What would Money Ripples‘ plan look like when toe to toe with a financial advisor? In this episode, Anti-Financial Advisor Chris Miles illustrates an apples-to-apples comparison of a particular financial advisor’s client. How do they compare? Can this 54-year-old attorney retire by the time he’s 65? Find out here!
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How We Compare To Traditional Financial Planning
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I’m going to get right into it. I was in Florida. I was meeting with an insurance company. There are a lot of financial advisors there. These are the cream of the crop, the top of the top. I didn’t mean to make this rhyme like I’m running out of time. These guys are financial advisors that make millions per year primarily with their assets under management. One guy is a good friend. He’s even had me do calls with him before. He’s a great guy. He wanted to show us what he did to teach people.
This guy talks to at least 10 and sometimes up to 15 or more people a day, primarily attorneys. He’s focused on attorneys that do not know what to do with their finances. He helps them try to plan for the typical traditional financial retirement. He starts to illustrate everything and show the numbers and all that stuff. I’m going to do a different episode talking about assumptions, numbers, and that kind of thing. Understand that he was giving the same presentation that almost any financial advisor gives but he upped his game. He’s using bigger numbers, especially when he’s talking to attorneys.
I loved how he was very simple about it. He showed them big numbers because attorneys don’t want to read through all the paperwork. That’s why they want to see the summary of their court cases. They want to see those 1 or 2 pages, and that’s it. I’m the same way. I like a corporate overview, so I’m going to give you this corporate overview and let you know how I figured it out but I want to show you what I also taught because he taught the same thing I did as a financial advisor several years ago. I want to show you exactly what he did. I’m going to show you an example.
This is a 54-year-old attorney that he had. This is a real-life case. The attorney had $1.7 million in his IRAs and $350,000 sitting in savings. He’s packing away $4,000 a month. They are about $48,000 or almost $50,000 a year. If I put this in the calculator. He’s 54 years old. We have got $1.7 million in that IRA. He’s putting away $48,000 a year. He was assuming a 10% rate of return with the S&P 500 after several years. You calculate that out. What do you get? You get about $5.8 million.
Remember, this attorney wants $180,000 a year of retirement income. That’s $15,000 a month. This guy makes $400,000 a year. This is below his lifestyle. They are going to show you that. That looks good because you need $180,000 a year. If you are going to try to live on about 3%, you need about $6 million. He’s 65 years old and has about $6 million. If he wanted to do a little more, he might say he’s throwing an extra $100,000 from savings to help build and compound that money.
He could do some of the same things. He’s got some money here. That sounds fantastic. He’s saying, “In several years, this guy can retire,” but let me show you the truth when we start to use real proven numbers. Here are the numbers again. His income is $400,000 a year. The IRA is $1.7 million. There’s $350,000 here. He’s saving $4,000 a month. The goal is $180,000 a year.
Here’s when you put in real numbers because you are not earning 10%. As much as they like to claim that, the numbers don’t support it. They always say, “After dividends are invested, you get 10%,” but even if he’s trying to use the SPDR fund, it’s closer after fees and stuff, especially because he’s charging fees. I would be more likely to say 7.5% because we know that the SP 500’s average in the last years is about 7.6%. However, I’m going to go aggressive. I’m going to assume that he’s getting not 10% but 8%. Here’s how the numbers shape up at age 65.
The IRA at 8% has $4.8 million. There’s 5% inflation. We all know inflation goes up. $4.8 million is not the same as it is now. That’s $2.8 million after 5% inflation. You might think that number is high. Five percent inflation is low, not just for the last few years but in time in general. I believe that the government statistics on inflation have been way lower. There is no way we have been averaging 2% a year while you are watching your lifestyle double. It’s not because you are spending more money from blowing money and having a lavish lifestyle. It’s because those costs, those prices, and what they factor inflation for are not the true numbers.
They are calculated much differently now. Even when you see 6%, you probably see more than 12% to 15% inflation. I’m being conservative with 5%. We will get back to that because we didn’t factor inflation in that number but at 8%, it’s only $4.8 million. You are roughly a little over $1 million less than what he was claiming to do. I put savings in there for the fun of it but here’s the deal. Even not adjusting for inflation, $4.8 million when you live on 3% is still only $144,000 a year. You fell short. If you do adjust for inflation, it’s only $84,000 a year. That’s what you are able to pull off.
If there was no inflation at all, he could still retire a few years later. He would hit about 67 and a half years old. You have to work two and a half more years but with a 5% inflation rate, you need to do 1 of 3 things. One of them is not, “Settle for less.” I don’t believe in that. One is you need to save $350,000 a year instead of $48,000 a year to be able to hit it in eleven years in this guy’s case.
It’s not likely but who knows? He makes $400,000 a year. Maybe he lives on $50,000 a year and saves the rest. It’s not likely. He can increase his ROI in the stock market to 16% a year. It’s also not even close to being likely. He keeps working and saving until he’s age 88. He will have more than enough to last forever. The truth is he’s not going to go to 88 because we will probably stop him maybe 10 to 15 years sooner and live on more than that 3%. We might pull out more and hope that he doesn’t fully run out of money by the time he dies, assuming he might live longer.
The truth is this is what most people have done. They have done the latter. They know that they can’t save more than they have been because they would have done it already. They can’t increase their ROI very easily because they are relying on the stock market to do it for them. There’s no control. They go for the third, which is waiting for later. This is why when I talked about millionaires saying they think they are going to have to keep working indefinitely, this is the reality. This is the truth.
This guy is a millionaire at 54 years old, thinking he should be okay, or he tries not to concern himself about it but when you look at the numbers, unless you pull off those right actual returns, you start to wonder, “Will I make it?” Remember, he’s that millionaire group. This is a real client that this guy has but I’m saying, “Let me compare what this guy is saying to the reality of what he would get.” The truth is you are working into your 70s because there is inflation. You are going to have to keep going if you want $180,000 a year, or you do what most people have done. They settle for less.
Remember, this guy also wants social security but he’s already planning to have over $200,000 of income a year. Here’s our method because this doesn’t bring you hope. This is why I had to leave as a financial advisor. It depressed me. That’s why I put in a 2% inflation rate instead of 3%, 4%, or higher because I knew that people wouldn’t make it. They couldn’t save enough. Even for over 40 years, they wouldn’t be able to save enough to have a comfortable lifestyle.
Most of my clients even from several years ago weren’t wanting this lavish lifestyle. They were hoping to pay bills. They thought, “This is probably how much I need.” $5,000 to $6,000 a month is all they are asking, not $15,000 a month like this guy is. Asking for much less is the problem we are running into. Here’s what we would do. From a financial advisor perspective, seeing this and always thinking about the accumulation theory, I was stuck but when I started to see that it wasn’t about how much you accumulate and then try to live on less than the interest so you don’t run out of money for inflation, it was different. I realized I needed to do more. I can create more.
Let me get rid of that. It wasn’t about trying to live on 3%. It was about creating more passive income and cashflow. Watch. At age 65 with our way at 10%, he would have $5.8 million. I’m keeping it at 10%. I’m keeping it very conservative with some of the funds that our network has. There are some that pay more. I’m keeping it at 10% because I want to factor in any potential losses, hiccups, or anything along the way.
Ten percent though is not half-bad. I had a client tell me that his average portfolio is paying him closer to about 12% to 13%. There are no guarantees. There’s still a risk. You can still lose money but he was pretty pleased that he’s still able to live comfortably in retirement when most people even in the dentistry profession cannot. $5.8 million is $3.4 million after inflation. I have to be equal there. I still kept the savings the same even though we could have put down infinite banking and got a higher return than that but I kept it the same. I’m not going to put this at even a 3% net return. I’m keeping it at 1%.
Here’s the income. $5.88 million is what he had. His income before adjusted for inflation was $588,000 a year. It kicked the crap out of the $180,000 but even after inflation, the $3.4 million that’s left is $340,000 a year adjusted for inflation. That’s nearly double what his goal was. What does that mean if there’s no inflation? Going back to the same thing, he retired at age 55 and a half. Why? It’s because we have to count for 10% penalties if you pull out that money.
There are taxes both ways. I didn’t factor in taxes but this $180,000 a year has taxes because of the IRA. That’s why I’m not a big fan of them but they are what they are. If you try to retire at 55 and a half and pull out of your IRA, you will pay taxes. If you withdraw money, you have to pay an extra 10% for the early withdrawal penalty. If he does that, he’s going to have to wait a year and a half to do it.
If you try to retire at 55 and a half and pull out of your IRA, you will pay taxes. If you withdraw money, you have to pay an extra 10% for the early withdrawal penalty. Click To TweetThe truth is if he wanted to even make up for that, he could pull some of that money out of savings and invest that along with the IRA. Between the money, he could retire that year but I’m going to factor in the 5% inflation. The good news is if you can do it faster or retire faster, a 5% inflation doesn’t affect you as much. He can retire 6 months later at age 56. This means two years. I’m being conservative here. In about two years or so, this guy could hit his $180,000-a-year goal.
He might think his financial advisor is awesome but when you start to put reality into it, you start saying, “I can’t do much at all. Why would I keep why would I keep doing this?” If you don’t know any differently, you trust that advisor. This guy is such a good-hearted person. I didn’t have the time. I don’t want to interrupt his presentation but I didn’t have the heart to say, “Those are a lot of assumptions that are not going to work for you.” You might say, “That sounds too good to be true.”
We have had Dan Markert on here before. He’s the Colonel. Remember, he had $1 million from his pension. His financial advisor says he can live on 3% or $30,000 a year. It’s not going to happen. He’s now living on $11,000 a month or over $130,000 a year with the same $1 million. He got better than a 10% rate of return on his overall money. That’s great. That’s the thing we go for.
This is stuff that we do every day. It’s not saying we have countless other people that are doing the same thing. That’s the difference between them and us. We are showing you how to do it. We are getting it to you with time on your side versus taking so long to get to retirement. Inflation is running away from you. You are that Dalmatian chasing after that fire truck. Here, we get you to get those real results, getting fast real cashflow or actual income coming in, not even touching your golden goose. You are still making the money there and doing all those things.
My point here is that you can make it work. Reach out to us at MoneyRipples.com if you want to be able to create that passive income now. Take our Passive Income Calculator there. Find out how much it is. If it’s over $15,000 to $20,000, reach out to us and get a free consult with our team to find out, justify, and make sure those numbers work for you. Make it a great day.
Important Links
- Money Ripples – YouTube
- Money Ripples Podcast – YouTube
- Dan Markert – Past episode