David Kennon, Kennon Financial
The 5% Club is a small but growing segment of the Baby Boomer population that has agreed to one fundamental principle. Once they retire, they are going to start spending 5% of their retirement savings on an annual basis- whether they “need” the money or not.
The 5% Club is about living an empowered retirement whereby you are spending the perfect balance between too much and too little.
Why are people spending 5% of their savings? It’s simple. If between now and the end of your life, a diversified portfolio of stocks and bonds doesn’t return an average annual return of at least 5%, it is the first time in modern economic history where it hasn’t. (source)
I’ve written several articles about why retirees are not spending enough money, but today I want to turn up the volume a little bit. We are going to talk about what would happen if you don’t join the 5% Club.
Remember, the 5% Club is simple, easy, and free. You don’t necessarily need the help of a financial advisor (even though I believe it works better that way). You just need to follow the rules.
- Invest your money in a diversified portfolio of stocks and bonds with at least half of the money in stocks.
- Take out 5% per year.
- Spend the money.
- Be secure in knowing that what you are doing is reasonable, rational, and smart.
So what happens if you don’t join the 5% Club?
- You will probably die with more money than you have now. In fact, a study by the Federal Reserve points out that retirees are dying with nearly 60% more money in savings than the day they retired. (source)
- You might start to obsessively follow the stock market and get heartburn every time you read a scary article or see the Dow Jones have a bad week.
- You will probably have no real idea of how much money you need to retire on, or what kind of lifestyle you can afford to live.
- You could very well feel regret as you get older, thinking to yourself “During the years I could have really enjoyed that money, I blew it. I was too conservative and too fearful.”
- While not fun to consider, you may die younger than you expect. In my practice I see clients pass away prematurely or become ill and I always hear the same message, “What was I waiting for? I was so focused on not running out of money, I forgot what money is for. It is for living!”
- Your kids might get mad at you. A lot of you have the impression that your kids want the inheritance. But most of the client’s kids I’ve spoken with say, “Mom, Dad- spend the money! It’s your money. You should enjoy it!”
After a clients passing, often times I hear their kids remark, “It’s a shame that Mom and Dad never got to actually enjoy any of the money they had saved throughout their lives. They never lived out the adventures they could have. They lived so much smaller than necessary. What a waste!” Your kids want you to spend the money too.
- When you actually spend some money, you might second guess yourself. I’ve heard numerous stories of people in the middle of their dream vacation saying, “Was this a mistake? What were we thinking? We shouldn’t have spent all this money. What if we end up regretting it. What if we end up needing that money later on?!”
Don’t let this happen to you. The 5% Club is logical- backed by a couple hundreds of years of history. And best of all- you get to stop worrying about money and start focusing on living the retirement of your dreams.