Rich But Restless – Episode 671

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[00:00] Welcome to the prosperity podcast welcome to the podcast we’re gonna be talking about an article that is hitting the newswaves right now it’s rich but restless this is a Kiplinger article. I’m gonna set the stage for just a second which is that why five million dollars isn’t buying retirement confidence Kim I have not shared this with you because we need your honest immediate feedback on this so I love it yeah it just hit me cold perfect okay so here is the deal high net worth individuals are let’s say some are saving some are not here’s what’s going on is that they are stuck they’re not seeing where the problems are confidence is about the size of the nest egg they believe that they need 1.46 million dollars

[01:04] to retire they meet with financial advisors they talk with friends they see everything and they say that’s not enough what’s going on well you know it is shocking what inflation does to the cost of things and somehow us humans think that it stops in this space in life that we call retirement which I’ll get past my whole hang up with that and just use the word for the conversation stay off my soap box because if you for all at age 60 are spending let’s call it 500,000 a year like the expenses are over the next 30 years and that’s only living to age 90 your expenses the same 500,000 dollars will rise to a million five per year for the 90th year that’s just basic inflation nothing fancy nothing out of the ordinary no weird medical thing no awesome trip around the world

[02:10] that’s just normal living 1.5 million per year and I just want to die when I hear people like Dave Ramsey say oh you only need a couple million to live well yeah if you want to live on 30 grand a year today because again what inflation will do so the rule of thumb is inflation will triple your expenses every 30 years so let’s think about this if you’re gonna live on 500 which is gonna be a million five at age 90 and then you’re gonna live another 30 years to age 120 which is what the life insurance companies are looking at today they run illustrations out to age 120 that is another tripling I can’t even do that math okay I probably could so what are we talking 4.5 million dollars a year for expenses now you could argue okay technology is gonna make

[03:03] you know something that costs whatever X dollars today be less yes and technology is also gonna create that brand new robot or fill in the blank that you want to buy that doesn’t even exist today and so whatever it’s gonna do to reduce expenses it’s actually gonna increase expenses as well at least that’s our current thinking and we’ve seen that proven over and over and over and over and over and I can prove it numeric and so that’s why I believe people shouldn’t retire but let’s go back to the real issue at hand like what’s the challenge here do you think with this group of people so from what I’ve read looking at comments and the pulse of it is this that there was a lot of people that had planned and we’ll call it

[03:51] working in the 80s working in the 90s they had planned for what they thought they would need they didn’t plan on quantitative easing they didn’t plan on the inflation that we have they didn’t plan on the cost of real estate what it is they didn’t plan on being locked into their location because of mobility and everything else and take all of those things and then they on what you’re speaking about which is living an extra 20 30 40 50 years oh yeah and they’re freaking out well welcome to humanity and last time I checked we were put on this earth to serve to create value right to put ourselves in a position where we are doing something and so this construct of retirement is truly the problem and then also the fact that we have this age 65

[04:47] stuck in our head which is also just a societal construct it’s an age somebody picked and drew a line in the sand and it never got changed and it should have gotten changed and so if you moved age 65 forward I’ve said this a million times on the podcast it would actually be age 87 and so people in their mid-80s today if they are still serving if they are still creating value if they are still working work is not a four-letter word they’re doing just fine I know because I have a mother-in-law and a father two separate families in two separate states both people in their mid-80s still working part-time happy as can be not worried about things and you know it’s interesting and there’s a quote and I think it’s literally

[05:36] an anonymous quote that says you have a problem if you don’t have any problems and the problem is that you don’t have any problems like not only were human beings put on this earth to serve and to create value but we were put on this earth to solve problems I mean it’s what we do and when we are not doing that we’re dead at the wheel asleep at the wheel yeah you know six feet under all the in a throw at that literally if not I should say figuratively if not literally yeah but but here’s the problem someone has to roll the garbage cans out on Wednesday I mean that’s and you got to watch the paint dry that’s the problem so I got to share a quick story I was on an airplane recently and I was sitting next to this guy and I don’t know I would say early

[06:30] 60s or so somewhere in that range and he had moved to Mexico he took an early retirement he worked for some big company and I’m thinking wow he probably gets to do so many amazing things and I’m like so are you learning how to cook all these Mexican dishes and are you learning some of the textiles and all this and he’s like no and he goes I think I’ve seen every video that’s on YouTube and I thought what a waste like what an absolute waste and I go in no joke I said this I go you must be incredibly bored and it must suck and he goes yeah I am so bored down there yeah your advice was perfect evidence that we are put on this earth to learn to serve to grow to stretch to solve problems and we are not put on this

[07:20] earth to have a peaceful I’m off into the sunset life full time like yeah go do that for long weekends go do that for six weeks if you want you know go on a long cruise or whatever but when you get back to whatever it is that you call life make sure that you’re living it absolutely so let’s dive a few points into the Kiplinger article which is this they say have a written withdrawal plan do you agree do you agree or disagree with that well I do want to point out that there is another quote that says when man plans god laughs and I don’t know who said that but they should get some kudos so yes you can have a written withdrawal plan if you would like and if the bulk of your assets are stock market related then you have to know that that plan is going to get tossed to the wind

[08:23] when the stock market goes down now ideally you have a written withdrawal approach for when that happens and there’s some very viable ways that can make a stock market account you know just don’t get caught up in is it an IRA or not or whatever just sort of think about your general stock market account mutual funds whatever there’s a very valid approach that says let me see if I can explain this conceptually because it’s easier to show it numerically if you have your stock market account and then you have another account of cash it could be a money market it could be cash value of life insurance it could be you know cash in the vault in your home it doesn’t really matter but if you have another

[09:04] account let’s just call it cash that you can withdraw from in the following year after the stock market went down right because if you’re measuring just calendar year January to December you don’t really know if it was quote down until the next January but then when all the reports come out you can see that the stock market was quote down and in theory you weren’t really drawing from the actual stock market account during that year anyway you had the money that you need for the year in cash so let’s call year one an up year but you had money in cash you took your income okay so your one is up now your two is down so now you’re heading into year three because you’re two you took your more cash you’re heading into your three

[09:49] and you don’t know what the stock market’s going to do well you keep taking from your cash account so that the stock market can do whatever it wants to do but you don’t withdraw money if it is down and then typically after two or three years sometimes after only one year it’ll go back up again great you’ve got your assets in the stock market it goes back up you pull some cream off the crop if you will put more in your cash account and it could just sit there for a few years stock market goes up up up but you’re taking your income not when it’s down we call that a cash flow bridge another way to think about that is actually written up in a report called pay down permission you’re going to take your cash account and pay it down

[10:37] while your stock account is left to be able to go back up and so if somebody wants that report just send me an email to hello at prosperity thinkers.com put in the subject line pay down permission and I’ll happily provide you it’s a little maybe four to seven page report it’s got pictures in it it’s got numbers in it and it explains that idea more thoroughly okay perfect not to necessarily push back but there is a extra layer of clarity that surfaced in my mind around this which is there are certain age we’ll call it a cliff where you’re forced to take some of the retirement planning money that you had yes can you just touch on that for a moment because those ages may be relevant to some of our listeners yeah well I think it’s 72 and a

[11:26] half now it got booted up a little bit and that’s great and when that comes for you so I think it depends on how old you are at the time so if it’s 70 great 70 and a half great 72 and a half whatever the time is that is what’s called RMD stage required minimum distributions and a lot of financial advisors a lot of CPAs suggest that you only take your required minimum distribution and of course it depends on the level of wealth in the stock account that’s now an IRA since we’re talking about RMDs absolutely for some families all they should be taking is their RMDs but for a lot of families that have other assets available other wealth available to them the IRA the qualified account your old 401k a 403b

[12:17] that’s the worst asset to die with and so what you don’t want to do is again assuming you have other assets as well only take your RMDs because all you’re doing is kicking the can down the road and so you want to take more than your required minimum distribution in fact generally what I recommend again assuming there’s other assets is that you do a pay down which is why the report I just referenced is called pay down permission you do a pay down or a spend down meaning you take your let’s say it’s a million dollar IRA and you literally pay it down to zero over about a 10 or 20 year period so let’s pretend you’re going to do it over 20 years so in the first year you know maybe you take out 100 grand and then you know kind of

[13:06] depending on what’s going to continue to happen with that account over that 20 year period just keep taking out more and more and more every single year so that at the end of the 20th year literally that account is zero now you’re going to spend some of that account and then the other part of those money should be put in a place where they’ll never be taxed again and that asset is often best a whole life insurance policy you know some people like to do other things with it but if you can put the rest of that money in an account where it will never be taxed again that’s so much better for you so much better for your beneficiaries and your beneficiaries don’t want that IRA because then they will pay all of the taxes

[13:47] that you should have paid on it but you didn’t because you kicked the can down the road okay so there’s one thing that’s really clear it’s there’s a lot of pieces to the puzzle what a person needs to do is they need to know what puzzle they’re putting together and if they don’t if they don’t then we’ve got some serious issues yeah the way that you can figure that out is by getting the whole truth send an email to hello at prosperity thinkers dot com get the report because it will determine on how much wealth you have on what type of accounts you have your age and who are you going to leave the money to if you’re leaving nothing then i guess don’t send an email if you have something well do it hello at prosperity thinkers

[14:35] dot com kim this was a fun one thank you thank you thank you for listening to the podcast to take control of your money and have it work for you visit prosperity thinkers dot