Ep: The Richest Corpse in the Graveyard

If you were to financial advisor, say that we are going to talk about cash flow planning, what's the first thing that you would think about?

Well, it's probably going to be about, hey, beans and rice, save budget, don't spend needs and wants, blah blah, blah, blah, blah, blah, blah.

Right?

Well, today we're talking about cash flow planning, but we're going to talk about it for the weekly Wealth Podcast listeners.

So I hope that you enjoy this episode.

Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Welcome to this week's episode.

Let's picture this.

Maybe you're 70 years old, 75 years old, maybe you're 82 years old, and maybe you're standing in the driveway and you're handing your 17 year old granddaughter the keys to a car that you bought her.

This is not for her 16th birthday.

And it's also not in the quote will.

Right.

Like your granddaughter is enjoying this moment, but not at the time after a sad day when you passed away.

So, like right now, this week, while you can actually watch her face when she realized it is real.

Now let's think about another version.

So this is you're the same grandparent, same granddaughter, same money.

Except for this time, it shows up as a line Item in Probate 18 months after you're gone.

It's split three ways with the other cousins and grandkids.

And by the time it lands, she's like 34 years old, maybe 25 years old.

And it's just a chunk of money from grandma and Grandpa, right?

And it's good.

Nobody's gonna turn it down.

It's useful, it's responsible even.

But nobody really smiled when it happened.

Nobody was in the room.

So the same dollar amount, but there's a wildly different impact.

And that gap is what today's episode is about.

Because more retirees than you'd think, especially the ones who've done everything right, are sitting on that second version by accident, when they could have been living the first one on purpose.

So here's today's setup.

Family walks into my office.

They have a paid off home.

They've done well, they're not Elon Musk, they're not Warren Buffet, but they have a paid off home, maybe two or three million dollars in their portfolio and between Social Security and maybe some rental property income, maybe pension, nearly all or all of their monthly expenses are covered on paper.

Don't Forget, maybe they're 70, 75, 80 years old.

So it's kind of hard to spend that much money on fun stuff at that point because you might be in the slow go or no go period of your life.

On paper, this is about as close to you've already won as it gets, and yet you already know where this is going.

A lot of people are still nervous.

They're still hesitant to spend.

They're still treating that 3 million doll.

Think it's made of glass.

Maybe there's some scarcity mentality.

Maybe there's some irrational fear.

Maybe they just haven't done the math.

So today we're talking about what happens, what the research actually says about it, and the fun part, what can you do about it instead?

So let's get into it.

I hope to give you some pretty fun ideas on how to look at your retirement.

Now, if you remember, we've done a few episodes lately that have touched on some of these topics.

So we talked about the freedom point for business owners, and we'll put the link to that episode in the show notes, and we also talked about some different retirement attitudes and mindsets, and we'll put that in the show notes as well.

But here's my quick ask before we dive in.

If you're watching this, instead of listening, hit follow wherever you're watching.

And if you're on the audio side, follow the show.

And whatever app you're using right now.

This costs you nothing.

Takes you like two seconds.

And it's the second best thing that you can do to help the show reach somebody who needs to hear it.

Now, the first thing is to literally forward this episode or any episode to someone in your life who needs to hear that specific information.

All right, so let's get back to it.

So going back to that family for a second, because I want you to actually sit and think about the numbers instead of skimming past them.

So paid off home.

Right?

They did the right things.

They paid off their home.

That reduces their monthly expenses.

It reduces the monthly amount of money that they need to live.

They have $2 million, $3 million.

So again, that's a lot of money, but it's not billions.

It's not Elon Musk money.

Okay, now they have some Social Security and maybe they have some other income, maybe rental property income, maybe a pension, something like that.

Okay, so that means that the 3 million, that 2 million whatever that amount is, it isn't really funding their day to day lifestyle.

It's just sitting there as a backup, which is a beautiful thing.

I'd be really happy for these people.

They've put themselves in a great position.

So they have margin, they have just in case.

But here's a term for you to think about.

Now, you've probably heard about fomo, which is fear of missing out.

Well, there's F O R O, and that's fear of running out.

And that's the retirement version of fomo.

All right?

So there are times when retirees or pre retirees, they have an irrational fear of running out of money.

All right?

And I want to be clear, this is not some small quirky group of overly cautious people.

This is pretty common.

Research from the Employee Benefit Research Institute found that about one third of retirees still have 100% or more of their original retirement assets remaining by their mid-80s.

All right?

So I'm gonna say that again in case it didn't quite make sense.

It's not that they didn't run out, they literally barely touched it.

So they have more Today in their 80s in their retirement accounts than they did the day that they retired.

Now, I'm not saying that's right.

I'm not saying that's wrong.

I'm not saying that's good.

I'm not saying that's bad.

But what I am asking you is, does that make sense for you?

Or could you, if you were that person with the 2 million, $3 million, is there more good that you could do with that money?

So that's kind of the basis of the episode.

Now, if you've listened to the weekly wealth podcast, you've heard me say it ad nauseam, but I believe that it's true.

And I believe that all of our financial decisions should be made based on this one guiding principle.

I believe that how we handle our money should positively impact our lives and the lives of those around us.

And, you know, does having your portfolio just continue to grow during your retiring years?

Does that make your life better?

Does that make the lives of those around you better?

Now, I can't tell you that answer, but I want you to answer that question for yourself.

And it's also not only a savings kind of balancing, it's a spending behavior.

Married couples 65 and older are on average withdrawing only about 2.1% of their portfolio per year.

Meanwhile, the research, the financial planning research on what's actually considered a safe withdrawal rate puts that closure to 5%.

So that's not a rounding error.

That's the difference between living carefully and living like the money doesn't exist.

There's a study out of the Financial Planning Review that found something almost backwards from what you would expect.

Inflation adjusted retirement spending tends to decrease over time, even among retirees who have had more than enough to live comfortably, not because they're running low, but because they're afraid to use what they have.

If you're listening to this thinking, okay, but that's not me, I'd actually ask you to go check.

Don't guess, but check.

So here's what I think is happening.

You spend 40 years, 30 years, 35 years, whatever it is, saving, right?

So you're doing the right things.

You're a saver.

You save first, spends what's left.

Don't touch the principal, watch the number go up.

And then your identity becomes I'm a saver.

And that's hard to switch off.

The day that you retire.

So nobody hands you a new identity at the retirement party.

You're still wired the same way you were at 30, 35 years old, 40 years old, except the goal posts have now moved and nobody's told your nervous system.

So there's a financial advisor named Zach, and I may be botching his last name, but it's Teuch T E U T S C H. And he put it well.

He said, quote, overspending is risky, but underspending is risky too.

And I've talked in other podcasts about different types of risk.

So let's let this one sink in.

Because most of the industry, mine included, if I'm honest, only talks about one side of that sentence.

Nobody wants to be the advisor who told you to spend more right before a rough market year.

So the default advice really forever has been be careful, be careful, be careful.

Now, one thing that we can do is we can be careful, but we can be wise and we can manage risks and we can have different buckets of money and we can carefully build in a giving strategy.

We can carefully build in an enjoyment strategy.

So being too careful does just as much damage as being too reckless.

Or at least it could, but it's just quieter.

It doesn't show up in a headline.

It shows up on the vacation that you didn't take, the recital that you missed because you didn't want to pay for a flight.

The version of your life where you had the money the entire time and simply didn't use it.

So do you want to be the person that had the money to enjoy, had the Money to give, had the money to use to enjoy experiences with the people that you love and you simply didn't do it.

So somebody once described retirement spending as sailing through a channel.

One side of that channel is running out of money.

Everybody's terrified of hitting that shore, right?

But there's a shore on the other side too.

Sail too far away from the risk of running out and you'll eventually run aground on the other side.

And that's the shoals of regret.

So back to our family, right again, paid off home, $2 million, $3 million, whatever it is, a lot of money.

Social Security and maybe pension or some other passive income is covering most of the bills.

Now if I ran their actual numbers, and let's be clear, this is illustrative, this is not a specific recommendation for your household.

But a family shaped like that is often not drawing down principal at all.

They could very plausibly increase their spending meaningfully.

And when I say spending, I don't mean necessarily buying stuff or else, although I could.

But it might also be giving.

It might be trips, it might be experiences.

But by any reasonable modeling, they'll never come close to running out.

Their real risk was never running out, it was dying with almost all of it still there, having done nothing or very little for anyone the whole time.

So this is where we think about legacy planning.

Now I do want to talk about one legitimate fear that is worth naming and that is long term care planning.

Because that is a place that can really, really tap into your investment assets.

So I have a designation that exists specifically for this conversation.

I'm a cltc, a certified in long term care advisor and that's on top of the cfp, the certified financial Planner designation.

So let's talk about how this might work.

So this isn't a markets risk, right?

Markets go up, markets go down.

A well built plan, a well thought out portfolio is designed weather those storms.

Different buckets of money with different levels of risk and the right amount of risk for you, which may be different than the right amount of risk for me, can help us to weather that storms.

But one of the wild cards is an extended long term care event that's years of in home care or a facility stay that nobody budgeted for at a cost that can clearly get into the six figures per year per spouse.

Now do we need to hoard that entire in vague unfocused fear or should we have a plan?

Should we look at the what are the items?

What are the things that if they happened could cripple us financially and yes, long term care should be factored into that.

And then let's have a plan, possibly long term care insurance, possibly earmarking a portion or defined slice of that portfolio for it on paper with a plan.

And once there's an actual answer, then there's no real good reason to keep treating the rest of the money like it's fragile.

So solve the legitimate risks on purpose.

Remember, we talk about being purposeful all the time.

Then stop borrowing.

Worry against everything else.

Quick pause here.

If you're doing back of the napkin math on your own situation right now in your head, stop.

Seriously, that kind of guessing is exactly how people end up either overspending or more often with this crowd needlessly underspending for 20 years straight.

If you want an actual answer instead of a guess, head to www.weeklywealthpodcast.com vision.

Let's talk about it for 20 minutes via Zoom or in person if you're local with me.

There's no cost, no pressure.

We can just look towards real answers.

All right, let's keep on going.

So remember the mission behind this entire show.

And I mean literally because you hear it all the time.

This is not just a tagline.

This is the mission.

And I believe that how we handle our money should positively impact our lives and the lives of those around us.

So say that back to yourself.

Now, if you agree with that now, go back and look at a brokerage statement.

Or imagine a scenario 10, 20, 30 years in the future where that number goes up quarter after quarter.

Does that or does that not sound like a positive impact on our lives or the lives around us?

I mean, it's just a number.

But the number only starts to matter when it moves.

The moment it is spent, given or put to work on something else that changes somebody's actual day.

Now, should we be reckless?

No, of course not.

We should have a plan.

But maybe we should build experiences.

Maybe we should build giving.

And maybe we should build a little bit of excess, if it is, if it's reasonable, into the plan.

Now, I know that there's a lot of research out there about money and happiness, the famous Daniel Kahneman work and a more recent research from Penn researcher named Matthew Killingsworth.

And the honest updated version of that research is more optimistic than the old quote, money stops mattering after 75k headline killingsworth data shows happiness and life satisfaction keep climbing with income.

Remember I said income for most people without a hard plateau.

But listen closely to what that's actually measuring.

It's measuring income that's money coming in and getting used, preferably for good.

Not a static balance sitting untouched in an account.

That distinction matters enormously for our family.

With 3 million, their situation isn't an income problem.

It's a money that's just sitting there problem.

And sitting money doesn't make anybody's life better.

Now, yes, it may help you to sleep at night because that money potentially can solve some problems, but generally moving money does.

So let's talk about three ways it can move.

These are three suggestions.

Three ways that this family or family shape like it could turn that quote number keeps growing into quote we watched this actually change something.

Now, if you're an entrepreneur like me, maybe at a point you can get to where you can help somebody start a business, right?

So raising capital is the first part of being a business owner.

And for almost every entrepreneur, it's the single hardest part of getting off the ground.

And most of the time, the first check doesn't come from a bank or a venture fund.

It comes from family.

In one entrepreneurship survey, more than a quarter of the people who'd help fund somebody's business had given to a close family member.

That's not a strange or risky thing to do.

It's one of the most well worn paths in American business.

But I wanted to give you a practical caveat because I don't want to do you a disservice.

Decide up front, like what's the deal?

Is this a gift?

Is it a loan?

Is it an actual equity stake?

And whatever it is, that's cool.

I'm not advocating for everyone, but putting it, put it in writing.

Not because you don't trust your kid, not because you don't trust your niece or your nephew or your grandchild, but because ambiguity is what turns money into a strained holiday dinner.

Do you really want to be kind of arguing during turkey dinner on Thanksgiving if the grandchild was understood to have to pay the money back when he or she was thinking that it was a gift.

So get the structure clear and then let the relationship be the relationship and let the money be the money.

But think about the actual outcome, right?

$50,000 That helps your son in law finally open the shop he's talked about for three years.

That money did something.

And you know, maybe that money can multiply tenfold twenty fold.

You get to watch it happen.

You get to walk into a customer potentially.

You get to give some advice and feedback if that's what agreed upon.

But that same $50,000 sitting inside of a $3 million brokerage account, it's just a number on a statement, and it did nothing for anybody, including you.

Now, something else you can do is start a scholarship.

This one I love because it's a legacy you get to watch unfold while you're still around, instead of a legacy that only activates when you're gone.

A couple ways to do it.

You can fund a specific person's education, either directly, or you can contribute to a broader ongoing scholarship fund through a school or community foundation.

Both are legitimate.

Both can be great ideas, depending on your goals.

But either way, this is your legacy bucket.

But it's activated now instead of waiting for will to be ready.

Let's go back to that car in the beginning of the episode.

And this one is what kicked off the whole conversation, buying your grandkids a car while you're still alive to see them drive it.

Now, there's an organization in my town called Ride to Work.

What it does is it helps people who need help getting to work with transportation.

So maybe you buy.

Maybe there's someone in your life that you know that wants to work, but they just don't have transportation.

And yeah, maybe they did somewhat caused that problem themselves, Right.

Maybe they got a DUI 10 years ago.

Maybe they had a suspended license.

But maybe they need a second chance.

And maybe if you helped somebody buy a car, yeah, I mean, financially, that's not the smart money, because cars depreciate.

They can be worth less than the check that bought it.

But that same money invested is just kind of sitting there.

So think about, is there somebody in your life that a car would really help them out?

Now let's talk about tax deductions.

Very generally speaking.

And of course, we're not giving tax advice.

Make sure you talk to your own advisors.

But you get a tax deduction typically if you're giving to a nonprofit organization.

But if you're giving to a relative, to a friend, or anybody who's just somebody in need, you're typically not getting a tax deduction, but you're still doing the right thing.

So we don't always need a tax deduction in order to do the right thing or do something that brings us meaning.

But just understand that if you buy a car for your grandchild, you buy a car for somebody in need.

Unless it's done through a nonprofit organization, there would not be a tax deduction.

So as we're finishing up this episode, I want to talk about what I'm not telling you to do.

All right?

So I'm not telling you to go out and write a $3 million check and totally empty all of your accounts to pay for somebody's college or to give to a nonprofit.

Unless, of course, that is truly what you feel you're called to do.

But I'm definitely not saying to be reckless in your spending.

I'm saying in your planning.

Whether it's either yourself or if you're working with an advisor, I think you want to look at what does the end game look like.

So if you live to age 80, age 90, age 100, what amount of money do you want to have left over in your account, in your estates, and plan around that?

But I do think that it's important to purposefully plan to be generous, purposely plan to enjoy life, right?

Because you spent decades and decades working.

And now that you're at the point in your life where you have some money and most of your needs are covered, maybe it's time to enjoy it.

So a little bit of extravagance may not be a horrible thing.

A little bit of exorbitant generosity may not be a horrible thing.

But hear this again.

Am I telling you to be reckless?

No, I'm not telling you to be reckless.

I'm telling you the opposite.

I'm telling you to be purposeful.

Now, in my practice, what I do is I work with goals and I work with my clients investment portfolios, and we develop models on how likely they are to be able to sustain their current spending habits with their current investment at different lengths of life expectancies.

So we can mathematically say hypothetically, you know, with the, with the investments that you have and with taking X amount of dollars out per month and maybe one big chunk per year, to be generous, you might have, I don't know, 78% chance of never running out of money.

And then you can decide, is that comfortable to you?

All right, so this is all part of a plan.

This is not me telling you to be reckless and write big checks just spontaneously.

All right?

So with that out of the way, if any part of this episode made you a little bit uncomfortable, that's good.

That's a sign that it was maybe aimed at you, right?

So if you've got a paid off house, guaranteed income covering most of your bills, and a portfolio you've been quietly protecting instead of using, and again, let's be purposeful, how much of our portfolio should we use?

How much should we save?

And even think about if you and your spouse have some health issues and maybe your life expectancy is a little bit decreased, that might give you a little bit of permission to spend a little bit more money now, right?

If you're a believer like me, our lives have been described as a vapor on this earth, so we're not here for that long, so we might as well use our money for good while we are here.

But if you'd like to talk a little bit about what your numbers might look like and maybe look at some planning, head to www.weeklywealthpodcast.com vision.

Grab 20 minutes with me again via Zoom or in person if you're local.

We can look at your actual situation, not some hypothetical family.

We can look at what you do have, not what you think you have, and we can figure out whether you've already won the game too.

Wouldn't it be cool if you've already run and you didn't even realize it?

And if this one hit home, do me a favor, send it to the one person in your life who you know or you think is sitting on more money than they may ever spend.

And maybe they're scared to touch it.

That's probably who needs to hear this more than you do.

I can think of several of my clients now.

These are not super rich people that had super impressive corporate or professional jobs.

These are people that have always lived below their means and now they've retired and they have two commas in their net worth, right?

But they still are living off very little money.

And we've had some conversations about, hey, why not take that vacation you've always wanted to take?

We've done some calculations and I don't think it's really going to affect you a whole lot in the long run.

So think about that if you know that person would love it if you would send this podcast to them.

I'm David Chudick.

This has been an episode of the Weekly Wealth Podcast and remember, the goal was never to die with the highest number.

It was to live and give on purpose.

I will see you next week.

The information presented on this podcast is for general educational purpose services only and does not constitute financial investment, legal or tax advice.

Parallel Financial is registered with the U.S. securities and Exchange Commission as a registered investment Advisor.

Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions.

And here is your bonus content for this week.

So what I've done with a few clients this year is when we are modeling their income and their spending over the rest of their life we've modeled in kind of their base income, we've modeled in their base expenses, and then we've modeled in some extravagance funds.

So maybe we've called it the vacation fund, and it may be, you know, in some years, it's literally a $50,000 budget for.

For a vacation or more.

And we are always able, on a year by year basis to say, you know what, maybe the economy's down, maybe brokerage accounts are down, and maybe we shouldn't take that $50,000 vacation.

But in most cases, with people with several million dollars, the ability to splurge once a year is there.

So the moral of the story is, let's put extravagance and let's put generosity into our plans purposefully.

All right, everybody.

That'll do it.

Have a great one.