Mt. Everest and Retirement

So what do Mt. Everest and retirement have in common? Quite a bit actually! If I were to ask you, "What is your goal when you climb a mountain?" your answer would most likely be, "To get to the top." But do you also want to get back down? Oh, yeah...getting down. That's the part that most people don't think about when they climb a mountain, yet it's the spot where 75% of the deaths occur.

The same is also true for retirement. Most people focus entirely on the accumulation phase, while ignoring the distribution phase. This is equally hazardous to most financial plans. The problem is that traditional financial planning doesn't take into account how to best distribute assets in retirement until it's too late! Advisors constantly tout rate of return, while ignoring rate of withdrawal.

Let me give you an example*. This assumes both individuals save the same amount of money and retire at the same age.

Person A goes the route of traditional financial planning. He gets great rate of returns, while losing in various years when the market is down. At the end of the day he averaged 8% (which by the way is what Warren Buffet averages on his stuff). He's happy and has accumulated $1,000,000! Life is good! Traditional financial planning says that you can withdraw 3% of your account value adjusted for inflation each year and hopefully not run out of money according to Monte Carlo curves. So after all of Person A's hard work, he gets a first year check of $30,000. Wow, that's sort of depressing, but he did well and probably is better off than others.

Person B goes the nontraditional route of financial planning. He gets moderate returns, but never loses money with a downturn in the market. At the end of the day he averaged 6%. He was only able to accumulate $700,000. He's quite happy because his money was safe from market losses the whole time and still acquired a bit of assets. His rate of withdrawal, however, is 5.5%. This amount is also guaranteed to last his entire life. He will never outlive his money. He will get $38,500 each year guaranteed.

So the question becomes, who is better off in the end? To conservative investors, Person B is better off. To risky investors, Person A is better off. Person A's income should increase by about 3-4 percent each year with inflation, at least that's what history says. He would start making about the same amount of money after 8 years, but wouldn't catch up in overall dollars withdrawn until year 17.

From my experience in the financial world, most people are more conservative. Many think they are risky investors, but they cringe when their accounts drop. So most people are likely to enjoy Person B's experience more than Person A. There's a lot to be said for a stress free financial life! If you would like more information on the Person B scenario, contact me here.


*Rates of return  and income withdrawn in the above examples are for illustration purposes only and in no way constitute actual performance. Guarantees are determined by each company and dependent on product. Please request actual illustrations for current rates and product information.

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Affordable Healthcare Act Promises

So what was it that our President was saying about this fabulous healthcare bill? Lower premiums? Saving money in the long run? Let's take a look at how it's actually going to play out. While it is true that the Affordable Healthcare Act will provide coverage for more people, the other promises that have been made regarding it cannot be true. Here's why. If you extend coverage to those who are currently uninsurable, or were, then the riskiness of covering people has increased a lot. Insurance companies no longer have a choice of who they can cover. They must insure anyone who applies for the insurance. This includes those with cancer, heart disease, and any other disease. The thing about insuring people who have pre-existing conditions is that it automatically increases the amount of money that the insurance is going to pay in benefits.

Now, just like any other company operating in the United States, insurance companies want to be profitable. No one opens a business hoping that they will just break even or lose money. Everyone I know who has opened a business wants to be profitable. So don't harp on big business because they want to make a profit.

Anyway, like I was saying, if a company's costs go up a lot they only have a couple of choices. 1) They can increase the premiums they charge for the insurance coverage 2) They can lower other expenses. They have already lowered expenses. I've experienced this first hand. Every insurance company has cut commissions in half or more to those selling health insurance. Many companies have also pulled out of a lot of areas to help cut costs. What about increasing premiums? Well, they have gone up as well. You can compare the new premium prices to a group plan. Most people think that group plans are inexpensive with great coverage. Why are they inexpensive? Because the company is either picking up all or part of the premium. If you were to have a group plan and pay the full premium, you wouldn't like it. An individual plan, however, is much more affordable assuming that you were healthy. That's essentially what's going on with the healthcare act. There are going to be subsidies, which is the government picking up a portion of the premium for those who qualify. This works just like the employer picking up a portion or all of the insurance premium for the employee. So to many people it is going to appear to be a better deal because they don't have to spend anything out of pocket, or very little compared to what they would have to spend otherwise. The premium is still the same, high. They just don't have to pay the whole thing. That's fine and dandy if the government had the money to do it. The fact is that healthcare is the most expensive thing that the government could have taken on. If you think Social Security is a problem, look at Medicare. The indebtedness of the United States government to Medicare far outweighs its indebtedness to Social Security. So they decided, "What the heck! We'll take on the entire nation's healthcare costs! It'll save us money!" That couldn't be further from the truth. Think of it this way. If the nation could only pay its bills for three weeks before defaulting, it can't afford to pay for anything else. The only way to fund this healthcare bill is to issue more debt. The nation's debt is going to go out of control from this and it's going to hurt.

The American people need to stop this entitlement stuff. We aren't owed anything! The way this nation was founded, we are to work hard and become self sufficient. Along the way, we help those who are less fortunate than ourselves. That's what makes a nation great! The desire to work hard and help others, especially our families. Entitlement is just selfishness and feeling robbed of something we thought we deserved and haven't attained yet. The truth is, nobody can change your life for you. If you want something, you're the one who needs to take action and go get it. There is always someone willing to assist you in the areas that you need help. Let's make America a better place by taking accountability for our own selves!

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Top 10: Best and Worst Paying Jobs

If you are teetering on the edge about which major to choose in college, maybe this will help you make up your mind. That is if money is a key motivator for you! The Bureau of Labor Statistics did a study for the best and worst paying jobs back in May 2011. Here's what they found, at least the top ten!

Best Paying Jobs
 

1.	Anesthesiologists	At least 75% make above $187,200
2.	Surgeons	At least 75% make above $187,200
3.	Obstetricians & Gynecologists	At least 50% make above $187,200
4.	Oral & Maxillofacial Surgeons	At least 50% make above $187,200
5.	Orthodontists	At least 50% make above $187,200
6.	Physicians & Surgeons, All Other	At least 50% make above $187,200
7.	Internists, General	$183,170
8.	Psychiatrists	$170,350
9.	Family & General Practitioners	$167,000
10.	Chief Executives	$166,910

Worst Paying Jobs

1.		Combined Food Preparation & Serving Workers, Including Fast Food	$18,230
2.		Cooks, Fast Food	$18,300
3.		Dishwashers	$18,360
4.		Dining Room & Cafeteria Attendants & Bartender Helpers	$18,420
5.		Shampooers	$18,420
6.		Gaming Dealers	$18,460
7.		Counter Attendants, Cafeteria, Food Concession, & Coffee Shop	$18,510
8.		Hosts & Hostesses, Restaurant, Lounge, & Coffee Shop	$18,560
9.		Waiters & Waitresses	$18,570
10.		Ushers, Lobby Attendants, & Ticket Takers	$18,610

There you have it! The top 10 best and worst jobs as of May 2011! I guess I should have gone into some sort of medicine. Oh well! I hope this is helpful. If you want to look at the rest of the jobs posted on their website, you can go to http://www.bls.gov/oes/current/high_paying_occs.htm.

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Buying High & Selling Low?

Buying high & selling low, does that make any sense? It's an interesting phenomenon. People buy when something is performing well and sell when they can't get any money from their asset. My main comment is in regards to the housing market. I am currently in the process of purchasing a townhome. My wife talked with my grandma the other day and told her about what we were doing. Her reply was, "I'm not sure that that's such a great idea in the current economy". My wife just kind of laughed at her.

The reason I am purchasing a townhome is because my mortgage will be lower than what I am paying for rent right now. I am guessing that the housing market is at the bottom of the trough right now. These townhomes, at the peak of the market, were selling for $160,000. I estimate that the housing market will come back in 3 to 5 years. I'll be able to sell it for a gain, or I could rent it out. Now, does that make sense? Isn't that what we're supposed to be doing, buying low and selling high? Where did we get the notion as individuals that just because the economy is bad we shouldn't invest? Everyone who bought stock after the huge market crash, it didn't really matter which company it was either, has made a lot of money from it.

Those who are wise with money and prepared to pounce on opportunities will find the greatest opportunities when the economy is down. Feel free to disagree with me. I'm not a professional by any means, but I feel that I know that I don't want to purchase a home for $160,000 and sell it for $80,000. I encourage you to find ways to take advantages of opportunities like this. They don't come up everyday.

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Demographics & The Economy

This is a concept that I just learned the other day. I think it's incredibly accurate too. I recently watched Demographic Winter. It was an eye-opening show. The purpose of the film, I think, is to show how demographics affect the economy. It also shows several reasons why the fertility rate has dropped by so much in the majority of countries.

My main focus though is the relationship between a countries population and a prosperous economy. If you recall, the United States had a baby boom from 1946 - 1964. This greatly increased the population. Another fact is that most people spend the most money between the ages of 45 and 50. This is mainly due to the expenditures that they have to pay out for their children. These expenses include family expenses, college, and every other expense incurred by supporting a family, such as clothing, food, etc. During this time of increased spending, the economy booms. In the case of the baby boomers, they spent and will spend most of their money between 1994 and 2012. While they were spending all of this money, the economy was booming. The United States was prosperous. This is only because spending drives economic prosperity.

Here's a clip from the movie I found on Youtube containing those statements.


With the fertility rate declining, the population is decreasing. As the population declines, so does the amount of spending. Adam Smith even said that a country needs a growing population in order to maintain a prosperous economy. I think the only reason that the United States will stay fairly prosperous is because of the illegal immigrants from Mexico. They keep plenty of people in the country.

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