Rethinking Retirement: Why the Numbers Don’t Add Up – Episode 674

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re going to be talking about the R word. I know Kim hates this word. Okay. But we’re going to do it for a reason because we want to define things and then we want to set some expectations. And then we’re going to talk about what people actually think. So Kim, the R word, say it, just get it out. We shouldn’t, we won’t even bleep it. You mean re-re-re-retirement? Yes, I know, I know people are, you know, what’s going to happen is all of the listeners that are new here, they’re going to be like, why is it that you guys don’t want to say retirement? What’s the problem with that? And, and explain what retirement means to you.

[00:50] And then we set this stage. My husband Todd Lingford taught me that it means to take out of service. And that is not a good thing for human beings that were put on earth to serve. And then furthermore, in most common definitions, it means that you’re not creating value anymore. It means that you are frankly being very selfish because you have good skills and you’re not putting them out in the marketplace for other people to benefit for a lot of people. It means money freedom, but we believe that you can have that so much earlier. So why wait? And then also for a lot of people, it means travel and seeing the grandkids and whatnot, and they forget things like expenses are going to triple over 30 years, you’re going to live till you’re 110 or 20, there’s just

[01:38] all many things that truly do not work about it, mathematically, financially, socially, emotionally, physically, et cetera. Do not get me started. Ooh, I like it. Okay. Mathematically, socially, physically, financially. Emotionally. Yep. Emotionally. Okay. We could even add in psychologically. We’re actually, so this is going to be like a multi-part series that we’re doing here, but we have to set the foundation because there’s a few things that are happening throughout the, and we use the US as the fingerprint because that’s where most of the listeners are. Of course, Kim, you’ve helped people in Europe and you’ve helped people in Canada and throughout the world. But generally speaking, we’re talking US listeners.

[02:31] So what happens is this, there are a lot of people and they’re looking at their retirement. We’re just going to use the word because it’s the same language. And they’re saying, Hey, mathematically, this is not going to work. And they’re coming up with different ideas. They’re doing things like, Hey, maybe we go to Mexico or Costa Rica. There’s other people that are saying, Hey, maybe what we do is we sell the house and build a casita next to the kids, or maybe they say, I’ll be a Walmart greeter until I’m 90. Lots of different options. Talk to me and the audience of what is happening and then we’re going to, we’re going to work through those little pieces. Absolutely. So what I see happening is people not realizing that

[03:20] expenses really will triple. That could change. Absolute technology is bringing things down. I happened to be on Amazon the other day and I got a brand new shirt, happened to be wearing it today and it’s 20 bucks, right? That’s amazing. I would have easily paid 40 for this a while back. It’s nothing special. It’s just a shirt, but there are definitely things where prices are coming down and as a general rule of thumb, prices are going up and people forget that 30 years ago, their lifestyle was a third and so we just don’t realize that 30 years from now lifestyle will be three times. Plus I see this with my dad. He’s in his mid eighties. He is still working part-time, which I love way to go dad.

[04:05] And he wants to pay for more things than he used to. He didn’t mind cleaning the house. Now he wants a house cleaner. He didn’t mind cooking. Now he wants somebody to do his food for him. Right. If you think I’m not going to have travel or I’m not going to have clothes that I would have when I was still working or whatever, all good. And there will be more things that you want to pay for. So that’s a whole area of issue. And then as we know, people are going to be living so, so much longer. 110, 120, possibly 130 life insurance companies are using age 121 today. And so, especially if you’re in your thirties or forties, oh my gosh, you’re going to see 120, 130, 140. It’s just going to be a thing.

[04:46] And that’s a ridiculously long time. People want to work less than they are retired in terms of number of years. And that just isn’t going to work mathematically for most families. There are clearly some where it will and that’s fine, but that’s not typically our audience. So those are the two biggies I could go on, but have we laid the landscape enough or no? We have, okay, I’m going to push back. I am not a big pushback on this, but I have a question for you, which is this. Is it that, that the expenses are really going up or is it that our dollar is worth less? It is absolutely that our dollars are worth less. And that’s something that people bring to me occasionally as a concern. And it’s a legitimate concern.

[05:36] The challenge is there’s truly not much that can be done about it. Oh, great. If we all switched to Bitcoin, beautiful. I’m in for that, but I don’t see that happening super fast. And we just have to understand that the typical average inflation rate is around 3%, which is what causes those expenses to be the same expenses, thank you for making me say it more clearly, but have 3X cost 30 years from now because of our dollar being worth less. Okay. And as you mentioned, like with your dad, there are some expenses that go up. For example, him having someone prepare meals or cut the lawn or things like that. And the other side of it is yes, our dollar’s worth less. You’ve mentioned in the past, interest rates, being able to lock something up

[06:30] now versus 20, 30 years from now. Can you just give that hint? Cause that’s a part of this formula. And then we keep digging. Absolutely. So when you say lock something up, you mean like a mortgage as an example? Mortgage or whatever that would be. Yeah. Sure. I was just talking with a couple the other day, they have 400,000 of debt and they have about 400,000 of liquid assets and they were tempted to pay off their home. And their mortgage was, I don’t remember, 7%. It wasn’t like one of those super low ones. And I helped them remember that actually any loan mortgage or otherwise at 8% or less is an efficient loan. It’s a good loan. 400,000 of cash is so much more valuable to them than a paid off home worth

[07:16] 400,000, or even if it was worth more, and that they don’t want to build this thing called home equity, which is what they would get if they paid off the house because you can’t eat equity. A Jimmy Vreeland comment from our, excuse me, busting the real estate investing lies book, and you don’t want to build this thing called equity, which is basically putting cash in the walls of your home. And so that type of debt, a 6%, 7%, 8% mortgage, you absolutely want to have for 30 years. That is fabulous debt. It’s efficient debt. It’s probably tax deductible debt. And it’s very valuable to you. Whereas either the monthly extra cash, let’s say you had 500 bucks extra a month that you were going to contribute to your mortgage or that

[08:07] 400,000 in my earlier example of actual cash that you were debating paying the home off, that’s so much more valuable to you in your control. And mortgages are something that we’re very emotional with because they provide the home that we live in, which has all kinds of elements beyond just a physical structure. And that debt is efficient. And we want to have the cash outside of that debt and that structure because sometimes things change that we’re not even thinking about today. And cash gives us the ability to solve emergencies and take advantage of opportunities. Home equity does not always give us that ability because the banks may say no, or they may take away, if you have a home equity line of credit

[09:01] already, they could take it away. You want to be in more control than that. Yeah. Good point. Really good point there. So in circling back in the retirement language, I did some research and I used our amazing AI tools that all that us nerds have access to. And here’s what it said. I said, what are the three tiers that people are aiming for as far as retirement? So I said, I want the low safe end. I want the typical and I want the affluent. So the low safe end is 800,000. That’s the target there. And we’ll assume let’s just pick 65, because that’s a pretty typical number. The typical amount that people are aiming for is 1.46 million. Okay. And the affluent is 2.67 million. Yeah. So let’s work on definitions, set the stage, and then

[10:01] we’re going to take next steps. Are those ballpark, but you’ve seen as well, how do you want to adjust that? Absolutely. I just heard a Dave Ramsey commentary recently. The people had 2.5 million. He said, you’re going to be fine. I like absolutely no problem. So Todd took the time to do the math and it was scary. And then the million dollar number, whether you’re north or south of it with our two different numbers at 800,000 and a million four, that has been the number in quotes for decades. I was even going to say maybe centuries, but that’s probably a stretch. Let’s just go with a single century, right? Everybody’s focused on this. I just want to get to 1 million. During that a hundred year period of time, 1 million would be, Todd’s

[10:47] done the math on this as well. About $13 million today to equal 1 million a hundred years ago. Holy cow. And it just, our brains are not wired to think in a way that’s exponential because our brains think linearly and money doesn’t work that way. Those numbers were agreed there in the ballpark. The Dave Ramsey’s and the other people in the world, they’re over estimating what can happen because they typically, from what both of us talk about, they’re not using truth numbers. They’re using simple type of numbers. Now there’s a rule. That’s the 4% rule. It’s like the 4% withdrawal rule. You’re nodding your head. Let’s lay the foundation and explain what the 4% rule is. I wish I had exact statistics and I don’t, but a period of time ago, maybe 40

[11:42] years, I want to say somebody came up with this 4% idea. And then as they continue to do analysis, let me back up. The 4% is that if you take an asset base, a million, 2 million, whatever it is, you can pull 4% off of that asset base and expect it to live long enough with you to not only pay your income during that time, but leave some for the kids and grandkids or maybe great grandkids at that stage. Then the powers that be shrunk it. And they said, oh, it’s only three and a half percent or really, you know what, you should be more like 3%. I’ve even seen people say you should only be at 2.5%. Meaning if you have a million dollars, instead of taking 4% every year, which is only $40,000, you would take 2.5%, which is $25,000.

[12:39] Somebody that’s got a million bucks saved up. They are not anticipating those numbers scarily enough. If that’s a word I heard again, some named celebrities recently saying, Oh no, you can take much higher than that. You can take 4.5 or 5.5 or whatever. And it’s just, again, a function of people trying to do linear math with something over time. And because we exist in time, us human beings, money exists in time. We talk about the time value of money. It is the one distinct difference between financial math and grade school math is this time value money. We cannot be looking that simply at an asset and an income stream to get good results. In fact, when Todd did the analysis over the $2 million number,

[13:39] there were times when it was running out just 14, 15 years later. So you’re talking about a 65 year old that’s now 80 years old and potentially has another 20 years to live. That is very dangerous because a 65 year old could absolutely keep working, go back to work, adjust their lifestyle. An 80 year old, they are not going to like hearing that they have to go be a Walmart greeter at age 80 because otherwise they cannot put enough food on the table to also then pay their mortgage or their other debts or live their life. So it’s a very scary thing, this 4% rule, right? Rule? Really? Rules mean that they work. That gets tossed about as if it’s absolutely for sure. And it’s so not for sure. Absolutely.

[14:32] Even taking mortgage out of the picture, if we just look at property taxes alone, I don’t know about you, but my property taxes, they don’t go down on any of the properties I own. And I look at it and I’m like, gosh, that’d be really nice if the government ran things better and didn’t have to charge more. And all the other things that continue to creep higher and higher, it doesn’t make sense. Okay. So we’ve talked about the 4% rule. We’ve talked about, and you mentioned longevity, meaning we’re going to be living longer. There’s a part two to this. You’re going to want to hear the part two. We’re going to leave the cliffhanger there. We set the foundation because the full picture, and I’m going

[15:18] to wrap this and I need your confirmation, which is this. We have to factor in the truth, which is the full picture and time. We have to factor in the longevity, meaning we’re going to live longer. We have to factor in what we are doing with our money, how our money is working for us. What are the other critical foundational R word things do we put in this? Our own physical selves and our psychological selves and even our physiological selves, because all those elements of being human are very tied. For most people, there’s exceptions, but for most people, they’re very tied with work and what they’re doing when they get up and go to work every day, even if they’re working at their home or even as part time.

[16:07] Our purpose. So you have all these words and elements of being human that are tied to creating value every day. And most people get a lot of juice from the value that they create every day because they’re using the skills God gave them to serve. And when you take that away from somebody, it’s a death sentence for some. That’s a strong statement, but it’s true. It is. It’s, I could almost say from being around people that are in like retirement homes, it is not freedom. It is a punishment when you take that away. They want to help. They might not be as physically able, but they still want to. You have pops who’s next to you. Pops will work. He’ll work. He does it. So that’s good. Okay. Part two, all of you listeners, thank you for tuning in.

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