September 29


Faulty Way Of Thinking About Retirement: Part 1

We are going to try something different this week.

To better understand you, I am going to walk through the thinking process of a newly minted retiree.

I want to show you an example of a faulty way of thinking.  Every other week I am trying to give you a realistic perspective.  This week I am trying to flesh out how someone’s brain works before they educate themselves on the facts.

The following conversation took place between Mr. Jones and his brain shortly before his retirement.

Name:  John Jones

Age:  65

Savings:  $400,000

Married to Jane Jones, also age 65.

Begin transcript here__

Hmmmmm…..  my last day of work is next week.  It looks like I will get my last paycheck next Friday.

Ok.  With Jane’s social security and my social security we should be bringing in about $3,000 a month.  Let’s see…. is that enough?  It doesn’t sound like very much.

My property taxes are $4000 a year and my homeowner’s insurance is $2000….car insurance $1,000.  Electric bill around $200 a month….

<adding up all his expenses>

Wait a minute, it looks like we are spending about $4500 a month now.  Crap.  How is this going to work?  I have that $400,000 in my IRA, but I guess I should try not to touch that until I’m 70 ½.  Isn’t that when the government forces me to start taking money?

I don’t know how this is going to work.  I guess I am going to have to take out $1500 a month from my IRA.  But doesn’t that mean I have to pay taxes on it?

Wait a minute, I have my IRA invested in the stock market.   Is that still appropriate for a guy like me?  What if the stock market crashes!  That guy on the radio keeps saying that we are “due” for a crash.  I guess maybe I should put the money in a money market?  But that only pays .1%.

Maybe I should get a part time job?  I think Home Depot said they were hiring.  They pay around $10 an hour.  So if I need an extra $1500 a month I would have to work 150 hours.

Wait a minute!  150 hours!  That’s a full time job.

Ok John.  Think.  Think.  I am 65 years old.  I am probably going to live at least another 20 years.  So, if I take the $400,000 in savings and divide that by 20 years I come out with $20,000 a year that I can take out.  That is a little more than $1500 a month.

But wait, Jane’s Mom is still alive at 95. Jane has great genetics.  What if I die at 85 and Jane lives another ten years?  I can’t leave Jane destitute.  She has put up with me for forty years already.

So maybe I should divide my savings into 35 years just to be safe.  That gives me about $11,000 a year.  So I guess if we cut out our yearly vacation, and stop going out to eat so much, we can get the budget down to $4000 a month.    We should be ok then.

But wait!  What if one of us gets sick?!  We need to have some money available for that.

What if there is a big expense?  The roof is 20 years old.  Ok.  This is getting serious.  How is this going to work?!?!

I guess Jane and I could both go work part time.  But our health won’t let us do that indefinitely.  Jane is NOT going to be happy if she finds out she needs to keep working part time.

Wait a minute!  I’m not even considering inflation.  $4,000 a month may not be enough in ten or twenty years.  What are we going to do then?!

I need a stiff drink.  I feel my chest tightening.  Maybe I should turn on the financial news channel to get some ideas….

End of transcript….


By the way, Mr. Jones is in much better shape than he realizes.

Have a Blessed Week,


P.S.-  The presidential debate brought up the idea of a stock market “bubble” being created by Federal Reserve policy (keeping interest rates low).  I’m not going to delve too deep into this prognostication.  Anyone who has read my weekly articles knows how I feel about anyone predicting which way the stock market will go.

But just to review:  No one, and I mean, no one, knows when the stock market is going to go up or down.  Anytime anyone says anything about the next big stock market move, say to yourself, “There is ZERO academic proof that anyone knows where the market will move in the short term.  BUT, in the long-term the markets have been remarkably consistent.  They temporarily go down and permanently go up.”

S&P 500 with Monthly Dividends: $50,000 initial investment on 01/01/1998. Dividends and capital gains are reinvested. Withdrawals of 5.00% (annually) of Initial Investment from 01/01/1998 to 08/31/2016 every month, on the last day of the month as long as funds are available. The initial investment is not subject to sales charge. The effects of income and capital gains taxes are not demonstrated. BARCLAYS U.S. AGGREGATE INDEX: $50,000 initial investment on 01/01/1998. Withdrawals of 5.00% (annually) of Initial Investment from 01/01/1998 to 08/31/2016 every month, on the last day of the month as long as funds are available. The effects of income and capital gains taxes are not demonstrated.

Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. For more current information and month-end results, visit Regular investing does not ensure a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining. Indexes are unmanaged and, therefore, have no expenses. Results for the Lipper indexes do not reflect sales charges. There have been periods when the fund has lagged the index. While it is not possible to invest directly in an index, you can invest in an index fund.



The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

Share this Post:

You may also like

Investing in Tulips?
Can It Get Any Worse?