Transcript
00:00:00:00 – 00:00:24:18
Mike
This is an academic publication that came out recently, and it’s titled Planning for Retirement Income within an Increasing Volatile and Uncertain World. Fair warning. This article is really, really nerdy, but they’ve got some great information in here that I want to share with you. Number one, fear people have a retirement is running out of money. So what do we want?
00:00:24:27 – 00:00:46:08
Mike
We want to maintain your lifestyle for your lifetime. What this article is talking about here, this thing. They’re saying, hey, that’s a lot harder to do today than it used to be. I’m breaking this into three parts because if I were to try to cover it all at once, it’s just going to take too much time. This article says today it’s a lot harder.
00:00:46:23 – 00:01:07:09
Mike
But to understand why they see that we need to start with what retirement used to be. This is my parents. Retirement, by the way, used to be a three legged stool. That’s what I have right here. By the way, that’s about as good as I can draw. So please don’t make fun of my artistic abilities. I’m not the world’s greatest artist.
00:01:07:10 – 00:01:32:19
Mike
The first leg was Social Security, meaning that both my parents, both my mom and my dad, and they’re both still alive. They both got social security, and they continue to get it. And that’s guaranteed to last. For how long? Yeah, as long as they live. That’s a lifetime source of income. The next leg that they get is a pension.
00:01:33:16 – 00:02:04:20
Mike
So we’ve got Social Security and pensions. Both of these, right? Both of these legs guaranteed for life. That provides a lot of stability for retirement. This last leg over here would be the personal savings leg for my parents and for a lot of people. That was their 401 K And the reason I put it in red is because there’s risks there.
00:02:04:21 – 00:02:26:07
Mike
When your money is invested, it goes up. It goes down. That’s the money. We’re not sure you know, how long is that money going to last? That’s what we don’t know. But the idea was that as needed, this is how my parents retired Social Security in the pension. These two legs, they would cover the bulk of the income need in retirement for a retiree.
00:02:26:07 – 00:02:48:02
Mike
And that’s how it worked for my parents. The last leg. That’s kind of the extra money, the fund money, right? That’s how it was designed. My parents would simply say, oh, let’s just do this. We need some fund money. Let’s take some money out each year as needed. And we will use it for trips and travel or buying gifts or whatever they wanted to do.
00:02:48:02 – 00:03:12:29
Mike
And that’s worked really well. Back when my parents retired. Like, if you lived for, oh, I don’t know, 20 years, that would represent, you know, kind of the outside of life expectancy. See, you retire at 65 by 85. You’re probably pretty much gone. And yes, some people live longer, but that’s kind of what the anticipation was Why in this article here, I should have stapled this, right?
00:03:13:07 – 00:03:50:13
Mike
Why are they talking about how, man, this is getting a lot harder? Well, here’s what’s happening Number one, what is going on right here with this pension lag today for a lot of people it’s gone. There is no pension lag anymore. In fact, only 20% of people retiring today have that pension like 80% don’t. 80% of people. What’s happening is we still have this like here, Social Security check we still have that.
00:03:51:11 – 00:04:23:09
Mike
But now everything. A big chunk of our retirement is the responsibility of our personal savings. And so a lot of people today, they’re retiring on Social Security and personal savings. That’s all they have. And this article starts saying, oh, we got us some problems today. I want to share the first set of problems. Are we living 20 years in retirement nowadays?
00:04:23:13 – 00:04:49:23
Mike
No, we’re living 30 years plus. People are just living longer. We don’t have that pension like anymore. All we have is social security. And for one K, it has to last for a longer period of time. Having your bag of money or your retirement savings lasting 30 years versus 20, that’s like 50% more time. That’s a lot bigger job.
00:04:49:27 – 00:05:17:27
Mike
It’s way harder to do that. Complicating all of that, inflation, even at low rates of inflation over a long period of time, like 30 years. It’s a problem. We don’t have low rates of inflation these days, do we? Suddenly, inflation is a real number again. If inflation is at 7%, which it’s been lately, that means that the cost of living doubles every ten years.
00:05:18:29 – 00:05:39:12
Mike
That means if you live 20 years in retirement, by the time you’re 20 years in, you need four times what it costs today. 30 years and you need eight times now. Do I think inflation is going to be at 7% for the next 20, 30 years? I really don’t. I don’t. But it definitely causes problems inflation. It’s like a magnifier.
00:05:39:13 – 00:06:02:10
Mike
Then next thing that we have to worry about is the longer we live. Guess what? The odds that we’re going to have to spend a lot of money on health care later on increase significantly if you make it to age 65. There is a 70% chance or probability that you’re going to have to spend some money in long term care at some point.
00:06:02:11 – 00:06:19:28
Mike
Now, by the way, that may not be a nursing home. It might be your pain for home health care aides to come to your home and take care of you at your home. Or maybe you’re in some kind of assisted living facility. Maybe you are in a nursing home But guess what? Medicare doesn’t cover any of that stuff.
00:06:20:11 – 00:06:46:06
Mike
You got to pay for that stuff. This article is telling us, hey, heads up these are creating some problems. These are some problems. What they do is they say, let’s imagine that you are invested in a balanced, diversified portfolio. And let’s imagine, by the way, that the markets cooperate during your retirement. Here’s what they say in today’s world So here you are.
00:06:46:06 – 00:07:14:29
Mike
You have this balanced portfolio and the market cooperates. And if you live a 30 year lifetime. Here’s what they say. If you have a 4% distribution rate, you still will run out of money 21.3% of the time. I guess an 80% chance of working out is fine. Let’s say I had to go to Los Angeles. So I get on the plane and imagine they said this folks.
00:07:15:06 – 00:07:45:05
Mike
This is a pilot speaking and we’re really excited to report that we have roughly an 80% chance of landing safely in L.A. and about a 20% chance that we’re going to crash and burn. We’re all going to die. Are you going to stay on that plane? Yeah, I don’t think so. By the way, if you take 5% income now, your failure rate and this is assuming markets cooperate, 44.6% of your retirement plane crashing and burning.
00:07:45:11 – 00:08:15:23
Mike
So based on these numbers, what they’re saying is, hey, if everything goes well because of the risks of longevity and inflation, and health care expenses, if you’re just investing in one of these balanced, diversified portfolios for retirement, looks like you might be in trouble. I think that’s enough for part one in part two. We’re going to dove into the second problem when it comes to retirement, which is, oh, these numbers assume the markets go well.
00:08:16:16 – 00:08:19:19
Mike
What if they don’t? We’ll see you in part two
