Just Write the Check and Forget About It

Mar 28, 2022 David Kennon

Family Update

The two kittens and puppy are keeping everyone busy. I feel like I’m living in a zoo. If you eat anything on the couch you have three creatures in your face. The puppy likes to play with the kittens much more than they want to play with him. Below is a picture of a very sad dog, on a leash, who cannot reach his buddies.

Jasmine retired in 1995 and over the next twenty-five years she made bad decisions after bad decisions based on a number of misconceptions.  In this example, she retired with $500,000 in her 401k and had no mortgage.   I see tragedies like this throughout the course of my job.  Let’s see where Jasmine went wrong.   I’m on Medicare now, thought Jasmine.  I better be sure to spend as little as possible.  What if a have some huge medical expenses?  I can’t take that chance.   (What she didn’t realize is that Medicare covers most everything.  Medicare, along with a supplement, has a maximum out-of-pocket expense of less than $10,000 each year.  She worried unnecessarily simply due to a basic understanding of her benefits).   And you never know, Jasmine thought to herself.  I read that Social Security may go bankrupt.  What would I do then?  I better spend as little as possible to survive.   (Social Security is not going anywhere in your lifetime. I have taught classes on this subject for years.)   Jasmine decided to never turn on the air conditioning unless the temperature hit eighty degrees in her house. I don’t care if I have to sweat throughout the summer.  I need to keep my budget as low as possible, she thought.   Her friends asked her out to dinner one night and Jasmine refused.  She thought, I can’t just run around spending money.  What happens if I need to go into a nursing home?   (I’ve discussed this in the past in depth.  It is a very sensitive subject and I feel for all of you who witnessed loved ones go through these kinds of difficulties.  After twenty years of exploring this topic, this is the best answer I’ve found:  The chances of you having a long-term stay in a nursing home (five years or more) is in the single digits.  Do you want to totally alter your retirement plans based on a single-digit number?)   When Jasmine’s daughter invited her on a European cruise, she cringed.  My daughter is going to be upset, but I can’t splurge like that.  I just don’t have enough money.     About ten years into her retirement, with a nest egg that had grown to $700,000, she started to experience some hearing loss.  She met with an ophthalmologist who suggested getting hearing aids.   “We can go with the standard hearing aid if you want.  Medicare will cover a lot of the cost.  But in your situation, I would suggest getting cochlear implants.  It would dramatically improve your hearing.”   Those things are $30,000, Jasmine thought.  I would be crazy.  I don’t want to run out of money.  You just never know when you will need it.  So she got the basic hearing aids which only nominally helped her hearing.   (These are the situations where I get pretty upset.  At some point, you need to think about what this money is for. If you were responsible enough to save money throughout your life, this is the moment to reward yourself. What else is more important than your own health and physical well-being.  This is such an unnecessary sacrifice.)   Then one of Jasmine’s worst fears occurred.  Her air conditioner died, and she needed a new roof on the house.  She was sick.   I knew it, thought Jasmine.  I knew I didn’t save enough money.  These are one of those unexpected expenses for which I should have planned.     When the bill for the roof came in at $20,000 she almost fell off her chair.  This is horrible, she thought.  This kind of stuff is going to keep happening.  I’m don’t want to end up a burden to my children.    (I often listen to people lament about medical costs and home improvements.  I usually respond, “I don’t want to sound flippant, but just write the check and forget about it. There is no reason to worry.  The unexpected will happen, but with a good retirement plan in place, you will have room to cover these costs.  It doesn’t matter if you die with $600,000 or $580,000”)   As Jasmine got older it was harder and harder for her to take care of herself at home.  She had a very difficult time walking up the stairs of her tiny townhouse.  She became somewhat isolated.  The only time she left her home was to get groceries (and even then she only purchased things on sale).   Her children encouraged her to go to an assisted living facility.  “Mom,” her daughter pleaded. “I don’t like you being home alone all the time.  This facility is for people that can still take care of themselves, but at least you will be around other people.  Plus they cook and clean for you.  I hear the food is delicious.”   The facility cost $6000 a month.  Jasmine was mortified.  How could my daughter even suggest I go to this kind of place?  Is she crazy?  I can’t afford that, she thought.  So she continued living in isolation.   (These stories are the ones that break my heart.  Even as Jasmine’s savings increased, she still couldn’t use the money, even though this is what the money is for.)   Jasmine was now in her late eighties with failing health.  As her health declined, she was moved to a nursing home.  Every month Jasmine felt nauseous as she wrote the check for $8,000.  I’m going to use up all my savings and my kids and grandkids won’t get anything, she thought.   Jasmine passed away shortly after with nearly $800,000 in the bank.  The money went to her granddaughter.  Unfortunately, her granddaughter was married to a gambling addict.  The money was gone in less than two years.   This was a retirement unfulfilled.  Jasmine never had the opportunity to create a reasonable spending plan.  She live her life scared to death, full of misconceptions that left her lonely living a small life.   Wow.  That was a pretty depressing story I just wrote.   On a more encouraging note….   I read an article this week that actually contained reasonable and accurate content.  Fidelity investments wrote:   One of the biggest concerns Fidelity observed was that 71% of Americans are worried about inflation’s impact on their retirement planning — and almost one-third don’t know how to make sure their retirement savings keep up.   But this is no time to panic, Assaf says.   “The encouraging news is, rising costs might not be as big a threat to your retirement lifestyle as you may fear,” she told FOX Business.   “One piece of advice for retirement savers and inflation, is to not worry too much,” Assaf said. “Based on what we know about retirees and their satisfaction once they get to retirement, most aren’t spending as much as they anticipated and yet they’re feeling pretty good about where they are.”   “If you have a good retirement plan in place, you should be able to weather these storms, too,” she added.   I love it!   Be Blessed,   Dave

 

How to Have Endless Energy in Retirement

Mar 21, 2022 David Kennon

Family Update 

My parents and sister are in town for Spring Break. Everyone adores the new pets. My sister commented, “I don’t even know if that dog can walk, because every time I see him someone is holding him.”

Often times the information I give you, while interesting, is very academic and sterile.   Yet, what we discuss each week, is not an academic subject. We are talking about real people living real lives.   I often discuss generosity. What I’ve discovered is everyone wants to be generous. Who doesn’t want to be open-handed? Humans have been designed to serve and help their fellow man.   So why don’t more retirees show generosity during their retired years? It’s not because they don’t want to give.   It’s because they are worried about running out of money.    How can you be a giver when you fear your own survival?   Hopefully, by now, you agree with my argument that spending 5% of your retirement savings each year is not too much and not too little.   Now if you are retired and living “paycheck to paycheck” on your monthly investment checks, you cannot be overly generous. You need to take care of yourselves first.   But let’s take a look at Linda and Larry, who found a way to live fearlessly and lived a retirement to be proud of.   This example is pretty extreme and few of you have the endurance of Linda and Larry. But I’m trying to make a point.   In 1990, Larry and Linda both retired at age 65. Together they had about $500,000 in retirement savings.  They entered their retirement years with the same core beliefs as me:   —They invested in a diversified portfolio of stocks and bonds. For this example, we will suppose they had their money invested in a generic portfolio of 60% stocks and 40% bonds.   —They started taking out 5% of the original account value ($25,000/yr).   —They did not watch the financial news. They understood that long-term investing has worked time and time again throughout history.   —They focused on living their best life possible. Or more specifically:   In 1990, with the money, they hired a personal trainer and a nutritionist. It wasn’t cheap, but it got them in the best shape of their lives.   In 1991, with the money, they hiked the Appalachian Trail. They pampered themselves by staying at several hotels along the way.   In 1992, they paid the down payment for their son’s first home. His wife and four kids needed a bigger place and were struggling financially.   In 1993, with the money, they took up fishing and hired a charter boat (with captain) each month.   In 1994, with the money, they renovated their kitchen.   In 1995, with the money, they started education funds for their grandkids.   In 1996, with the money, they rented an RV and traveled to every state in the U.S. (except Alaska and Hawaii).   In 1997, with the money, they took a month-long luxury Alaskan cruise.   In 1998, with the money, they helped out their struggling daughter who lost her job.   In 1999, with the money, Linda volunteered for a battered women’s shelter and sponsored over 20 women to get back on their feet.   In 2000, with the money, they went to several shows in the theater district and paid for their grown kids to go with them (they needed some culture). They saw shows in a few different cities.   In 2001, with the money, they turned their yard into a landscaped tropical paradise.   In 2002, with the money, Larry bought a pristine 1972 Volkswagen Super Beetle.   In 2003, with the money, they put $6500 into each child’s Roth IRA to jump-start their retirement and teach them the importance of starting early.   In 2004, with the money, they took a river cruise through Europe (Budapest was their favorite part).   In 2005, with the money, they sent their granddaughter to England to study for a summer in Oxford.   In 2006, with the money, they took up photography. Linda became especially skilled and developed an interest in tropical birds.   In 2007, with the money, at age 82, they decided to take up tennis in order to stay active. They got a membership at a country club, took lessons every week, and played with their friends on Tuesday and Thursday mornings.   In 2008, with the money, they helped their grandson with the down payment on his first house.   In 2009, with the money, they hired a concierge doctor. The best medical care money could buy.   In 2010, with the money, they organized a huge family reunion, bringing together several generations from all over the country.   In 2011, with the money, Larry published his memoirs and Linda published a book about her passion for photographing nature.   In 2012, with the money, they supported a local charity that helped feed hungry children in the area.   In 2013, with the money, they supported missionaries from their church working in Guatemala.   In 2014, with the money, they tipped every waitress with a crisp one-hundred-dollar bill, no matter how much the meal cost.   In 2015, they both passed away.   So did they run out of money while having all of this fun?   No.   What was their account balance based on historical index returns at the end of their life? $2,056,427   They started with $500,000, spent $625,000 generously over 25 years, and died four times wealthier (which they used to create a trust to help future generations of the family).   While you might not be quite as busy, you need seriously start thinking about what your money is for. Maybe it is time to spend more and worry less!   Be Blessed!   Dave

 

Is this the Top of the Market?

Mar 14, 2022 David Kennon

Family Update

The house is pretty busy right now. This is the time in a parent’s life when you feel more like a taxi driver. But all of this activity is a lot of fun.

I’ve had dozens of clients say to me, “It goes by so fast, enjoy it.” So I’m doing whatever I can to soak in the moments.

The puppy is like having an infant again. His bladder is so small that he needs to go out every thirty minutes or so. He whines at night like a baby when he needs to go out. What did we get ourselves into?

The kittens are much easier. They rule the upstairs, and the dog owns the first floor. They will meet soon enough. That should be interesting.

Bob Mahomes, recently retired, had a lot more time on his hands. He spent some of this extra time trying to better educate himself about his finances.   The market has not done well recently, Bob thought to himself. This is stressful.   He purchased a book called: IRAs, 401(k)s & Other Retirement Plans: Strategies for Taking Your Money Out.   After trying a couple of days, Bob got frustrated. This is like another language, he thought.  It’s 500 pages long! This is totally overwhelming.   So he decided to try another book: Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success (The Retirement Researcher’s Guide).   Bob got even more frustrated. The more I try to understand this stuff the more confused I become, he lamented. This seems so complicated. There are hundreds of books on Amazon that talk about the same thing. How I am supposed to know what to do?   This is ridiculous, he thought. My parents had corporate pensions. They had no need to put a single dollar into stocks. I never saw them stress about their retirement finances. Their monthly cash flow was guaranteed.     Why in the world do I need to rely on these volatile investments for my long-term security? He cried out to the heavens.   A couple of weeks later he was chatting with his brother, Carl. Carl said, “Bob, I purchased a stock-picking system online. It shows you exactly when to buy and sell particular stocks. I made 14% last year. I only have to spend an hour a day or so studying various companies.”   But the entire stock market went up last year, thought Bob. I read that the S&P 500 was up 26%. I don’t want to spend an hour a day looking at charts.    Next, the economy began to falter and his investment portfolio went down over 10%.   That’s it, thought Bob, I’m done with this. I cannot lose this much money. This is all I have to rely on for the rest of my life. Carl lost 30% of his money. I guess those fancy stock-picking systems aren’t as accurate as he thought.   So Bob put his money into a money market paying 0.1%. He thought, I know I need to make more money with my money. I’ll just wait until the market stops going down and invest the money then.   The market continued its downward trajectory. Bob felt very smart. My wife is going to be so impressed that I took our money out before the market dropped more, thought Bob.  I would have lost another 5%.   Bob watched the market continue to go down. He thought, the market is really down. Maybe I should reinvest my money. But with so much uncertainty in the world, the markets will probably go lower. I’ll hold off a little more.     The stock market began showing some small upward gains. Bob thought, this downward turn isn’t over. I’ll wait a little longer.   The market continued to grow slowly. Bob thought, from what I hear on the news, this is only a temporary increase. I’ll put my money back into my portfolio once these investments have hit rock bottom.   The market really started to heat up again. There is no way the stock market is going to keep going up, Bob thought. I’m going to wait a little more. I don’t want to buy at the top of the market anyways.    Pretty soon the markets had recovered their losses. If Bob had stuck to his plan and kept the money invested, he would have regained his 10% loss and then some.   Bob thought, the markets are at all-time highs. There is no way I’m investing right now.   Geez Louise, Bob thought. It was so easy to pull my money out of my portfolio but choosing a time to reinvest seems almost impossible.   He watched incredulously as the stock market continued its upward trend. The world is an absolute mess filled with pandemics and war and domestic unrest. How is the stock market going up? Bob thought.   I’ve missed out on thousands and thousands of dollars in gains. Why am I even messing with this stuff? I don’t even know what I’m doing.    ——————————   I cannot emphasize this enough: It is very easy to take your money out of the stock market, but it is almost impossible to determine the best time to reinvest.   I watch people, with their money on the sidelines, wait and wait, losing all kinds of gains in the meantime.   One strategy I would recommend for this situation is referred to as “dollar-cost averaging.”   This simply means you set up a schedule to invest money slowly over time.   For example:   Let’s say Bob’s portfolio was worth $600,000. Instead of timing the markets, a good strategy is to invest $100,000 a month for six months. This way sometimes you are sometimes buying high and sometimes buying low. It is a great strategy to get back into the markets.   Be Blessed,   Dave   P.S.- There is significant volatility in the markets right now. I want every one of you to read the following statement out loud (your spouse may look at you funny).   “It doesn’t matter how the stock market is performing. The world is fundamentally uncertain, but companies and economies continue to grow. Innovation continues. Between now and the end of my life, if the stock market doesn’t return an average of 10% per year, it would be absolutely unprecedented. In the future, this time period will look like a small blip on a chart.”

 

Relying Entirely on Social Security

Mar 7, 2022 David Kennon

Family Update

Ok. You are all going to think we are crazy…..but we got a puppy. That’s right. In the span of a week, we got two kittens and one puppy named Desmond. He is s mini-Goldendoodle which is a cross between a miniature poodle and a golden retriever.

This thing looks like a teddy bear. He’s been great about going potty outside. He walks on a leash with no problem. He seems like a really mellow guy. We’re considering using him as a therapy dog at some point.

I’ve been pounding the same drum for years.  Many Americans believe a lot of retirees are forced into poverty.  Many Americans read stories of the elderly who must cut drastic corners to survive.  Many of you believe that most people rely on Social Security as their sole source of income.   While I want to be sensitive to those of you who are truly struggling with your retirement finances, the data points to a different story compared to those above.   Let some of this information sink in:   Among older Americans, only 12% of men and 15% of women rely on their monthly Social Security check for nearly all of their income.   Social Security benefits represent about 30% of the income of the elderly.  Most retirees use Social Security as a base income, but use other sources to supplement their income.   Also remember that, according to the Center for Retirement Research, 48 percent of retirees are able to maintain their standard of living.   Not only are people getting by, but half the country is living retired no differently than when they working.   Many of your fears simply come from a lack of planning and a lack of education.   Let’s take a look at a quick example.   Paul and Lilly Jones are retired.   Paul’s Social Security =  $1700/mo Lilly’s Social Security  =  $1900/mo Retirement Assets  = $400,000   In this example, Paul and Lily fall firmly into the middle class.  Five percent of $400,000 is around $1600/mo.  This is the perfect amount.  Not too much, not too little.   By adding their Social Security payments to their investment income Paul and Lilly will receive a $5,200 a month “Fixed Income.”  This is a pre-tax number.  But I have great news!  In this situation, Paul and Lilly will pay nothing in income taxes.  Why?   1. Social Security is only taxed if you hit a certain threshold. 2. You no longer pay Medicare and Social Security tax. 3. There is a $24,000 standard deduction for filing jointly which wipes out the rest of the income.   I’ve helped countless people with budgeting.  Mostly the budgets I see fall between $3,000-$6000.  I would say $5000 is a good average.   There is also an interesting phenomenon I’ve noticed.  For those of you whose Social Security benefit is below average, it means you’ve made below-average wages throughout your life.  This means that you’ve learned to live on a simple, modest budget.   I was going to continue this article but I was blindsided by a headline that showed up in my news feed.   ‘We really did hit peak stupid’: Elite investors on Wall Street say privately that the market is about to undergo a cataclysmic shift — and many won’t survive the ‘washout’   This is one of the scarier headlines I’ve seen (and the longest).   How are we stupid and why does this scare us?   The article features an unnamed billionaire.  Billionaires know everything about the stock market right?  They have crystal balls that we don’t, right?   The language in the article is clearly designed to scare you.  You would much sooner read this article than an article about disciplined, long-term investing.  That’s why they write these stories.   Here are some quotes:   “Silly season’s over folks”   “This is not a drill.  It’s the beginning of a bear market”   “We really did hit peak stupid, but peak stupid extended beyond truly, truly stupid, and then we went to bottom-of-the-ocean-rare-earth-metal-companies stupid.”   LOL.  That one is almost comical.   The article does point out some economic factors that could lead to a bear market, but there is always the other side to the story.   ·      Fed rate hikes.  It is “common wisdom” to think that if interest rates rise it will hurt the stock market.  Not true.  There is almost no correlation between rate hikes and stock returns.   ·     Inflation is at all-time highs.  That almost guarantees a bear market, right?  Wrong.  The correlations between the two are almost non-existent.   ·     You can expect lower than normal returns in this economic environment.  Really?  I’ve heard that for twenty years.  It’s always been wrong.   I rail against this kind of fear-mongering because I really feel deeply sorry for all those retirees out there.  I picture them checking their portfolio every day.  I see them keeping an eye on the ticker that’s at the bottom of any news channel.   You are being forced to peg your retirement income on the stock market which is inherently volatile and illogical.   Hang in there.  Stocks and bonds have experienced consistent growth for 200 years.  Don’t let temporary events (no matter how awful they appear), derail a well-crafted retirement plan.   Be Blessed,   Dave

 

Russia and Your Investments

Mar 3, 2022 David Kennon

Family Update

We got kittens!!! 

We now have ten-week-old puffs of cuteness. We got one boy and one girl from the same litter. They are so tiny and adorable. We are quarantining them for a week or so in our largest bedroom. They are way too small to have access to the whole house. 

The kids promised to feed them and clean their little box. And they actually followed through! For two days. 

They are yet to be named. If anyone has some good ideas for names let me know.

 

With all of the geopolitical craziness, and it’s subsequent effects on the market, I want all of you to say, out loud:   “Yes, my portfolio value is a lower number now. But I understand that markets go up and down. I understand that this drop is but a small portion of the gain I’ve made over the past few years.”   “Any foreign war or invasion in recent history has had little to no effect on long term stock returns. It doesn’t matter what they say on the news. It doesn’t matter what the ticker symbols say. I am going to go about my day calmly enjoying this beautiful weather.”   —————————————————————— I thought this as good a time as any to talk a bit about withdrawing money from an investment portfolio that is not growing. Faithful followers of the Retirement Revolution already know my core beliefs. When you retire: 1. Invest the money in a diversified portfolio of stock and bonds (with at least half the money in stocks). 2. Begin spending five percent of your portfolio each year starting the very first year you retire. 3. Live you life with a renewed sense of opportunity and adventure. At its core, the basic concept is this: Between now and the end of your life, if the above-referenced portfolio does NOT return an average of five percent it will be the first time in modern economic history where it has failed to do so. It would be absolutely unprecedented. In a sense, you are only spending the money that your money is making. Now, this can sometimes get psychologically tricky during times of flat growth or even losses in the portfolio.   There will be times when it feels like you are taking money from an account that is going down. You will see your principal reducing as you are spending the money. For many people, this can cause mild to moderate heartburn.   Take an Alka-Seltzer. You are going to be okay. But sometimes (like in the past two years) you might take out your five percent and see that the portfolio grows above and beyond your withdrawals. “This is great,” you might think, “not only do I get to enjoy the money I’m withdrawing, but my account is actually growing.” In order to get the most LIFE from your money, you need to come to terms with the fact that the markets do not move in a perfectly straight line. They may temporarily go down but they permanently go up. As Warren Buffett points out, in 1900 the Dow Jones was 66 points. As of this writing, the Dow Jones is trading at over 30,000. Be Blessed, Dave