick overview of the subject, so we are all on the same page.

What is RMD, or Required Minimum Distribution?

Once you turn 70-½, the IRS requires you to begin taking money from your retirement accounts. (I don’t know why it’s 70-½; it’s just one of those strange bureaucratic choices we all have to live with.) Basically, the government doesn’t want to let you defer taxation on these accounts forever.

The amount you are required to take out depends upon your age. The portion increases each year.  Here is a table giving you an idea of how much you need to take out:

Age	Required Withdrawal (%)
70	3.6%
75	4.3%
80	5.3%
85	6.7%
90	8.7%

So if you are 75 years old and you have $100,000 in your IRA, you are required to take out $4300 during that year. If you don’t, the IRS imposes a 50% penalty.

That’s not a typo.

There is a 50% tax penalty on the monies you should have taken out but didn’t.

So the combination of severe tax penalties and the seemingly unfair practice of being forced to pay taxes on your retirement savings gets a lot of attention.

But I’m here to tell you that RMD planning for most people is a distraction from the real issue: When should you begin to spend your retirement savings?

When should you spend your retirement savings?

I ask the same question to everyone who comes into my office. When do you plan to spend the money you saved specifically for retirement?

The most common answer I hear?  “When the government says I have to.”

Does that make sense to you? Does it really make sense to let the government dictate when and how much money you spend from your savings?

As I discussed at length in the past, America is a country full of oversavers. Retirees, falling back on a scarcity mentality that comes from their parents (which comes from living through the Great Depression) are waiting too long to spend their savings.

Instead of looking at generic government tables, doesn’t it make more sense to do a little planning and determine how much you can safely spend from your retirement accounts as soon as you retire?

Personally, I strongly subscribe to the 5% rule. If you have your money invested in a diversified portfolio of stocks and bonds (with at least half of the money in stocks), the reality is that between now and the end of your life, the portfolio should return an average of at least 5%.

Minus the Great Depression Part 2, you are going to be fine.

So if you are 65 years old and you have $100,000 invested in your IRA and you begin to withdraw $5,000 a year, great! You should be! Enjoy that money. Spoil those grandkids! Take that dream vacation!

And guess what, when you turn 70-½ and you start hearing warnings about RMDs, you don’t need to worry! You are already, naturally, satisfying the requirement by simply withdrawing a sustainable and reasonable amount of money each year.

Remember, the government doesn’t say that you need to spend 3.6% of your principal at age 70.5.  If your investments make 3.6% and you withdraw that money- it satisfies the RMD!

YOU need to be determining how to get the most LIFE out of YOUR money. You certainly don’t want to hand that job over to Uncle Sam.

Stop asking the question: “When and how much money does the government force me to take from my retirement accounts?”

Start asking, “When and how much money can I safely spend on an annual basis from my retirement accounts?”

Instead of saying, “I don’t want to take out 3.6% of my account value when I turn 70.5 and pay taxes.”  Say, “I am going to find the perfect balance between spending too much and spending too little from my savings.  It’s not up to the government to determine when I can enjoy my money.”

Instead of being frustrated that you can’t continue to defer all of your retirement savings indefinitely, empower yourself to discover how to live your best life NOW.

Be Blessed,

Dave

Cheating on Tests

Sep 9, 2019 David Kennon

It’s quiz time. For those of you who faithfully read my weekly articles, you should do great. Those new to the Retirement Revolution are going to learn some pretty mind-blowing facts.

Note: The answers follow each question. No cheating!  I was trying to figure out how to make sure you don’t peak at the answer by mistake.  So I tried to be creative.  You will see what I mean below.

1. What did the stock market return the 12 months after the bottom of the 2008 real estate and stock market crash?

A. -30%
B. +5%
C. -10%
D. +49%

Answer: One letter after c (otherwise known as d)

2. What did the stock market return, per year, in the 1990’s?

A. 5%
B. 18%
C. 1%
D. 10%

Answer: Two letters before d

3. What is the average return for stocks from 1800-1900 (accounting for inflation)?

A. 5%
B. 3%
C. 10%
D. 0%

Answer: One letter before d

4. What is the average return for stocks from 1900-2000?

A. 4%
B. 10%
C. 0%
D. 12%

Answer: Two letters before d

5. At what age should most people stop investing money in stocks and bonds?

A. 60
B. 70
C. 80
D. 90
E. Never

Answer: One letter after d

6. How often do “most economists” predict a recession?

A. Every ten years
B. Every five years
C. Every three years
D. Basically every year

Answer: One letter after c

7. Why do many money managers hesitate to encourage clients to spend?

A. They don’t want them to run out of money.
B. Portfolios perform better when you don’t take out any money.
C. They are jealous of all the fun you are having with the money.
D. They get paid based on how much money is in the account.

Answer: Two letters after b

8. How much do I need to watch financial news channels to be informed enough to make good investment decisions?

A. One hour a day.
B. One hour a week.
C. A few minutes here and there.
D. Never.

Answer: One letter after c

9. How much more money do you receive for every year you wait to collect social security?

A. 5%
B. 0%
C. 6%
D. 8%

Answer: Two letters after b

10. When will social security go bankrupt?

A. In the next ten years.
B. In 10-20 years
C. In 20-30 years
D. Not in your lifetime

Answer: One letter after c

11. From your late forties to your late seventies, how much less money do people spend on average?

A. The same
B. 10% less
C. 40% less
D. 18% less

Answer: Two letters after a

12. When does it make sense to use some of your 401k to pay off your mortgage?

A. If you are about to retire.
B. If you plan on living there for the rest of your life.
C. If it would make you feel better and more secure.
D. Basically never. The taxes are terrible.

Answer: Two letters after b

13. You are getting $2000 a month in Social Security. Your spouse is getting $2500. If you spouse were to die, how much money would you continue to receive?

A. $2000
B. $4500
C. $2500
D. $2250

Answer: One letter before d

14. How many retirees are dying with more money than they’ve ever had before?

A. 5%
B. 33%
C. 0%
D. 50%

Answer: Two letters before d

15. How many Americans are able to maintain their standard of living once retired?

A. 48%
B. 0%
C. 74%
D. 15%

Answer: One letter before b

16. Which of the following steps is NOT a part of the Retirement Revolution?

A. Create a budget
B. Invest your savings in a diversified portfolio of stocks and bonds with at least half the money in stocks.
C. Spend 5% of the account value each year.
D. Use the money! The 5% withdrawal, historically speaking, has never led to someone running out of money.
E.  Invest all of your money in Bitcoin.

Answer: One letter after d

17. Why is the Retirement Revolution awesome?

A. It helps you spend the perfect balance of too much and too little.
B. It reduces worry and increases fun!
C. It gives you the financial rules and parameters by which you can live your retired life.
D. It harnesses the incredible power of diversified portfolios of stocks and bonds.
E. It might help you to spend more, and worry less.

Answer: All of the above

How did you do? Share this with friends to see if they can do any better.

Be Blessed,

Dave

The Tragic Cost of Fake Recessions

Sep 3, 2019 David Kennon

What is up with all this recession talk?!

You cannot listen to any news source lately without hearing warnings of a pending recession.  I’ve had several people in my office in recent days scared to death.

There have always been talks of recessions, but what makes this worse is how financial news has blended with political news. The stock market’s performance has become a political talking point. If the market goes down, one political party worries. If the markets go up, different people worry.

It is completely out of control.

Remember that the news will report on anything that will get and hold your attention. Stock market pullback? Big news! President talking about the market pullback? Network executives are even more thrilled. It’s great for ratings, but it is terrible for you.

Why? It gives you the faulty perception that anyone, and I mean anyone, can predict a recession. Last year, I sat through a lecture by a highly respected group of economists. What was their message in 2018? High probability of a recession half-way through 2019.

Oops.

But they will decry, like all prognosticators, “It is happening more slowly than we realized.  The recession is still coming but now we see it coming in 2020.” And maybe it will. But maybe it won’t.  And if there is no recession you could be just as financially damaged as if there were. How? Let me explain through an illustrative anecdote.

Meet Betty Bonnett.

Betty worked hard her entire life as an office manager at a small, family-owned business. The owners of the company offered a 401k and a very generous match to any contributions their employees made. Like most small businesses, the owners genuinely cared about their employees and did everything possible to help.

After 35 years, Betty finally decided to retire at age 65. Up until this point, she had contributed money to her 401k and never gave it much thought. The financial guy at work had suggested some mutual funds, and Betty hadn’t changed her portfolio much through the years.  She had other, more pressing issues to deal with. Keeping an eye of the stock markets was not really on her radar.

Once Betty retired, she was suddenly faced with a terrifying decision: What do I do with the money now? The gravity of her financial choices had suddenly multiplied ten-fold.  She realized that stocks and bonds are powerful wealth building tools. Heck, she’d seen her 401k grow almost every year since 2008.

So Betty met with a planner and got her money working in a diversified portfolio. Everything was going great … until Betty started to see stories about an imminent recession on the way.

On TV, the radio, the newspapers —  the impending recession was everywhere.

Betty couldn’t escape it.

The fear-mongers made perfect sense. The national debt was too high, the Federal Reserve didn’t agree with the president, and the economy hadn’t crashed in over ten years. (On a side note, unemployment is historically low, the country’s economy (GDP) is growing, and corporate profits are breaking records.)

Betty grew sick with worry. She watched her portfolio every day. On one particular day, the market fell 3%. All in one day! It was the last straw for Betty. She called her advisor and demanded all the money be put into cash.

The market went up 4% in the next two weeks.  “Now the economy is at an all time high,” Betty thought to herself, “it is sure to crash now.”

It didn’t.  Over the next six months the stock market grew by over 16%. (By the way, the stock market, this year to date, has returned over 16%).

Betty had made a terrible mistake. She forgot that the way to invest successfully involved keeping her money working for a long time — not trying to time the markets. The 24/7 news establishment had completely derailed Betty’s financial well-being.

By missing the “ups” in the market, her long term returns will be dismally low.

What goes down always comes up.

When you join the Retirement Revolution you absolutely must understand and believe the concept that markets go up and down, but overall they have always gone up.

Put another way, if you never looked at your statement again, took out 5% of your account value each year, and then looked again at your account on your deathbed, guess what? In almost every case, you will have more than what you started with.

While I can’t guarantee this result, it has been the case since 1930.

The average retirement lasts around 20 years. The worst 20-year period in the stock market since the Great Depression returned an average of 5.6%. The best 20-year period returned an average of nearly 18%.

Nobody knows if and when a recession is coming. Trying to time the markets is a losing bet.  Close your eyes to the day-to-day hysteria and Trust. The. Process.

If you sense my frustration, it comes from the incredibly irresponsible reporting I see all around me. The news cycle is always looking for something to talk about, and recently they decided talking about recessions will get the most eyeballs on their show.

When you see a hysterical news reporter or read a hyperbolic editorial, you can confidently turn away. You know better. Their manic doomsday prophesying can’t affect you if you don’t let it.

You have a plan. You are harnessing the power of stocks and bonds. You are utilizing financial planning concepts that have worked for 200 years. You are not in danger. It might feel that way, but feelings are not facts.

Be encouraged! Be confident! And if you know someone who is freaking out over the “impending” recession, be generous! Share this newsletter with them.

Be Blessed,

Dave