FAMILY UPDATE
Happy New Year! I haven't stayed up until midnight on New Year's in years. But this time two of my kids wanted to try. It wasn't easy, but I made it! At exactly 12:02 I was in bed.
Desmond the dog rolled around in something gross and smelly. Below you can see how we cleaned him.
The world seems extra uncertain and crazy right now, doesn’t it? |
FAMILY UPDATE
We had a big Christmas party. My wife comes from a large family and everyone lives in the area. It took three hams to feed them.
This family keeps getting bigger and bigger. As nieces and nephews (nine of them) start to get married and have kids, these parties are going to have to be held at a banquet hall.
Our adorable pets all turned one this week. Desmond is the dog (Mini Goldendoodle). Hemi and Coconut are the Ragdoll cats. They've added so much to the family. Happy Birthday pets!
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FAMILY UPDATE
Last weekend we spent all Saturday making Christmas cookies. Apparently we made them too early because they have all mysteriously disappeared. I guess we'll have to try again this weekend.
We also made gingerbread houses. We each had 30 minutes, and the family judged the results Those gingerbread houses have since been torn down and eaten. Merry Christmas to everyone. Stay warm. Maybe we'll have a white Christmas!
I was messing around on Google the other day and typed in: "Baby Boomer Retirement" |
FAMILY UPDATE
We decorated the Christmas tree last weekend. My wife's parents stopped by and we looked through our favorite ornaments. It's fun to see all the ornaments my kids made when they were younger.
Everyone is getting excited for Christmas. More and more Amazon boxes pile on the doorstep each day. I'm sure it will be one to remember.
Joey and Jane Jenkins, ages 65, decided to retire after over 40 years of work and toil. While their social security and investment income would more than cover their monthly expenses, they still felt financial anxiety. Joey agreed. "Well, maybe we should try to live on a strict budget. That way we can save as much as possible… just in case. I guess we won’t get to live out some of our dreams in retirement. We will probably have to watch our friends travel, dine, and spoil their grandkids. But for us? It’s spaghettios and spam."
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FAMILY UPDATE
It is almost impossible to find a TV show that everyone likes. The kids are now 10,12,14, and 16. They all have opinions on what we watch. After a lot of trial and error, we found something that we can all view together: Wheel of Fortune. It's both educational and entertaining. We all compete to answer the puzzle first.
The show has been on the air for forty years. How does Vanna White still look so young?!
Speaking of looking young. Check out Mom playing cards with the kids!
When I take on new clients there are certain rules that I ask you to follow. Here’s a quick example: Mr. and Mrs. Smith retire with $500,000 in savings. We determine that utilizing a diversified portfolio of stocks and bonds (with at least half of the money in stocks), would allow them to withdraw $25,000 a year from their savings. Looking over 200 years of economic history, this is a sustainable and reasonable withdrawal amount. Now, do Mr. and Mrs. Smith dip into their account whenever they need some money, making sure they don’t go over the $25,000? No. Do Mr. and Mrs. Smith take all $25,000 at once at the beginning of the year? No. There is definitely a psychology to retirement spending and I’ve learned, over the past 20 years, that neither of these approaches works particularly well. If you only dip into your account when you "need to" most people find it to be a painful experience. Remember, you are children of depression-era parents. To many of you, withdrawing money from your retirement savings can conjure up thoughts like, "I hope this isn’t a mistake, I hope I don’t run out of money. This just feels so irresponsible. This money doesn’t even really belong to me, it belongs to retirement." What about taking the $25,000 all at once? While this is a better option than the above, I’ve found that generally speaking, human beings live their financial lives on a monthly basis. Most, if not all of your bills are due monthly. You’ve been getting paid monthly or bi-weekly your entire life. It can be difficult to budget a $25,000 lump sum to last the entire year. So after years of in-the-trenches financial planning experience, I’ve determined the best strategy, by far, is to receive income checks on a monthly basis. So in the example above, Mr. and Mrs. Smith take their $25,000 over 12 months (or $2083/mo). This not only allows you to know exactly how much money you can spend in any given month, but it also takes away the pain of withdrawing money from your retirement savings "as needed." For whatever reason, when human beings see their checking account growing as the investment income checks roll in each month, they treat that money differently than if it was still in their retirement savings accounts. Think about this for a second. If you had $500,000 in your retirement savings and that account grew to $525,000 during the year, you might say to yourself, "Oh, that’s nice. At least the money is growing." And then you go about your day and probably do not think much about it. But if that $25,000 ended up in your checking account, you might say, "Wow! This is awesome. Instead of me working, my money is working for me. It’s like I’m getting a ‘paycheck’ for doing nothing! How am I going to spend my money to make my retirement more awesome." As you can see, these are radically different experiences of exactly the same investment results. And don’t forget, I strongly suggest you spend the money you receive. You are not going to end up like the majority of Americans who are dying with more money than they’ve ever had before in their lives. You are going to live an empowered and fulfilling retirement armed with the knowledge that you are spending exactly the right balance between too little and too much. So if, as you are receiving your monthly investment income check, you find yourself saying, "I had better stick this money in the bank and save as much as I can. I sure don’t want to outlive my money." Stop! So get those checks rolling in, spend the money, and find comfort in the fact that you have a plan in place that has stood the test of time. Be Blessed, Dave |
FAMILY UPDATE
My youngest got the flu and had to be quarantined. Where was he quarantined? In the den with the video games. He was forced to play video games, eat ice cream, and drink Gatorade to stay hydrated. I've never seen such a happy sick kid. Desmond, the dog, was there to nurse him as well.
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 20 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. 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. 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.
How much money do you need each month to live your life?
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 20 years only consists of two pages.
Your retirement plan should answer these questions:
How much am I spending each month now?
When should I take social security?
How do I most effectively get my money to work for me once I am no longer working?
How much money can I safely spend from my retirement savings each month once I retire?
How much will I have to pay in taxes in retirement?
What happens if my spouse passes away? What will my finances look like then?
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
P.S.- I am now doing virtual Social Security webinars each Saturday at 10:00 AM. If you would like to register click here. It would also really help me out if you shared that link with other people. Thanks!
FAMILY UPDATE
We had a big Thanksgiving party yesterday with over 25 people! My wife comes from a large family and they keep having more kids. Now the older kids are getting married. The party is going to be 50 people before I know it. I guess we'll have to rent out a banquet hall 🙂
Our dog cannot get enough playing fetch inside the house. He carries his ball around at all times. If he happens upon one of us he drops it at our feet and looks up expectantly. I try to throw it down the stairs so he gets the most exercise. He would play for hours if we let him.
Our cat got in trouble last week for scratching up the couch so we put him in timeout in the corner.
I often hear people say to me, "I lost all my money in the stock market in 2008." Or "I lost all my money in the stock market in 2001."
Really?! Did the stock market go to ZERO?
The facts:
In the 2008 recession, the S & P 500 dropped by over 37%. Not quite all the way to zero, but it did drop 37%.
But remember, markets temporarily go down and permanently go up.
In 2009, the S & P 500 was up 27%. In 2010 it was up 15%. You had all your money back in a couple of years.
In 2001 the S & P dropped 12% and went down 22% more in 2002. It then increased by 29% in 2003 and 11% in 2004.
It took about 3 years to get all your money back.
So, how are these people "losing all their money?"
What they really should be saying is:
"I got some hot stock tips from my neighbor. I then went ahead and started day-trading those stocks. I was really good at it! Then the stupid economy tanked and my stupid account ended up at zero."
Or they should really be saying:
"I invested $100,000 in a hot, 5-star mutual fund that focused on startup tech companies in China. Then the market crashed and I lost $70,000! There was NO WAY I was going to lose anymore. So I pulled all the money out. I have been getting .001% interest on the money ever since."
Or they should be saying:
"My friends were all investing in Bitcoin making a fortune. So I invested my money and six months later it was worth 70% less."
That is what actually happens.
People that have well-diversified, balanced portfolios are not going to lose all their money.
Do we have a skewed view of economic history?
Maybe.
The fact is: In the past 20 years we have seen two historically bad stock market "corrections."
From 2000-2001 the S & P 500 was down about 21% and in 2008 the S&P 500 was down 37%.
So from 1942-1999 how many years were worse than those two examples above? During those 57 years stretching from the end of World War II until the end of the century, how many times did the market go down in such a dramatic fashion?
Once.
But that is impossible!
No. Really.
From 1973-1974 the market was down 40% (by the way, it was up 37% in 1975).
That’s it. That is the only time.
I mean, sure, the market was down 10% in 1957 and down 9% in 1962 and down 7% in 1977, and down 5% in 1981.
But to have the market go down dramatically TWICE in the span of 8 years is exceedingly historically rare.
The concept that the market is constantly "crashing" or saying that a crash is "due," is really not painting an accurate picture of reality.
Yes, two decades were tough in the past 100 years (the 1930s and the 2000's). But the other eight decades basically saw tremendous and consistent growth.
And even those two decades were not THAT bad.
If you invested $10,000 in the S&P 500 in the year 2000, you would have ended up with $9090 in 2010.
What about the decade during the Great Depression. You might of lost all of your money, right? If you invested $10,000 in the S&P 500 in 1930, you would have ended up with $9922 in 1940.
That doesn’t look like "all of my money" to me.
Next time your neighbor or Aunt Jenny tells you about how they lost all their money in the stock market, don’t let it infect your own thinking. You don’t have the whole story. And not knowing the whole story can be harmful to your financial health!
Be Blessed,
Dave
