Three Hard Facts About Getting Old That Everyone Should Know

If you were born between 1946 and 1964 you are classified as a Baby Boomer.[i] And Baby Boomers are retiring at somewhere around 10,000 per day.[ii] Needless to say, this is putting a strain on the Social Security Administration’s ability to continue to pay benefits.  As of June, 2019, 50% of retired married couples, and 70% of retired singles depend on Social Security for over half of their income.[iii]

Also, in June of 2019, the World Economic Forum reported that males can expect to live 10 years longer than what their savings will last.  For females it will be even worse because women, on average, live longer than men.[iv]

Knowing this, here are three facts that everyone should know and understand before they get any older.

1. People are living longer.[v]
2. People are running out of money 10 years before they die or sooner.[vi]
3. Medical expenses for those 65 and older continue to rise.[vii]

Indeed, according to the latest Fidelity report, married couples must now plan on paying at least $285,000 for health-related expenses throughout their retired lifetime.[viii] Yet the difficulty is that those 65 and older have a median savings of only $63,000.[ix]   This raises the question, “From where is that money going to come?”

Obviously, typical financial planning isn’t the answer or people wouldn’t be facing these horrible financial predicaments today.  Yet, typical financial planning for retirement, is more of the same thing that has put the Baby Boomers into the dire straits that they find themselves in today financially.  If typical financial planning was effective, there wouldn’t be so many people dependent on Social Security for more than 50% of their income in retirement nor would people be running out of money before they die.

The truth is that typical financial planning hasn’t, and isn’t, working.

Think about what will happen when Social Security runs out of other people’s money in 2037 to pay retirees?.[x]  That is a serious question that needs to be addressed before more people run out of money, not afterwards. But that is a government problem and something we as individuals can’t fix.  What you and I can fix is how much we are keeping for tomorrow. That is entirely up to you and me.

Now, there is no denying that when an employer matches an employee’s contribution to their retirement plan the employee benefits from a larger balance which is invested.  However, the risk assumed with that money invested, can be a double-edged sword for the employee, if they are not aware of what risks are involved with that money invested.  According to the Consumer Financial Protection Bureau more than 70% of people with 401(k)s don’t realize they are paying fees,[xi] let alone what risk category in which they are participating.

Consequently, most 401k owners don’t realize, and most typical financial advisors don’t educate people enough to understand, that a 10% loss on an investment will require an 11% gain to recover losses. A 25% loss will require a 33% gain to overcome losses, and a 30% loss will necessitate a 42% gain to overcome losses.  25% to 30% losses are not uncommon occurrences in spite of what typical financial planners may advise.  In fact, these kinds of losses occur, on average, about once every ten years, while 33% and 42% gains are extremely rare,[xii] making it difficult or impossible to overcome the much more frequent losses.

Knowing this, makes keeping more of what a person makes more critical to their retirement than what rate of return they can earn.  For example:

• A person who starts keeping $1,000.00 a year earning 5% per year, for 14 years in a row will have $113,512, 47 years after they started.
• If an investor is forced to start over 7 years later, they will have to keep $1,000 a year for the next 40 years earning the same 5% to come up with $120,880.
• This means they will have to keep $40,000 instead of merely $14,000 to pull ahead.

$14,000 is a mere 35% of $40,000 while $113,512 is 93.90% of $120,880.  In other words, the late starter will have to save 286% more to have an advantage over the early starter. Logically then, when typical financial planning designates someone as having a “high risk tolerance”, realize that time is not so forgiving.  Not realizing these simple facts is why many Baby Boomers are running out of money, even though they were told they were set for life.

Keeping money in a place that provides guaranteed growth, liquidity, and safety is important but has been ignored by typical financial planning, which has cast a gloomy financial cloud over an entire generation’s financial future.  If the next generation wants to avoid the pitfalls of typical financial planning, they will need to do something different than what the generation before them has done, namely they will need to keep more of the money they make and not assume as much risk.

McFie Insurancehas a financial formula that helps people keep more of the money they make so that they can have financial peace of mind and not run out of money in retirement or be so dependent on Social Security.  But the formula must be applied sooner, not later, or history will repeat itself.  Unfortunately, if the story repeats itself, it will most likely bankrupt our country by destroying our economy.

Dr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of McFie Insurance which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here. 

[i] https://www.investopedia.com/articles/personal-finance/032216/are-we-baby-boomer-retirement-crisis.asp
[ii] https://www.investopedia.com/articles/personal-finance/032216/are-we-baby-boomer-retirement-crisis.asp
[iii] https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
[iv] https://www.weforum.org/agenda/2019/06/retirees-will-outlive-their-savings-by-a-decade/
[v] https://www.nia.nih.gov/living-long-well-21st-century-strategic-directions-research-aging/introduction
[vi] https://www.weforum.org/agenda/2019/06/retirees-will-outlive-their-savings-by-a-decade/
[vii] https://www.plansponsor.com/estimates-health-care-costs-retirement-continue-rise/
[viii] https://www.plansponsor.com/estimates-health-care-costs-retirement-continue-rise/
[ix] https://www.marketwatch.com/story/this-is-the-average-401k-savings-by-age-2019-01-31
[x] https://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html
[xi] https://www.consumerfinance.gov/about-us/blog/more-than-70-percent-of-people-with-401ks-dont-realize-theyre-paying-fees/
[xii] Yarden Research