E.A.S.E. into Retirement Podcast

with Tom Mosley.  
Do I Have Enough Money To Last In Retirement?

Click on the video to watch the podcast. Full transcript is included below.

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Will I run out of money in retirement? Hey, the number one fear of people who are 58 years of age and older is running out of money before they pass away. So will I run out of money in retirement? I will tell you that some people do run out of money in retirement. It is a very real thing for you to be concerned about. It’s the number one fear. You need to address it. So let’s talk about first of all the reasons that you could run out of money in retirement.
Number one, you just lived too long. Now I’m not advocating you move to Oregon and have some doctor help you take care of that, but I am advocating that you realize when you’re building your retirement plan that you’re probably going to live a long time. I remember my family was very good friends with this family, Lehman and Norma Smith in Dublin, Georgia when I was growing up. My childhood sweetheart was one of the daughters and so I remember them very well. But I remember Mr. Smith, Lehman when he was 39, he had health problem after health problem after health problem, had a major surgery that was questionable as to whether he really needed it. And I remember my dad telling me, even though I was pretty young at the time, he was saying, “Lehman thinks he’s going to pass away because his dad passed away at 39.” And that was way back in the 60s. Four years ago, 2019, we buried Mr. Smith. He lived well into his 80s, almost his 90s, and he lived a long time.

With medicine, with the ability to stay alive, you cannot base how long you think you’re going to live on how long your parents live. I mean we recently had a couple in our office, they’re in their 70s, she keeps looking at her watch and they’re a long-term client and I said, “You guys need to go somewhere?” And she said, “Yeah, we’ve got to go take care of his parents.” Remember, they’re in their 70s. His parents were like 95, 93 years old and they were going to go take care of them because they’re still around. Longevity, it is great that you live a long time, but it also is something that could cause you to run out of money if you’re not properly prepared for retirement income for the rest of your life. So living a long time can be great, but it can also be a detriment to running out of money.

The other thing is inflation. We know what that is and a lot of people enter retirement and those who’ve entered retirement four or five or six years ago are having to turn the knobs. They’re having to adjust because they counted … Even the big box firms with the Monte Carlo model, they’ll tell you that you’re going to make 6% a year, you’re going to count on 3% a year inflation, you’re going to be able to draw out between 3.2 and 4% per year. Let’s take last year, 2022 from the time I’m shooting this video. Last year, how did it work? Well, the market lost 22%. It didn’t make 6%, and inflation last year was over 8%. It wasn’t 3%. So you’re going to have to turn the knobs and adjust that retirement plan. You can’t just set it on automatic pilot and assume that whatever happened in 2020 or 2021, 2020 is a bad year to compare. But 2021 is the same thing that’s going to be happening in 2041.
So you need to realize that not only living a long time, but inflation and the way you’re going to need to catch up for inflation and continue to grow your assets, not just drain your assets, but grow your assets is important in retirement.

Another reason is market risk. Do I need to tell you that the market can be down 22% in a year? It can be up 22% in a year. It can be all over the place, not just year to year, but day to day. So the market itself, just the stock market in general, if you’re fully invested in the stock market, can make a difference.

Now, I’m going to show something else up here. Investment risk. A lot of people, it seems you become, not you, but other people that are your age, it seems you become so gullible to get rich schemes or quick rich schemes whenever you get into money, especially if you’re a little bit behind the eight-ball. Let me rewind your mind to a year ago when everybody would come in and ask about Bitcoin. Well, nobody’s asked about that in eight or nine months since the major player for Bitcoin was proven to be a fraud or shown to be a fraud. But it’s a totally unregulated security that I don’t know if that technology will ever take over, but I know that it didn’t in this last little run.

So an investment that you think is too risky, not just the market, but an investment that you can’t get rich quick. Be careful for scams. There’s so many people that’ll call you and we have people call up from time to time, not a lot, but two or three a year call up and say, “I’ve got to get 50,000 out of my IRA so I can send to this former American general who’s in Nairobi, Kenya. And I’ve got to get a cashier’s check for it. It’s got to be in the mail by tonight.”

“Hey, look,” he said. “I’d never fall for something like that.” Be careful what you invest in. If it sounds too good to be true, it probably is.
So what could cause you to run out of money? All right, look at it living a long time, inflation and having to spend a whole lot more for the same things that you planned on spending X amount of dollars and you have to spend 2X for it. Market risk with the market going up and down if you stay fully invested in the market and you don’t diversify. And then investment risk, putting your money into the wrong investment.

One more thing on that. If I had a stack of original issue Yahoo stock and I had a stack of original issue Sears stock, which one would you want? Yeah, you’d want the Yahoo because it’s worth a lot, but the Sears is worth little or nothing right now. So you understand what your investment is in is so crucial now.

So what are some strategies for running out of money? Number one, you can use three buckets. You can say, “Okay, I’ve got to have some money in the market, but I don’t know what the market’s going to do this year or next year, but I pretty much know that over four years, five years or longer at least historically, the market has proven itself to be a positive investment.” So put some money in a bucket that you’re not going to use that money or need that money for four or five years or longer, a long-term bucket.

Now you also need a bucket over here and this bucket is your emergency bucket. If you’re watching this, you’re either watching it with your dad who’s making you watch it or you are old enough to know that stuff happens in life. So you need to have some money set aside probably in the bank, not the market over here, but in the bank so that when the refrigerator goes out, the transmission goes out. You have to do X, Y, Z, that’s more than just something that you’re carrying around in your wallet. You need some money in the bank for emergencies.
And then the third bucket is you need to build something that’s not as risky as the market, not as conservative as the bank, but something that’s going to pay you 3, 4, 5% a year and that money is set aside and designated for income and you’re going to put a little faucet. When people are in my conference room, I always draw a little faucet over here. “And you need $2,000 a month. We’re going to turn on the faucet for $2,000 a month.”

You say, “How much would go in there?”

“Well, the money in the market, I’ve got that, let’s say four years out. If I need 2,000 a month, that’s $24,000 a year.” Doing the math quick here. If I need it for four years to cover the gap until the market begins to turn around, if it’s down, I need about 100,000. So put 125,000 into something that’s real conservative, that is going to pay you 2 or 3 or 4%. Not going to lose very much at all, but it’s going to pay you something really solid and use that for your income. You’re building a buffer between making no money in the bank and throwing your money at risk in the stock market. And you know that for four years your money’s okay.

Now what happens if after the first year, if you’re building the bucket strategy, the market goes up 20%. Well, don’t be greedy. Don’t leave it all in the market. Take some of that gain. Let’s say you have $300,000 in the market and it goes up 20% like we’ve done 5 times since 2010 in a year. Then take instead of the 60,000 that you’ve made, if you have 300,000 over there, that 60,000, take half of it, leave the rest of it in the market, spend the rest of it, go to Bora Bora, do what you want to do. But take 30,000 and replenish the income bucket. In a good year, replenish the income bucket. In a bad year, the market’s down, don’t replenish anything. Just go down a little bit further and a little bit further and wait for the market to turn around. You say, “Okay, I got it. I think I got it. Bank is safe, income bucket for three to four to five years, and then future stock market growth.” Yes, that’s true.
Now there’s one other way you can do it. It’s really important that you stay with me. You can pass the risk to an insurance company to make sure that you have guaranteed increasing income for the rest of your life. Very few people have pensions anymore. People who don’t, in my seminars when I say, how many of you have pensions? And last night, I was doing a seminar 2 nights ago and probably 60% of the room had pensions and the rest of the people were saying, “Oh, I wish I did. Wish I had a pension.” Well, what’s a pension? It’s something that’s going to pay you a guaranteed income for as long as you live. And if you’re married and you take the right option, it’s going to pay you for as long as your spouse lives. You’re never going to run out of money in that pension. It’s going to pay you for as long as you live.

An annuity does the same thing. You may not have a pension, but you may have in your whole portfolio, it may be right for you to take the risk out of this middle income bucket. You still need money in the bank. You’re going to live a long time. So you still need money on the stock market for growth, but it may be the right thing for you. Listen to my words, may be the right thing for you to put some of that money into an annuity that’s going to give you guaranteed. And the ones that we use are in increasing income for as long as you live. And it will last as long as you do.

And here’s the nice thing, just like a pension will never run out, even after you run out of the money that you put into the annuity, the risk of running out of money is passed to the insurance company. So when you get down to zero in your account in the annuity, you continue to get a lifetime payment for as long as you live. And for those of you who are married, you get it on both of you, spouse, both spouses, then it will last as long as either spouse is alive.

So will you run out of money in retirement? It is a very real possibility for the four reasons that we gave you, but could you avoid it? Yes, with proper planning. See, I’d like to figure out what’s best for me. None of this is blanket advice for you to go buy an annuity, for you to go put it in the three buckets. You need to talk to a professional. You need to talk to somebody who can say, “What’s your situation?” Start with a blank sheet of paper. What’s your situation? And they can give you a plan that you can understand and you can then go forward with the plan that’s best for you. If you don’t have somebody like that, if you’re looking for somebody like that, get in touch with us, info@moseleywealthmanagement.com. Our phone number is (714) 421-4288. That’s (714) 421-4288. Will you run out of money in retirement? I’ll tell you this, if you work with us, we’ll do everything in our power to make sure we can say absolutely not.

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