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