Ten Reasons Why You’re Wrong

Sep 27, 2021 David Kennon

Too many people are waiting too long to start spending their savings once they retire.   That’s not just my opinion. In fact, I’m going to try to convince you of the veracity of this statement with cold, hard data. Once I’ve presented my case, I hope many of you reading will come to the same conclusion I did long ago: the Retirement Revolution—a confidence-based approach to retirement planning and living—is a necessary wake-up call for Baby Boomers across America.   Here we go ….   Fact #1 Only 12 percent of Americans die living only on Social Security with no other assets. They don’t own a home or a car or have any savings.   My take on this fact: While around 10 percent of retirees find themselves in bad situations, and while that problem definitely needs to be addressed, a lot of you out there are going to be just fine.   Fact #2 The top 60 percent of Americans are not spending near enough money to put themselves in danger of running out in retirement.   This data turns conventional wisdom on its head. Why is the conventional wisdom still … conventional? Because sensationalism and doomsday forecasting sells papers and makes ratings.   Fact #3 Over 75 percent of those over the age of 44 fear outliving their money more than death.   It is nearly impossible to make measured, intelligent, and rational decisions about your retired financial future when it is basically scaring you to death.   Fact #4 Two large national studies showed that, over the first 18 years of retirement, about one-third of seniors increased their assets.   Do you know how many Baby Boomers live in this country? 76 million. Is it possible that one-third of them (25 million) will die with more money than they ever had before in their lives?   Why? Because they’ve been scared out of spending any of it.   Fact #5 A person with less than $500,000 in savings, on average, spends just about a quarter of it during the first 20 years of retirement.   Those of you with modest savings are not going to end up broke in 20 years if you have a sound financial budget and plan for retirement.   Remember, if you don’t understand the plan your advisor gives you, it isn’t really a plan.   Fact #6 According to the Center for Retirement Research, 48 percent of retirees are able to maintain their standard of living.   Do you mean to tell me that almost half of the country will be able to spend the same amount of money retired as when they were working? Isn’t that the ultimate goal in retirement planning? Half of the country will literally see no lifestyle change. Awesome!   Fact #7 According to the Employee Retirement Benefits Institute, 75 percent of retirees only take the federally mandated minimum withdrawal (RMD) from their IRAs (starting at age 70-½).   Don’t let the government tell you when you should spend your money.   Fact #8 After Medicare premiums, the median lifetime cost for health care for a retiree from age 70 to death (95 or later) is slightly above $27,000, according to a new study by the Employee Benefit Research Institute. This is far less than conventional wisdom.   Anytime you hear that retirees need hundreds of thousands of dollars for medical expenses, take it with a grain of salt. That number is only true for a small part of the population.   Fact #9 The average spending for households headed by 55- to 64-year-olds was $65,000 in 2017, according to a Consumer Expenditure Survey. Spending dropped to $55,000 between ages 65 and 74, and after that it fell to $42,000. Spending dramatically decreases with age.   So you’re going to spend 35 percent less fifteen years into your retirement? Maybe you can spend more now!   Fact #10 Here’s a breakdown of median net worth by age: Ages 45-54: $127,044 Ages 55-64: $191,836 Ages 65-74: $229,425 Ages 75 and older: $271,162   Most people’s net worth increases with age. This is the most powerful and game-changing statistic I can find. Why is nobody talking about this?!   Let’s start talking about it. Tell your friends. Remind your spouse when they start to panic over a financial news story. These are the facts. Facts are empowering. They dispel fear and strengthen confidence.   Let’s stick to the facts.   Dave   P.S.-  Don’t forget to buy my new book “You Never See a Hearse Pulling a Trailer.”  If you’re a client, you should get one in the next couple of weeks.  I was having some technical problems, so if you couldn’t find the book on Amazon before, you can now.   P.S.S.-  If you want to do your own financial plan online (based on my beliefs) click here.

 

Why Your 401k is a Terrible Idea

Sep 20, 2021 David Kennon

The year is 1980.  Bill and Eleanor Gadd, recently retired, are looking forward to a new chapter in their lives.   Bill had worked in the plumbers union for nearly thirty-five years.  His union was important to him.  Those were his friends, and it had taken years to accomplish their fair treatment.   All that hard work had paid off in the form of a pension. The pension formula looked something like this:   Bill would receive 35 (the number of years he worked) x his final salary x 1.8%.  That equaled a monthly pension of $1050 per month (in today’s dollars $2600/mo).   He also had the option of adding Eleanor onto the pension.  Therefore he chose the “joint with survivor benefit option.”  This simply meant that she would continue to get the pension if Bill were to pass away first.   Since both of them were now covered, the actuaries had to lower the monthly amount to $2400.  They may have to pay the pension out longer.   Bill and Eleanor weren’t great savers.  They retired with about $50,000 in their bank account and no other investments.  They never really trusted the stock market and were happy to see their money grow at the bank.   Between Social Security and Bill’s pension, they had $5500/mo coming in each month (in today’s dollars).   Each month the exact same amount of money came into their bank account.  They felt very comfortable.    They knew that if one of them passed away prematurely, the other would not have to adjust financially at all. If they both lived to be 100 years old, they never had to worry about running out of money.   Knowing this, Bill and Eleanor felt very little stress when it came to their retirement finances.  They spent those monthly checks on things that were important to them.  Instead of worrying about money, they focused on family, relationships, and fun!   Now let’s take a look at Jack and Dorothy.  Jack and Dorothy retired last year (2020).  Jack had a good-paying job at a box factory as a quality control supervisor.  Over thirty years, there was not a single box that left that factory with even the slightest imperfection.  He had won several prestigious awards from the Box Makers Association of America (BMAA).   In lieu of a  pension, Jack utilized a 401k option offered through his employer.  A traditional pension was not even an option. Having saved $600,000, Jack and Dorothy felt some real fear.   What if the stock market crashes? What if we lose all our money? What if the money runs out before we die?   “Maybe we should spend as little as possible, watch the financial news, and freak out each evening,” Jack quipped, somewhat jokingly.   Each month Jack and Dorothy struggled over how to pay their bills.  They only dipped into their investments if that HAD to, and when they did it was painful.  Jack and Dorothy eventually both died of heart attacks, partially attributed to worrying about their 401k (I may be exaggerating a bit for dramatic effect).   What is my point in all of this?  After twenty years in this industry I have come to a strong belief:   Switching from a pension model to a 401k model is the dumbest thing that’s ever happened in the history of retirement benefits.   It is absolutely ridiculous that human beings have been forced into using financial instruments, which they don’t understand or trust, for their retirement.  Not only that, everyone around them is trying to scare them.   From CNBC.com: “The Economic Policy Institute recently declared 401(k)s ‘a poor substitute’ for the defined benefit pension plans many workers primarily relied on.”   How did this happen?  How did we go from a happy, relaxed pension system to a terrifying investment system?   The biggest reason?  Employers wanted to shift the responsibility away from themselves. From an employer’s point of view, putting the onus of saving onto their employees took all the risk away from the employer.  It also saved the employer a ton of money. But this is the problem:  humans are people.  People cannot handle this kind of responsibility.  The whole system has been an abysmal failure.   Wall St. is getting even richer because they are able to charge fees on the 401k’s.  Annuity salesmen are preying on unsuspecting seniors.  Everyone wants a piece of the pie.  The entire thing is a complete mess.   So what’s the solution?  The 401k model is so embedded into the system I don’t see it changing any time soon.  Wall Street especially does not want it to change, and Wall Street has a lot of money to fight change.   In the end, as I see it, the answer is this:   First, you need a trusted professional in your life investing the money in an appropriate and unemotional fashion.   Next, you read my weekly articles which shield you from the torrent or inflammatory rhetoric.   Then you take the correct amount of money each month from the accounts.  Not too much and not too little.   Finally and most importantly, you look at your statement once a year and then go focus on something better.   Now, the good news is that if you handle it correctly, you will end up far wealthier than the pensioners of the past.  Considering the growth aspect of stocks, you will end up with way more.  You don’t need to have a heart attack.  I promise.   Be Blessed,   Dave

 

How To Gamble For Free

Sep 13, 2021 David Kennon

If one thing could be said about Betty Brown is that she was a hard worker.  At age 15 she started working at a drugstore counter, and for the next 43 years, she continued to work a hodgepodge of various jobs.   Betty never went to college and never found employment that paid her a decent wage, but she was tenacious.  She worked overtime whenever she could, and would often work another job on the weekend.   Besides a strong work ethic, Betty had also developed one additional habit.  She saved money.  Oh boy, did she save.   Throughout her entire working life, she meticulously put away as much money as possible.  She learned how to live on an incredibly slim budget.  Betty, financially speaking, had done everything right.   I first met her in her late fifties.  She looked tired.  “My job is killing me,” she lamented.  “They expect more and more work each month without any more help.”   “How much are they paying you?” I inquired.   “$17 an hour.  I haven’t had a raise in three years.”   “Betty,” I suggested, “You have nearly $750,000 saved up here.  Between social security and the investment income you can derive from the money, you will have plenty each month. In fact, you will have much more money coming in if you quit work and ‘retired’ than you do now.”   “I don’t know Dave, it just doesn’t seem right,” Betty lamented.   “I guess I might be ok, but I think I should work a few more years just to be safe.”   Four years later, Betty came in to see me.  “Dave,” she said grimly, “I have pancreatic cancer. The doctors are not optimistic, they think I only have a few months to live.”   The doctors’ heartbreaking prediction came true, and within two months Betty passed away and went home.  Her $750,000 sat untouched, unused, and unenjoyed.   As Betty had no children, she named her husband as the primary beneficiary on her accounts. But, during the last few weeks of her life, the inheritance became more and more important to her.   She literally spent some of her last days on Earth perfecting her complex and generous contingent beneficiary list:  Nephews, nieces, the aunt, and uncle who raised her, friends in need…   Bob Brown, her husband, was in full agreement. After he passed away, he wanted this money to go to the right people. Unfortunately, contingent beneficiaries don’t hold all that much importance when the primary beneficiary receives the proceeds from the accounts.   Betty’s husband came in to see me shortly after her death. Bob and his wife had never seen eye to eye on their money. In fact, Betty hid most of her financial information from her husband, fearing he may wastefully spend it.   When Bob showed up in my office, along with his brother, I knew Betty’s wishes were in serious trouble.  Not only did Bob change all the beneficiaries according to his wishes, but the questions his brother was asking caused me great concern.   “Betty had some sort of hangup about spending money,” Bob’s brother scoffed. “Dave, how much do you think we should start spending now?”   “We”? Since when was Betty’s brother-in-law involved with any of this? In fact, Betty and the brother-in-law had not spoken in years. Betty did not trust him and did not like him.   And now her husband and, ostensibly, her brother-in-law, had her money.   You can guess where this is going. The money was gone in less than a year.   Bob, his brother, and a bunch of their buddies spent a couple months traveling around the world. Classic cars were purchased, gambling losses were significant, bar tabs were large.  Good times.  They didn’t even have to look at the price. Betty. A lifetime of struggle. A lifetime of labor.  Gone.   In hindsight, it was almost like Betty existed as an indentured servant to provide funds for her in-law’s debauchery.   Even as I write this, I feel anger welling up inside of me.   Morals of the Story:   1. Money brings people out of the woodwork. 2. Life rarely moves in a straight line. 3. If you don’t use your money, someone else will. And oftentimes heirs do not use the money the way you had intended. 4. While running out of money in retirement can be a scary prospect, don’t forget that there are other possible conclusions.   Be Blessed,   Dave

 

Excitedly Announcing My New Book

Sep 7, 2021 David Kennon

Here I go again, talking about the stock market.  It still seems like no matter what I write or say, many of you continue to worry about your investments.  I could jump up and down like a monkey and it’s not enough.  LOL   Ok.  Here’s the deal.  I am going to make this article so short, and so sweet.   Let’s look at what the stock market has returned each year since 1942.  We, as a people, need to stop paying attention to our investments and look at what they have done for nearly 80 years.  It is time to fight back against all the fear we are fed.   Here is each year and each year’s stock market return.  Please really take the time and read each year and market return.   Year                    S&P 500  1942                   19.17% 1943                   25.06% 1944                   19.03% 1945                   35.82% 1946                   -8.43% 1947                   5.20% 1948                   5.70% 1949                   18.30% 1950                   30.81% 1951                   23.68% 1952                   18.15% 1953                   -1.21% 1954                   52.56% 1955                   32.60% 1956                   7.44% 1957                   -10.46% 1958                   43.72% 1959                   12.06% 1960                   0.34% 1961                   26.64% 1962                   -8.81% 1963                   22.61% 1964                   16.42% 1965                   12.40% 1966                   -9.97% 1967                   23.80% 1968                   10.81% 1969                   -8.24% 1970                   3.56% 1971                   14.22% 1972                   18.76% 1973                   -14.31% 1974                   -25.90% 1975                   37.00% 1976                   23.83% 1977                   -6.98% 1978                   6.51% 1979                   18.52% 1980                   31.74% 1981                   -4.70% 1982                   20.42% 1983                   22.34% 1984                   6.15% 1985                   31.24% 1986                   18.49% 1987                   5.81% 1988                   16.54% 1989                   31.48% 1990                   -3.06% 1991                   30.23% 1992                   7.49% 1993                   9.97% 1994                   1.33% 1995                   37.20% 1996                   22.68% 1997                   33.10% 1998                   28.34% 1999                   20.89% 2000                   -9.03% 2001                   -11.85% 2002                   -21.97% 2003                   28.36% 2004                   10.74% 2005                   4.83% 2006                   15.61% 2007                   5.48% 2008                   -36.55% 2009                   25.94% 2010                   14.82% 2011                   2.10% 2012                   15.89% 2013                   32.15% 2014                   13.52% 2015                   1.38% 2016                   11.77% 2017                   21.61% 2018                   -4.23% 2019                   31.21% 2020                   18.01%   Dave’s Comments:   1. If you started investing in 1942 you would have made money EVERY YEAR until 1973.  That’s 31 years.  Sure you lost single-digit amounts in 1946,1957,1962,1966 and 1969, but who cares?  You would have made far more than 10% on average. You would have lost a small amount of money five out of thirty years.  Nobody “lost all of their money.”  That is a total misconception which 95% of the population possesses.   3.  The markets did nothing by grow at an astonishing rate from 1976 to 2001.  Markets are never “due” to crash.   4.  Yes.  You would have lost double digits five times out of eighty years.  But even those times are mostly in the teens.  Nobody came anywhere close to “losing all their money.”   5.  Look at some of those good years.  37% in 1975, 32% in 1980, 30% in 1989, 30% in 1991, 37% in 1995, 32% in 2013, 31% in 2019, and 52% in 1954?!   I really want you to let all of this sink in.  Ponder on these numbers.  Print this out and put it on your refrigerator.  There are dozens of things people should be worried about instead of the stock market.  Don’t let all the frenzied talk around you affect your mental health.  What you are doing works.   Dave’s Plea: Please believe that the stock market will average 10% between now and the end of your life.  If it doesn’t- it is historically unheard of.  Don’t make me rent a gorilla suit and jump up and down.   Be Blessed,   Dave