We had a great labor day with the family. We went fishing with the family and the fish were really biting. At one point, four of them caught a fish at the exact same time. We also witnessed a stunning sunset.
As hard as I try, I just cannot get interested in fishing. From my perspective, you have to take a shrimp and impale it with a hook, which is gross. Then you stand there forever waiting for a fish to bite. And if you do catch one, you have to find a way to get the flopping fish off of your line. And if it is a "keeper" you have to scale and debone it.
I will just buy my fish at the store.
For about 50% of retiring Boomers, as soon as you retire you need to start spending a reasonable amount of savings each year. My rule of thumb is to “spend the money the money is making.” If your CD is paying 2%, spend the 2%. If your stock and bond portfolio is returning an average of 5%, spend the 5%.
“But Dave,” I keep hearing, “nobody can guarantee the future. While what you say is logical and sensible, you never know what might happen.”
Ok. If that’s the way we want to think, let’s go down that road.
Joan Smith retires and starts spending her money in a responsible and reasonable manner, making sure never to spend the principal, but enjoying the interest and dividends her investments paid out.
She uses the money on things she enjoys- things that are important to her. She spends more time with the kids and grandkids. She spoils herself at the spa from time to time. She goes out to dinner with friends. She confidently lives her retired years, knowing that she has a plan in place.
In fact, as she reached her late 70’s she really started to spend some money (“You can’t take it with you”, she always said.). She bought a small condo for her sister who was recently widowed. She organized and financed a large cruise/family reunion with her extended family. Sure she was spending the principal, but she figured, “I’m not going to live forever.”
Then it happens. Early in her 90’s the money starts running out. “I never thought I would live this long,” she quipped. She was reduced to living on her Social Security, small pension, and the small amount of money left over.
Is she thinking to herself, “What a horrible mistake! I had such a great retirement. I enjoyed my kids and grandkids. I deepened relationships with people I love most. I helped people in need. But now here I am, living on a small fixed income.”?
Do you really think she would have looked upon her retirement spending as a mistake? Do you really think she will look back on her life with regret? Of course not! She’s 92 years old. Her bucket list has been achieved. She might not live high on the hog anymore. But she’s 92 years old.
Jane Smith has found herself in financial trouble. After making a few poor decisions (including investing in a new apartment project in Puerto Rico), she found herself with very limited savings in her late 60’s. Her daughter offered to let her Mom move into their home.
“This is my worst nightmare,” Jane thought to herself. “I am a burden to my children. I can’t believe this is actually happening to me.”
But, as Jane settled into her new life living with her daughter, son-in-law, and three grandkids, she discovered something extraordinary.
Living with her daughter was a joy. Her grandkids desperately needed more attention from their busy parents, and Jane was able to help out.
Her daughter felt blessed for helping out her Mom. Jane’s grandkids will be forever changed by her presence in their life. “Life is funny,” Jane chuckled to herself. “My worst fear ended up being one of the best things that ever happened to me.”
John Smith always worried that the economy was going to collapse. Once he retired, his worries got even more intense. “I’m not going to spend a nickel unless I have to. I am going to grow and defer this money as long as possible. Because you just never know….”
Well, in this example, John’s fears came true. The economy faltered. In fact, the country started to experience such economic devastation that the landscape of the U.S. started to look more like the Great Depression than the 21st century.
Banks began to fail. People, desperate for their money, begin rioting and looting. The stock market drops 80%. A majority of Americans begin to default on their mortgages. 30% of the population is homeless. Marauding bandits fill the streets, making a simple trip to the store an exercise in hand-to-hand combat.
John saw his investments and cash evaporate. The nightmare he had always imagined had arrived.
So my question is: Did it matter that John deferred and grew his savings? No. No, it did not.
If this scenario were to happen, we would be in the same boat.
In fact, if anything, John missed out on the only chance he had to enjoy the money. By the time economic Armageddon arrived, he lost everything anyway.
Janice Smith always worried about needing nursing home care. She never spent a penny of her savings. 20 years into her retirement, Janice developed dementia and ended up in a 24/7 nursing care facility.
The nursing home used up all of her money over the next couple of years. Janice, with the disease progressing, was unaware that her life savings were being drained. Looking back, maybe Janice should have used some of the money on things that were important to her.
Bob Billings feared distributing 5% of his portfolio each year for him to use. He understood that since the Great Depression, this strategy would have worked 100% of the time. Looking at every permutation, Bob learned that 100% of the time, he would have ended any twenty-year period with more than what he started with. This is simply because the market returns equaled or exceeded his withdrawals.
Then over the next twenty years, due to several historically rare situations, his portfolio only averaged 4%. That's just great, Bob though, I just happen to live in a time of lower returns.
Bob had invested $500,000 in retirement and took out $500,000 during those twenty years. Even in this unprecedented economic environment, Bob, at the end of the twenty years was left with $410,000.
What is my point? Maybe the “worst-case scenarios” you are imagining would play out differently if they actually happened.
Live an empowered retirement, now. Have FUN. You’ve earned it. You deserve it. Don’t live scared. Don’t die rich. You are probably better prepared for retirement than you realize.