Dave Kennon, Kennon Financial
God has made me a naturally anxious person. I’ve been that way as long as I can remember. It is the way that I am wired. In any given situation, I can very quickly find the absolute worst case scenario and obsess over that possibility. I think we can all agree this is a pretty silly (and destructive) way to live.
As Mark Twain famously declared, “I am an old man and have known a great many troubles, but most of them never happened.”
As most of you already know, I am leading a Revolution. The Retirement Revolution has really started to take root in Sarasota, and it’s beginning to spread as Baby Boomers boldly proclaim:
“I refuse to spend the rest of my life worrying about running out of money. I am going to spend some time putting a plan together. I’m going to invest my money and get it working for me (since I’m not working anymore!). And then I am going to focus on what I should be focusing on- living an awesome retired life without fear!”
So, with that in mind, this week we are going to examine the 6 most pervasive and destructive “what ifs” of retirement planning.
- What if inflation eats away at the purchasing power of my money? I may be okay now, but what if twenty years from now gas is $20/gallon and a gallon of milk is $25.
Answer: I have great news! As you get older, your spending will naturally go down. Do you really think you will be spending as much money at age 86 as you are now? Also, the government data backs this up. As inflation goes up, natural spending goes down- so they naturally offset each other.
- What if I have a heart attack, need open heart surgery and get a bill from the hospital for $500,000?Answer: I have great news! Medicare contains a “catastrophic coverage” clause. The maximum Out-of-Pocket for people with Medicare and advantage plans this year is $6,700 (source). That means as long as you have Medicare and a Medicare supplement, the most out-of-pocket you can pay in any given year is $6,700. So, if you have a claim at the hospital for $500,000 you only pay $6,700.
- What if the stock market crashes?
Answer: I have written extensively on this subject and I would encourage you to read past articles on the subject that I have written at www.DavidKennon.com.The short version is this: Historically, a diversified portfolio of stocks and bonds is a remarkably consistent and powerful way to get your money working for you. Stocks and bonds have in the past had a balancing effect because when the stock market goes down, the bond market usually goes up. In fact, if over the next 15 years, I believe that a balanced portfolio of stocks and bonds may show positive returns. If not it will be the first time in 87 years where it hasn’t reached that mark (based on index returns*). I can’t guarantee what will happen in the future, but we have hundreds of years worth of encouraging data.
- What if I need to go to a full-care nursing home for ten years?
Answer: I have great news. The chances of you needing to live in a nursing home for a prolonged period of time is much less than you realize. Here are some more encouraging facts (source): There is a 2% probability that a man will stay at a long-term care facility for 5 years or more. There is a 7% probability that a woman will stay at a long-term care facility for 5 years or more. The average stay in a nursing home for a man is 11 months. The average stay in a nursing home for a woman is 17 months.
- What if I run out of money and become a burden to my children? The statistics just don’t point to this reality. According to the Federal Reserve, retirees are dying with nearly twice as much in savings as the day they retired.
- What if the currency collapses, the banks fail, and the world descends into anarchy?
Well, I guess we are all on the same sinking ship at that point. If this does happen, does it really matter where your money was held in the first place? You might as well have some fun before the nukes start to fall.
But in all seriousness, we live in the wealthiest nation in the history of the world. The poorest citizens in this country right now live a better lifestyle that the richest people 100 years ago. Not to mention the incredible pace of technological advances. Isn’t it just as plausible that the next 50 years will usher in the most successful and wealthy time in human history?
I want to hitch my wagon to the America I know. The America that is constantly innovating and improving the standards of living for all her citizens.
Dave Kennon, Kennon Financial
* There is no certainty that any investment strategy will be profitable or successful in achieving your investment objectives. An index is a portfolio of specific securities. Indexes are unmanaged and investors cannot invest directly in an index. Index returns are “total returns” with dividends re-invested, which means the return is not only the change in price for securities but any income generated by those securities. The performance of an unmanaged index is not indicative of the performance of any particular investment. Investments offering the potential for a higher rate of return also involve a higher degree of risk. Past performance is no guarantee of future results. Actual results will vary.
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.