WHILE NOT EXHAUSTIVE, HERE ARE THE GREATEST RISKS TO YOUR FINANCIAL SUCCESS:
TAXES
THE STOCK MARKET
HEALTH CARE COSTS
RETIRING AT THE ‘WRONG’ TIME
OUTLIVING YOUR MONEY
INVESTOR PSYCHOLOGY
Risk #1: Taxes
The right tax strategy is crucial to building wealth.
If you think you’re paying a lot in taxes now, consider what the future may hold.
Do you think taxes are going up, going down, or staying the same in the future?
If you think they are going up, we absolutely agree. Prior to “Covid-19” becoming a household phrase, we were on an unsustainable path. It took our country 200 years to accumulate the first $1 trillion in debt. It April, 2020 alone, we added more than another trillion, to add to the $23 Trillion we already couldn’t handle.
What is your plan to minimize your tax liability… or do you prefer the Government Plan? Believe it or not, at the moment our tax rates are historically low.
What does this mean to you?
This combination of high debt and low taxes cannot continue. In fact, if Congress simply does nothing (and Congress is great at doing nothing), tax rates are going up on January 1, 2026, when the tax cuts passed in 2016 expire. In the future, if Congress agrees to raise tax rates over and above the levels coming in 2026 - say, to resuscitate an economy ravaged by a global pandemic or to address a $240 trillion-dollar fiscal gap - you just may suffer a higher tax rate in retirement than you do today... when you least can afford it.
Our solutions involve taking advantage of historically low tax rates now in order to avoid a tax nightmare in the future.
THERE WILL BE A TAX RECKONING
How will we possibly pay for all of the entitlement programs, wars, and future government initiatives like a Green New Deal? WHO will pay? Learn how to avoid the massive confiscation of your wealth.
JUST HOW BAD IS IT?
The chief accountant of the US resigned in 2008 so he could warn the People directly. Our fiscal irresponsibility is the single greatest threat to our country. 13 years later, the crisis is magnitudes worse.
Additional Resources
View the US Debt Clock
While our national debt exceeds $26 Trillion, unfunded liabilities (bottom right of the debt clock) top $152 Trillion! That's more than $464,000 per citizen. It’s getting worse by the second.
Social Security Wage Statistics
When politicians promise only to tax the rich, are they talking about you? You may be surprised to know what lands you in the Top 10% or even the “Greedy Top 1%.”
Risk #2: the Stock market
Wall Street is a casino. How much of your retirement relies on fate?
Seriously consider these questions:
Should the quality of your retirement really depend on the performance of the stock market?
How did it become this way?
Do you have to accept this situation?
We have had three stock market crashes since the year 2000. How many retirements were ravaged during each of these events? Investors are willing to take on some risk in exchange for potentially greater returns. Yet…
The average increase in the S&P index from 2000-2018 was 4.4%.
Since 2000, it has taken 6-8 years to recover from the last crash – just in time for the next one.
The timing of a market crash is as important as the crash itself – and is completely beyond your control.
The average rate of return published by financial prospectuses and marketing materials is fundamentally misleading.
Direct and hidden mutual fund fees can eat up at much as 37% of investment growth.
The stock market certainly has its place in your portfolio. But the quality of your life in retirement should not be left to chance, or destroyed by events beyond your control. It doesn’t have to be this way! For more information, visit the Financial Awakening section.
Additional Resources
Buffett to Berkshire Shareholders: Be Prepared to Lose Half Your Money
In 2018, Warren Buffett told shareholders they could count on more than 50% losses again in the future: “No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow.” Within 2 years of saying that, Covid-19 proved his point.
The Inventor of the 401k Thinks It Has Gone Awry
Ted Benna, the “father” of the 401(k), explains how funds are now layered with fees and that target date maturity funds have been “grossly mishandled.”
Risk #3: Healthcare Problems & Exploding Costs
You should consider health care costs in two different ways: the potential cost of your own health care and the cost you will bear for all of those who cannot afford it.
Important Health Care Statistics
A 65-year-old couple retiring now can expect to need $275,000 in out-of-pocket medical costs throughout their retirement, net of taxes. This does NOT include Medicare expenses, over-the-counter medications, or long-term care.*
If you factor in nursing home care, with an average stay of 2.8 years, the cost can exceed $500,000. **
National health spending is projected to grow at an average rate of 5.6% per year, far outpacing inflation.***
In 2018, health care costs for a family of four was $28,000.° This was up 55% or 7% per year from 2010 when it was $18,000.
Social Security trust funds will be depleted by 2034. Beyond 2034, Social Security taxes can only pay 75% of scheduled benefits. ^
Medicare’s Hospital Insurance Trust Fund is projected to run dry by 2026.^^
Health Care Pensions
Some people are fortunate enough to have employer-provided retiree health care coverage, such as Tricare. But with our massive entitlement quandary –more than $153 TRILLION in unfunded liabilities – is there a chance the government will be forced to raise prices, reduce benefits, or both? Will your pension be enough?
Self-Funding Health Care
It may be realistic for some to “self-fund” health care costs through investments. However, with technological breakthroughs, Americans are living longer, even when they’re exceptionally ill. The chances of needing long-term care increases with longer age spans. Health care costs will be the most significant outlay for many people in retirement. Millions of Americans will not be able to afford health care, leaving them on the Government Plan. That will constrain resources for everyone else.
A Couple of Questions to Consider
When the government provides an economic projection – such as one pertaining to a Social Security or Medicare shortage – does it tend to be overly optimistic or overly pessimistic? When they say a government program will cost $100 billion, does the actual cost tend to skew more towards $90 billion, or more towards $500 billion? If you say $500 billion, then we're with you.
The Social Security Trustees urge lawmakers “to take action sooner rather than later to address shortfalls, so that a broader range of solutions can be considered and more time will be available to phase in changes while giving the public adequate time to prepare.” What do you think the chances are that politicians are going to follow the Trustees’ advice and take action sooner than later? The longer they wait, the worse the problem will get. In fact, the current conversation isn’t about reducing unsustainable costs, but expanding them through policies like Medicare for All.
With all these problems, could health care become unaffordable for millions of Americans, if it hasn’t already? Even assuming you can personally shoulder all the health care costs for you and your family, where do you think they’re going to get the money for the people who can’t afford health care – from those who don’t have money, or from those who do?
Our Potential Financial Solution will account for the possibility of extreme health care costs – not just for you but for everyone else – and will not involve you depending on the Government Plan or funding everyone else’s health care.
* Health Care Costs for Retirees Rise to an Estimated $275,000 Fidelity Analysis Shows
** Bank on Yourself: Why You’ll Need $500,000+ in Retirement for Medical Expenses Alone
*** National Health Expenditure Projections 2016-2025 produced by the Centers for Medicare and Medicaid Services
^ 2018 Milliman Medical Index
^^ 2018 Social Security Trustee Report (PDF Download)
RISK #4: retiring at the ‘wrong’ time
what if you happen to retire in year that turns out to be a bad one?
sequence of returns risk
Most investors are aware or and accept the fact that their investments will have down years. But what happens if one of those bad years happen right around retirement age? In 2008, millions of Americans in or nearing retirement witnessed the vaporization of a large portion of their portfolios. This forced them to delay or forego retirement, or to assume a permanently lower standard of living. It accelerated health care problems and even deaths.
You never know when another 2000-2002 (~46% losses) or 2007 (~38% losses) will occur. But is there a way to protect yourself should you be the victim of unfortunate timing? Absolutely.
LEARN MORE about Sequence of Returns Risk in our Financial Awakening section.
Risk #5: Living Too Long! (Longevity)
Many of us are afraid of dying early. What if you die too late?
According to the Social Security Administration:
A man reaching age 65 today can expect to live, on average, until age 84.
A woman turning age 65 today can expect to live, on average, until age 86.*
Married couples aged 65 today typically have a 50% chance that one of them will live beyond age 90.**
People are living longer than ever, thanks to advances in science and medical technology. But that can create incredibly stressful financial problems if people don't plan carefully. People who don't plan for a long life risk running out of money and ending up on the Government Plan or dying penniless. And not only do you stop enjoying retirement when you run out of money – you stop enjoying retirement when you fear running out.
Your financial plan shouldn't end at age 65 or when you retire. Rather, it should cover you until you take your last breath, and beyond. Plan to live longer than expected, so your financial plan doesn’t run out of steam before you do.
* Social Security Administration Life Expectancy Benefits Planner (PDF)
* When to Start Receiving Retirement Benefits (PDF)
Risk #6: Human Psychology
While this may be your most trifling concern, it is most investors’ biggest downfall.
Of the investment risks listed on this website, this section will be the least considered. We can all agree that 50% of people are above-average investors, and 50% are below-average investors. Yet if you ask 100 people which half they belong to, 90% will report being in the top half. That means that 40% are wrong about their abilities!
No one says, or even believes, they follow a buy-high and sell-low strategy. Most people think that when it comes to investing, they can keep their emotions out of the decision-making process, and take disciplined, rational action.
Most are wrong.
Berkshire Hathaway makes a lot of money by not following the herd, instead capitalizing on market declines that tend to follow frothy bull markets. It is costly to allow emotion to dictate investment decisions. In addition, it is perilous to ignore the fact that, while we may think we leave emotion out of the equation, we don’t.
Additional Resources
Best Stock Fund of the Decade (Wall Street Journal, requires subscription)
Consider the best-performing mutual fund over a 10-year period. The fund grew more than 18% annually. "Too bad investors weren't around to enjoy much of those gains," the article states. Would you believe the average investor LOST 11% annually over the same period?
Warren Buffett Can't Find Anything Big to Buy (Wall Street Journal, requires subscription)
Berkshire Hathaway has earned billions by patiently sitting out the feeding frenzies that characterized the two major booms of this millennium, and in 2019 they were sitting on $100 billion in cash. In his letter to shareholders, he stated, “price seemed almost irrelevant to an army of optimistic purchasers.”