December 10


Dave Kennon: When Making Six-Figures is a Bad Thing

Dave Kennon, Kennon Financial

In terms of being financially prepared for retirement, what is the most important component?

Is it:

How much you have saved in your 401k?

Making sure your mortgage is paid off?

Your social security benefit amount?

The amount of cash you have in the bank?

No, no, no, and no.

After 18 years of planning with thousands of people, I’ve learned, firsthand, that the most important variable in anyone’s retirement plan is…… your monthly spending.

Let me tell you two quick stories.

Story #1

Joe and his wife, Joette, worked diligently for over 40 years.  Joe worked in maintenance at a small nursing home, and his wife did data-entry for a large medical firm. Along with the financial stress of raising three kids, Joe and Joette also got hit hard by the real estate crash in 2008. Money was always an issue.

By the time they reached their mid-60’s Joe said to me, “My body just can’t handle this work anymore.  Forty years of working with my hands have taken a toll.”

And while Joette was physically able to continue working, the stress of her job was beginning to affect her health.

After all those years of work, they were able to cobble together $200,000 in retirement accounts along with $30,000 in savings.  Joe was eligible for $1600/mo from social security. Joette’s benefit was around the same.

“We are never going to retire,” Joe lamented.  “I feel so trapped. I don’t know what to do.”

“How much money do you need coming in each month?” I inquired.

“Well, between the two of us, our take-home pay totals about $3200 a month,” Joe replied.

“Are you able to cover your bills?”

“Usually,” Joe remarked, “unless something breaks down. If everything goes smoothly for the month, we might be able to put away $1000 into savings.”

“Wait a minute,” I injected, “you are able to live on a little over $2000/mo? Your social security would total $3200 and your retirement accounts can produce around $800/mo in income. That’s $4000.

And, since social security is only taxed if your income reaches certain limits, you would not have to pay federal income taxes on any of that money.  That means you would have more money coming in than you do now!”

Joe and Joette were actually in much better financial shape than they realized.  Not only were they hard workers, but they were extremely cautious with their spending.  They lived in a modest home. Did without cable. Only bought used cars and ran them into the ground.  Vacations were as simple as enjoying the glorious Florida weather and beaches.

Yet, as they had never put together any sort of retirement plan, they had no concept of where they stood financially.

And what was the most important variable?  Monthly expenses.

Story #2

Jack and Diane both had extremely successful careers.  Jack was a dentist and Diane worked as a mechanical engineer for IBM.  As they reached their mid-60’s retirement looked more and more attractive.

“I think it’s time to start a new season in our lives, Dave.  I think it’s time to pull the trigger on retirement.”

Between the two of them, Jack and Diane were eligible for $4800/mo from social security. In addition, they had socked away nearly $1,000,000 into retirement accounts.

“Sounds great!” I replied.  “Let’s revisit the plan and get you guys retired.  Between your social security and the income from your investment accounts, you can expect to receive around $9,000/mo.  Minus taxes that puts you at $8,000.”

I could tell something was bothering Jack.

“That doesn’t seem like that much,” Jack offered.  “Between the two of us, we’ve been making over $400,000 a year in income.”

“What do you think you are spending each month?”

“I don’t know.  We bring home around $20,000 a month.  We usually spend most of it. The country club is $2000.  The mortgage is $3500 a month. Storage for the boat and RV is not cheap.  Let alone insurance on all this stuff. If we want to keep living the way we have, I would guess we need at least $18,000 a month.”

Uh oh.  This is a problem.  I’m not a magician. I can’t make financial vehicles return more than they do.

Jack and Diane are in a very sticky situation.  Retiring could mean a radical change in lifestyle.  A lifestyle they had adapted to over 30 years of employment.

It’s funny.  I often notice how people who feel unprepared for retirement are often more prepared than they realize.  Many high wage earners who believe they are in great shape, are not.

I’ve also discovered that wealth contains a certain amount of diminishing return.  Meaning: If you have enough to pay your bills, go out to eat when you want, and take a vacation here and there- you can live a very rewarding and enjoyable retirement.

A couple of extra luxury cars, boats, and big houses do not add much to that enjoyment.  Not to sound cliche but the best things in life are free. And as long as you can cover expenses, and not have to worry about your financial security in retirement, you can live just as awesome a life as the guy who sold his company for $20 million dollars.

Actually, the stress and pressure of all the stuff the wealthy have accumulated often times just isn’t worth it.

Enjoy where you are!  Live your life with a sense of opportunity and empowerment.  Have fun! You deserve it. You don’t need a million dollars to retire.


Be Blessed,

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 reinvested, 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.
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