Isn’t it about time someone put traditional retirement plans on trial? Where’s the proof that mutual funds actually create financial freedom? Wouldn’t there be witnesses? Chris Miles digs into the reality of what it takes to retire with mutual funds and shares REAL stories of four individuals who’ve saved millions of dollars but are still not thriving financially in their retirement. Get your dose of financial wisdom by tuning in to this episode.
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I’m Putting Retirement Plans on Trial
Is There Proof That Retirement Plans, Like 401k’s And Ira’s, Work?
This show is for those of you that work so hard for your money. You want your money to start working harder for you. You want that freedom and cashflow today, not 30 or 40 years from now. You live that life that you love with those you love. Most importantly, it’s not about being rich. It’s about creating a rich life because as you’re blessed financially, you have a greater capacity to create a ripple effect through the lives of others. Thank you so much for allowing me to create a ripple effect through you.
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I’ve had a fun few weeks already. We’ve gone in a pattern with the ones that I’ve done personally. We talked about 529 plans and how they’ve been in danger. We talked about that article that came out, and even more so, as we had seen the market come down like I predicted when we talked about 401(k)s. I put those under scrutiny a little bit and talked about how even with the match, it does not necessarily give you what you need. We’ve seen the market correct a little bit since mid-August 2022. As I had warned many people already, it’s bouncing back downward. In the next few weeks, maybe it will settle a little bit.
I’m recording this the day before my birthday, the end of August 2022. I’m turning 45. The cool thing with this is that I want to continue this conversation not on 529 plans or 401(k)s, but I want to put the whole thing. I want to put all of the retirement planning under fire. I’m not necessarily targeting any financial advisors in this, even though they support this very thing that we’re talking about. I want to go after the retirement planning model and what we’re told to do, which is to save at least 10% or 20% a year. Even if you get that little match from your employer, which we know doesn’t equate to a whole lot, this should lead to something.
I want to put this under trial like we’re in court. I want to know that there’s evidence that these retirement plans have been working. Two, I want to know if there are witnesses. Are there good key witnesses saying that retirement plans work? I’m not talking about the exceptions to the rule, but towards the end here, you’re going to read about real-life scenarios, not of people I know, but I’ve taken from an article from the Wall Street Journal that came out the day before I’m recording this. There were four retirees that saved into the millions yet still had some concerns about their retirement. I want to put this under fire and give it a fair shot because there are some things about retirement plans that have worked. For the most part, it’s a lot of over-promising and under-delivering, as you’ll see here.
Differentiating Average 401k Balance And Median 401k Balance
I want to start out, first and foremost, with what’s the actual average 401(k) balance. It’s hard to find the total retirement savings that people have. Many companies like Fidelity or Vanguard track the 401(k) balances. That’s easy to do when you’re with an employer, but they don’t necessarily know how to count other old 401(k)s and other savings you have in the queue here.
I’m focusing primarily on retirees because I want to take the people that have been saving for the last almost 40 years now. The 401(k) became more mainstream starting about 1985. We’re going on about 37 years, almost 38 years, that 401(k)s have started to show up in companies. This isn’t a new thing. This is something that we’ve done for quite a while. If we’ve had almost 40 years, this should give us plenty of evidence to work through.
I spent a few hours preparing for this very episode. I did a lot more research on this episode than probably almost any episode I have done in the past. I want to make sure that I’m coming out with some real data. I’m going to show you the articles and references that I found here for those of you that wonder if I’m full of crap. What is the real median that they have there? This got shared by several places. This was the end of July 2022 when they were able to share this. This is coming from Forbes. This was the 401(k) balance by age. I was trying to get everything about 2022 numbers. This is out of 20-plus -million people. This is nothing small. That’s from Fidelity. Vanguard has about 4.7 million people, so there’s less.There's an average 401k balance and there's a median 401k balance. What's the difference? Click To Tweet
Notice the two different numbers. There’s an average 401(k) balance and a median 401(k) balance. What’s the difference? I love statistics. Even though I was a Sociology major, statistics and finding correlations were one of my favorite things. This is what got me out of the industry in the first place of financial advising. It was because I saw correlations of patterns. When you look at the average 401(k) balance, for example, of a 50 to 59-year-old, it is $206,000, but the median is $62,000. Which one do you go by? Understand that the lowest balance on a 401(k) is zero whereas the highest could be anything. This is why you have to show a median versus an average. The median is more accurate.
Let’s say there are seven people. In the case of seven, a median means you take the middle person. When you got the 3 and you got the other 3, the middle person is number 4. You go by the number four person. It’s not the average person. It’s the middle person. There might be somebody over here with huge, extreme numbers. Maybe they got tens of millions of dollars in their retirement plans while these people have $20,000. What’s this person got?
Here’s the difference. Let’s say you’re going to take average versus mean. One counts as $1. For the seventh person, this person instead has got $20. You have $6 and this person has $20, so there’s an extreme here. If you go by the average, with the 4, that’s already $10. If you’ve ever added those up, 5 is $15. 6 means you have $21. When you add that seventh, it doubles it to $41. When you take that $41 divided by 7 people to get the average, it comes up with a number of 6. The average person has $6 out of these seven people. Remember, the fourth person in line only had $4. The median was four. That’s because the one person that had $20 bucks threw off the averages. It’s the same thing.
Why Retirement Plans Aren’t Working: The Calculations
The median is what that person that’s right in the middle of the pack has. We go off the median number when we do this, not the average. The average is deceptive. I’ve quoted the average on this show saying the person has an average of $300,000. In truth, the middle person has about $62,000 when they’re in their 50s. Remember, when you’re trying to live on 3% a year, that means you’re living on a whopping $2,000 a year.
Vanguard’s got numbers of the 65-plus group. They got through 65, not through 59. They got the average. The median is about $90,000. Living on 3%, $90,000 only leaves about $2,700 a year that you’re living on. That’s the median person in retirement based on the 401(k) balances. There could be other retirement accounts that are there. That’s the thing. They might have an old IRA that’s been sitting around. Maybe they got $100,000 which boosted up to $180,000. Still living on 3%, that leaves you with less than $6,000 a year you’re living on.
You’re like, “Why do you keep saying 3%?” It’s because we don’t want to run out of money. The number one fear that even with people that have saved millions still worry about is, “What if I run out of money? What if I live too long?” 3% is also what the Wall Street Journal came out with even back in October of 2021. They said, “We redid the numbers. Three percent is a closer number that you should be using for what you try to live on.”
$1 million is about twelve times the median 401(k) balance. If you happened to save up $1 million, you’re in the top percentile. I was trying to find numbers on how many people have over $1 million in retirement savings. Instead, I found case studies, which I thought were more valuable. There are numbers out there, but I didn’t go through everything. I apologize. I don’t want us to hang on to this point too long. Needless to say, people don’t have much money in their 401(k)s. That’s a big issue.
They’re talking about how many people are contributing. If you’re younger, people are contributing 8% of their income. For the older years, there are people contributing almost 13%. Here’s the thing. This is the common quote you see from everybody, whether it’s financial advisors or everyone. They say, “We believe everybody should save $12 to 15%.” 15% is a pretty common number. I’m going to show you that 15% is not even close to being enough. Here’s how. I’m taking someone whose current income is $100,000 a year. It’s not too far off for many of you reading this. I know some of you are making more and some are making less. I wanted to do something in the middle.
$100,000 a year is not as much as it used to be. Let’s say you’re living on $100,000 a year. Your average return on your 401(k) is 6%. Remember, we talked about retirement plans. Let’s say you’re 35 years old and you’re going to try to retire at 65. You’ve got 30 years. I do this because I put the inflation rate at 5%. If you look at the 2010s until 2022, for the last twelve years, the real inflation rate from ShadowStats is closer to about 9% on average. I want to go lower. I put it at 5%. That means about every fifteen years, inflation doubles, so your lifestyle has to double.
For your reality, you’ve probably noticed that’s not far off. Fifteen years ago, if you go back to 2007, you probably would say, “My lifestyle might have been about half if I’m trying to live the same lifestyle back in 2007 before the crash.” It’s very different. Five percent is not too far off. Based on real rates of inflation, many people have experienced more since 2007. That means that if you have 30 years of retirement, you’ve got to double your money twice. That means you’ve got to quadruple. If you’re living on a 90% lifestyle and you’re trying to get out of that $100,000 a year, then you’re trying to live on $90,000 a year or a little bit less.
I know many of you say, “I want at least the same lifestyle, if not better.” That’s common. In traditional retirement plans, they say, “70% or 80% is needed to maintain lifestyle.” You see, the calculator already wants you to live less. They want you to live on 2/3 or 3/4 of your current income. Let’s say it’s 90%. I’ve talked to a lot of you. Most of you don’t want to get that big of a pay cut. Ninety percent means you want to live on $90,000 a year. That’s $7,500 a month. If that doubles in 15 years, that’s $15,000 a month. That doubles again 15 years later. For 30 years total, that’s over $30,000 a month. That’s what it says as your monthly income.
If you’re trying to adjust for inflation, it needs to be $32,415 a month. Can you believe that? By the age of 95, thirty years later, that’s $140,000. Some people might say, “$140,000 a month? That’s $1.5 million a year.” If I’m 35 and I want to make this money last on 95, you’re saying, “If I want to live a middle-class lifestyle, you’re saying I’m going to be living on about $1.5 million a year?”Even people that have saved millions still worry. Click To Tweet
I went back. You can look it up, too. I looked up the stats with the Bureau of Labor Statistics and looked up the average. In 2021, the average household income was $79,900. I went back 60 years to 1961. It was $5,700 a year. People were living on $5,700 a year. The annual income, which we’re not saying is necessarily a better lifestyle, is $79,900. That is 14x. It’s not too far off from the numbers that I’m running here, which after the 1960s, if the 1970s were taken off the gold standard, they were able to print more money and inflation started skyrocketing from the ‘70s, ‘80s, and onward.
I know I’m throwing out a lot of stuff here, but I want you to know that I’m not pulling numbers out of thin air. I’m trying to be very fair on this trial with our mutual funds. You’re going to need that much. To do that, they say, “You need to have $10 million saved up at age 65.” The question is, how much do you have to save per month to get to $10 million in 30 years? There’s a retirement calculator for this as well. You can go to Calculator.net. There are retirement calculators.
How can you save for retirement? I’m going to make it 7%. They only need about $8.8 million only. $8.8 million goes right in here. Assuming you get a 7% return, you need to save $7,387 a month. If you want to live on $7,500 a month, you got to save almost $7,500 a month. Does this sound like the last episode by chance? It should. This is what ticked me off when I was running these numbers. As a financial advisor, I’m like, “This does not look good.”
A lot of people didn’t want more. They wanted at least the same or better lifestyle than what they were making as adults. This is not anything too outlandish to expect. That’s what you got to do. You got to save, every year, $91,000. This is horrible and bad. This means, pretty much, to save everything. That’s what they’re saying. Whatever you want to live on per month in today’s dollars, save that because we’re trying to keep up with inflation. Regardless, that means you need to save a lot. That’s one of the big things you have to watch out for.
If you want your money to last you, you’ve got to save a ton of money to do that in these mutual funds. This alone should say, “How are people doing today?” We already know. The median balance is $90,000. It’s no wonder why people don’t have enough after you factor in inflation. $90,000 might’ve seemed great 30 years ago. Even then, it probably wasn’t fantastic, but it didn’t seem too bad. Here’s the problem. People are relying on social security. What’s the average Social Security you’re getting? It’s $1,600 a month. About $20,000 a year is what the average person is getting in Social Security. $20,000 is not going to bridge that gap.
Let’s say you get $10,000 a year. Let’s say you happen to have $300,000 saved. Let’s say you’re above the average. Still, $10,000 plus $20,000 gives you $30,000 a year. How are people making it? Shouldn’t we be seeing more evidence of this happening? I went and looked that up, too. I said, “How many people over the age of 65 are still working?” They believe that by 2030, the number of 75 and older will pretty much double. That’s with the number of workers. By 2030, the youngest Baby Boomer will turn 65. Then, all the people over the age of 65 will be Baby Boomers. This is a scary statistic where it’s saying it’s going to double.
Twenty-two percent of retirees are working. One-quarter of them have their own business.f That’s a cool stat that they’re trying to do their own thing and work their hours. That’s what they’re saying. Some are just doing this because they don’t want to be bored in retirement, but many of them might. How many of them do you think are still working because they need to work? Maybe they’re trying to get that money to last or slow down the spending of the retirement plans so that when they’re forced to stop working, they hopefully have enough.
That’s what leads me to this next thing. Wall Street Journal said, “Here’s what a $2 million retirement looks like in America.” Of these retirees, most of them didn’t have quite $2 million. I’m going to talk about these stories. I want to share this with you because this is very important. It’s interesting to see how they’re living and what else helped them out. You’ll find that in many of these cases, they didn’t make the retirement from the retirement plans. I will show you how some of them did save up. They even give an example of what somebody saved over her career to be able to get to $1 million in her retirement plan. I will also show you some other stats that go with it, too.
Let’s go back to the Wall Street Journal article. It talks about how many Americans are trying to retire. They give four examples. I’m going to move first to John, who does have $2 million saved up. His annual spending is $144,000 a year. This is not too far off from some people depending on where they live. This is a good lifestyle. $144,000 could be great. You could have some freedom right there.
It says, “When John Fitzgerald retired as a police lieutenant about 3 years ago after 33 years on the force, his deferred compensation plan was worth about $1.7 million.” That’s great. This is similar to when we had Dan Market on here, too, where he was a retired colonel. He also had a retirement plan. It is a very similar situation. Due to the stock market pulling back, it is worth $1.3 million. The article was written as of August 2022. I don’t believe the market’s done yet. You’re going to see some interesting stories that will come up after this.
It says, “The 61-year-old husband and father of three is concerned that he is counting on that money to help fund his lifestyle.” Here’s a quote from him, “I see my hard-earned money slipping away every day.” It says, “He considers himself fortunate as he gets his roughly $6,900 monthly pension after taxes and insurance.” He’s getting almost $7,000 a month after tax and insurance from his pension. Understand that his pension is helping him retire. He is spending $144,000 a year. That’s almost $7,000 a month. His pension gives him more than half of that.
How many of you are counting on pensions? I would wager that most of everybody on this show doesn’t even have hope of a pension. As a former government employee, he’s in a category that most of us aren’t even in. It says, “He has about another $350,000 saved in other accounts, including bank accounts and college savings funds.” There’s that extra cash we talked about.We see a lot of these people gambling with their money, trying to keep so much in stocks. This is a very big concern. Click To Tweet
It says, “He and his wife, Jill, who is 58, haven’t made any changes to the portfolio.” That’s interesting. Even though the market has gone down, they haven’t made changes. It says, “She works as a writer and editor and has saved about $400,000 for retirement.” Understand that she’s still working and saving. The couple is feeling the effects of inflation. They help pay the college tuition for their youngest son, though they expect it to rise roughly 5% to about $35,000 this fall 2022. They’re still paying for college. Even in retirement, things haven’t got cheaper, necessarily.
In total, they estimate that they pay about $12,000 in monthly expenses. That is estimated, including mortgage payments for their Maryland home and a Delaware beach house. This couple has about $400,000 in debt with their mortgages and cars. This is not too far off from many people that reach out to us. This is a very common situation. I can already tell that this guy’s situation could be completely reversed and get a lot more hope than what he’s doing.
They’ve cut the number of groceries they buy because their bill has jumped up to $600 a month from about $300 a month due to inflation. It says, “They have eliminated favorites such as bagged salad as, “The roughly $4.59 cents bag isn’t worth the $2 price increase, Mr. Fitzgerald said.” Think about this. They’re saying, “We’ve got to cut back on our salads.” It’s bagged salad. I’m not going to say it’s the healthiest thing in the world. Maybe they’re getting rid of some of the inconveniences. Hopefully, they’re buying more fresh produce that could help.
They’re trying to save $2 for a bag of salad. Remember, they’ve got $2 million and they’re trying to save $2 a bag. This is the reality that’s hitting people that are even above and beyond. $2 million is over twenty times what the median person has in their retirement accounts. They also have a pension, but look at how they’re scared. That’s twenty times plus a pension plus Social Security. I haven’t mentioned that yet because he’s not taking it yet. He’s too young. That’s another thing that they have come.
It says, “Higher prices aren’t stopping Mr. Fitzgerald’s extensive volunteer schedules, however.” “He volunteers for a baseball team. His wife knows he loves it, so she lets him do it.” Here’s the thing. It says, “Looking ahead, Mr. Fitzgerald would like to sell his Maryland home in about four years and move to Florida to save on taxes.” He’s worried about his retirement plan because you get eaten alive in taxes. That’s the horrible thing. If you try to pull out $144,000 a year, you push it up a higher tax bracket. You’re then worried about taxes. This is a great example.
James Compton is a man that has $1.5 million. He’s 84 years old and fully retired. He was the CEO of the Chicago Urban League many years ago. He also stayed on nonprofit boards and corporate stuff. He was getting paid. He finally got aged out at the age of 84. He earned $150,000 a year while he was on those boards, too. This guy was making good money even after age 65. He tried to stay active. It says, “He used to spend $125 a week on lunches out with contacts and people who sought advice. Due in part to rising prices and because one of his favorite lunch spots closed, he spends about $60 and goes out about twice a week instead of five times.” He has cut back his spending.
He still gives to his charities, which I love. That’s great. He is reducing the amount because of inflation and the impact of the stock market pulled back on his portfolio. He’s saying, “I got to cut back because the stock market’s hurting me. I’m worried about inflation.” There’s a pattern here with both of these scenarios. He still donates about $8,000 a year to charities. He valued his portfolio at $1.5 million, 70% of which is invested in stock mutual funds.
I know this from being a financial advisor before. I’m not securities licensed, so I can’t give this advice, but someone who is 84 said they had 70% of the stock market. Even though we’re fans of the stock market, we’d say, “Do not do that. That’s too much.” However, since the Recession, people have been going very aggressively in the stock market because it’s made so much if not gone down until recently. We see a lot of these people gambling with their money, trying to keep so much in stocks. This is a big concern. I even know financial advisors that are recommending staying at least 70% or more in the stock market even if you’re in your 70s and 80s. This is a concern for me.
People should have their pants sued off of them for making bad recommendations. Even Suze Orman used to give the advice of saying, “Whatever your age is, minus from 100. That’s what percentage you should be in stocks.” If he’s 84, he should only have 16% in stocks, not 70%. I’m not his financial advisor. That’s a whole other conversation.
He had 70% of which is invested in stock mutual funds. He’s concerned about market volatility and a general climate of uncertainty. He says, “I should probably take less risk, but I still sleep well at night.” He’s also 84 years old. He should be sleeping well at night. He’s probably tired. He also probably knows he’s going to die soon. If you got $1.5 million, he’s probably thinking, “What’s the likelihood I’m going to live to 95?” It might happen, but it might not. Plus, he’s got other stuff helping him.
It says, “As interest rates have risen, he’s concerned about the $200,000 adjustable rate mortgage. He is still paying off on his three-bedroom Chicago townhome.” He is unsure what the loan rate is going to do, so he’s looking at options to refinance. He did advise, “Don’t go into retirement with a mortgage.” Why does he have one? This guy got paid $150,000 a year. He had $200,000 left on his mortgage. Why didn’t he pay it off then? Why didn’t he use his cash to pay it off?
Social Security checks help him pay for his townhome’s upkeep which he estimates to be about $2,000 a year. That’s nothing. It says, “He devotes more of his time to physical fitness now than he could when he was working. Four days a week, he’ll head to a local health club to lift weights and take a cardio class.” He said, “My doctor tells me I’m in perfect health, so I plan to keep learning and connecting with others as long as I can.” That’s awesome. He should live a happy, fulfilling life, but the thing is, he’s living at a scarcity. Notice that he still got these fears. $1.5 million as an 84-year-old is almost twenty times what the average person has.Millionaires needing to downsize, concerned about inflation balances, are declining more than what they're spending. Click To Tweet
Let’s go to Judy Hall. I love this one. She has 1.8 million spending $110,000 a year. She retired in 2005 at 58. She worked for Berkshire Hathaway. She had $2 million at one point. She was wondering what to do. She traveled around to see retired people. She wanted to know what they were doing. She’s a self-admitted workaholic. She says that she returned to her Manhattan apartment. She increased her volunteer work, organized a conference, and filled in an employee position that was on leave. She became a church’s liaison to a homeless shelter. She’s doing great stuff. They call her the uber volunteer, and she loves that.
Here’s the thing. Five years ago, she sold the one-bedroom apartment she bought. Her one-bedroom apartment was within Manhattan, mind you. She then bought a $450,000 condo in Naples, Florida. She downsized if you think about Manhattan and the prices there. This is what she says, “I need to figure out what my next act is.” Like many people, they’re wondering what to do next. She said, “I’m not a person who can sit around.”
She is tutoring and doing some stuff there. She owns a beach house in Ocean City, New Jersey. She frequently entertains guests, including a group of high school friends who printed Camp Cocktail t-shirts. Let me get down to this part. This is important. She says throughout her 37 years at Berkshire Hathaway, she saved 6% a year in a 401(k) where she received a 6% company match. She amassed $1 million in retirement.
Remember, I said she got to a $1 million mark. You might say, “That’s pretty good.” She probably had a 401(k) before because if you looked at what she did, she was a human resource executive. You might say, “I almost went to human resources. With my sociology degree, I was looking at going into human resources myself among several other careers.” They don’t get paid much normally, but if you’re an executive and you’re an executive in Manhattan, I wanted to look it up. What does that person make? The average median income for an executive in New York is $305,972. That could range anywhere from $219,000 on the lower end and $413,000. That’s $200,000 to $400,000 a year. $300,000 is the median for someone in an executive position as an HR manager. This woman was not paid a small amount.
When she says she puts away a 6% match, I’m not saying that she was putting away $18,000 and getting another $18,000 match. She probably wasn’t making that much because she retired from there fifteen years ago. Even if you cut that in half making $150,000 a year, putting away 6% is still $9,000 a year plus a $9,000-year match. That’s $18,000 a year for nearly 40 years. You better have $1 million. That means you hardly made any interest.
I’m not saying she made $150,000 the whole time. I know there’s inflation and everything else. /My point is this. She was well above the average person that’s going and outworking. When I say average, I mean the median income person. Remember, the median household income, not individual income, is more like $60,000 a year. The median household income is about $80,000 a year or $79,900. That’s not a ton. She was making a lot more than the average. She also moved to downsize. You can already tell that going from Manhattan to Florida. She’s living cheaper.
Let’s go back to her story. Here’s what I love. She had $1 million that she had amassed by retirement. She swapped her pension for a lump sum additive of another $1 million to the balance. I’ve seen this with several of our clients who get pensions. This is especially true for those that are older Baby Boomers. I don’t know how many of us will have pensions. If you’re more like my age, if you’re in the 30s, 40s, or even 50s, pension may not be even on the radar.
She had a pension that she was able to get another $1 million on top of it, but she didn’t save it. She had a pension. That’s something that’s not available to most people. It throws off the numbers. Although Ms. Hall retired shortly before the 2008 financial crisis, her long-term investments have been high enough to replace most of the money she has withdrawn from her savings. It left her with $1.8 million of the $2 million she retired with. She’s eating into her money. Despite having $2 million living on $110,000 a year, she’s still eating it. This is even with markets coming back up.
She does say she spends more on food, gas, Honda Accord, and airfare to Roanoke. When she left New York, her spending declined to about $110,000 a year from $200,000. She receives $25,000 in Social Security. Add that to the balance of what she was getting. She also donates about $30,000 a year. Whatever she gets in Social Security, she’s donating.
She has two homes. She rarely travels, but she hopes to visit Ireland and Australia in 2023. Otherwise, she’s more interested in downsizing the spending. She says, “I don’t want more stuff.” I don’t blame you. You don’t need more stuff. That’s great. Notice that millionaires needing to downsize are concerned about inflation. Balances are declining more than what they’re spending. She’s not spending an obscene amount out. This is not a ton. $110,000 a year is not as much as it used to be.
My fourth and final one is Bob Bradley, who saved $1 million. I love this guy because his spending is $92,543. This guy is pretty cool. His retirement came sooner than he imagined. He always thought he’d keep going. He is 73 years old. He worked as a quality assurance manager for a jet engine manufacturer. In 2015, he left the company at age 66 over differences with the manager. He still works as a consultant. He would work, travel, and do all that kind of stuff even during the pandemic. He even came out here to Park City last year, apparently.
He earns $40,000 before expenses working ten weeks as a consultant. His routine is working out at the gym and cooking. He loves fixing friends’ cars. He works around the house he owns with his wife, Jolanda Bradley, 65, painting and making minor repairs. Notice that about their lifestyle. He said it has been rewarding helping his clients. He loves to keep working. He likes to help people when he can.You want to be financially self-reliant. This requires you to do something different. Click To Tweet
Despite the unexpected retirement that he had, he said the transition wasn’t difficult in part because he threw himself into launching a local investment club. He serves on the board of the Austin, Texas Chapter of the American Association of Individual Investors, which teaches members about markets and financial planning. He manages his own money. I’m glad you manage your own money. It’s interesting that he is talking about financial planning.
Remember, this is the guy that’s retired. He’s got some consulting jobs on the side, but he’s got $1 million. He’s got more than people that are probably attending this event where he’s organizing and doing these kinds of things. He said when he retired in 2015, his 401(k) balance was $990,000. Despite withdrawals, the value rose to $1.015 million by December 31st before falling to $965,000 due to the gyrating markets and distributions of the IRS that requires when he is age 72.
If you recall, at 72, you have to start taking money out. He was required to take out $38,000. Thanks to the gyrating market and the distributions of the IRS that he had to take out, it went down to $965,000. His balance is starting to go downward. Mr. Bradley said he wasn’t worried. He says, “I have the confidence of having survived to this point. This is a bad time in the market, but it should come back.” I agree. At some point, it will, but when and what will it cost you? That’s my question for you.
He said his wife, who works in the wine industry has two small investment accounts. She never saved much in part because her career was interrupted by job changes and whatnot. Remember, his wife’s still working. He figures the couple’s home was worth about $800,000 and they owe $138,000 on the mortgage. His IRA account has about 70% stocks, 40% bonds, 40% of cash, and 4% in commodities. This is bad. Even the 12% in bonds, I would not trust that would not go down. The 14% cash rate and 4% commodities depending on commodities might do okay. This guy is still at risk of the market tanking.
He said the hardest part of retiring earlier than planned was figuring out how to finance living expenses from ages 66 to 70. He delayed claiming Social Security to 70 to secure a larger benefit of $44,000 a year. That’s more than double the median social security payments that people are getting. They have maintained their retirement lifestyle, but still, inflation is a concern. This 2022, they’re spending $9,200 a month up from $8,400 in 2021.
In June 2022, they paid $231. They talk about all their bills and stuff. That’s double of monthly averages for some of their bills where she builds her up by 10%. He’s got this down to the numbers. Medical premiums have declined because Ms. Bradley was able to switch from private policy to Medicare. Thank goodness for Medicare and welfare bailouts. This is what’s going to be true for more Americans. Medicare and Social Security need to keep going for these people to survive. Otherwise, people won’t have enough.
This is my point. These people supposedly did it well. Yet, they’re not there. This is what happened to my dad who had a higher than the average 401(k) balance. I had to tell him, “Based on your lifestyle and consumption without Social Security, you have five years left to live.” That’s it. Social Security helped. He then got Medicare and everything else. It has helped him survive.
My dad had to work into his 70s before he was forced into retirement due to health reasons. He is still alive and kicking much later than he expected. He’s living longer than expected. That’s rough on him because he is counting his money to make sure it still lasts. He wants to make sure he’s got enough to take care of all the hospital and medical bills that he’s gotten. This is not the life that I want for you. This is not what I want at all.
I know this one went long. I showed you a lot here. If we’re going to put this on trial, we got to do it right. The truth is it hasn’t worked. People have been saving, but it hasn’t worked. I know that if you want to live on $90,000 a year, you’re not going to be saving $90,000 a year so that you can retire. If you’re trying to start from scratch, that’s not going to work. You didn’t have the case in many situations I’ve seen that have reached out to us. People have had real estate help their portfolios. If it weren’t for real estate, they would be in trouble, too.
This is my point. You cannot require financial planning and financial advising focusing on mutual funds, which is all they offer, to give you the retirement you deserve. If you can even survive, at least have a decent survival or a decent lifestyle. When I say decent, I don’t even mean a luxurious lifestyle as some people would claim that you would have. Even having a general middle-class lifestyle requires you to save millions upon millions of dollars. Like in the example I showed you, unless you get this massively higher interest rate, you got to have $10 million-plus to live on less than $100,000 a year.
I know many of you reached out saying you want at least $10,000 a month, not $7,500 a month. Understand that if you’ve got 30 years of retirement, you better have at least $10 million, $12 million, or $15 million that you’ve saved up in those plans. Do the math. Do you think it’s going to work? You can use the calculators I use, too. It doesn’t look pretty.
This is why, as a financial advisor, I had to manipulate numbers. That’s why I had to put a higher market return than 7%. Even though I knew the truth, I would put 8% or 10% going with the “averages of the S&P.” I would put in 10% or 12% to give people hope. I would put inflation at 2%. I would even put it at 3%. Even though they recommended 3%, I would put it at 2% because 3% didn’t look very pretty.
If we’re putting this on trial here, look at the witnesses. Even the people that should have done well, in most cases, are not relying on these. What makes you think that you’re going to be any better? What makes you think your life will be any better doing the same old thing? We’re going to hear this more and more as you get the Baby Boomers in the next ten years. When the youngest Baby Boomer hits 65, you’re going to say, “There is a problem here. We got a massive retirement problem. There’s not enough money. We got to vote in more ways to bail out our retirees.”
The answer is not bailing you out. It’s not focusing on living on the government nipple, so to speak. We’re not supposed to be sucking off the government, which is taking tax money from everybody else and trying to consume off everyone because we can’t be financially self-reliant. If you want to be self-reliant, this requires you to do something different. That is what we’re going to do in the next episode. I’m not going to spend a ton of time on this, but in the next episode, we’re going to go into, “What are those answers? What do those numbers look like? Do they work? Have they been proven to work? What’s the trial case for doing something like real estate investing? Does it work?” That’s what we’re going to talk about in the next episode.
I know you’re going to have to hang in for another seven days to wait for this, but tune in. We’re going to talk about what the alternative is. I’m not going to leave you hanging, but I do want you to leave asking yourself, “Why am I doing this?” If you’re doing this financial planning, why are you still doing it? Even with all the evidence against you and everything working against you, why are you still doing it? What makes you think you’re the exception? That’s the question I want you to ponder. Go and make it a wonderful and ponderous week. We’ll see you next time.