Today we’re finishing the list of ten things I liked about the book Retire Inspired.
If you missed the first post, check out How to Retire Inspired, Part 1.
We covered five items in the first part, so we have five to review today.
Let’s get to it…
Sad Retirement Stats
Throughout the book, author Chris Hogan drops stats about retirement that will leave you scratching your head.
Here are a few of them:
- Close to 35 percent of American retirees over the age of sixty-five rely almost entirely on Social Security payments.
- Studies show that half of 401(k) participants have less than $10,000 saved for retirement — and those are the people who are actually doing something.
- As many as 70 percent of people who receive some type of financial windfall end up broke within a few years.
- 60 percent of retirees report having to retire earlier than planned for one reason or another.
- The average consumer sends 24 percent of their take-home pay to non-mortgage debt.
- Forty-five percent of working age-age households have no retirement savings at all.
- Among people ages fifty-five to sixty-four, the average household retirement savings is only $12,000.
- For 22 percent of retired married couples and 47 percent of retired singles, Social Security makes up 90 percent of their monthly income.
- 34 percent of employees do not contribute enough to receive the full company [401k] match.
I like stats like these as they quickly tell a very compelling story. I wish they were better, of course, but they are what they are.
After 20+ years of coaching people about money and writing on the subject, none of these facts surprise me. They simply confirm what I already thought about the sad state of Americans’ finances.
Some thoughts from me on the numbers above:
- Hogan goes on to comment about the 35% living on Social Security, saying the average SS payment comes out at just over $14k a year. Then he adds this: “It’s hard to live your dream in your golden years when you’re trying to make it on an income that’s actually below the federal poverty line.” It’s obvious that what was intended to be a supplemental retirement income has been viewed and used as the primary (or even sole) form of retirement income by many. Ugh.
- I’m not sure what’s up with the poor 401k usage rates as well as the levels people fund them. Surely it’s a no brainer to get the full match, isn’t it? It might be less of a no brainer to be in the program to begin with, but it’s close. It’s all free money left on the table.
- I’m sure you’ve read stories of people who have inherited or won a large sum of money and not too long after that they are in a worse financial situation than they were before. IMO this is yet another reason to 1) spread out inheritances and 2) consider limiting how much you give any one person as you create your estate plan.
- The fact that 60 percent of retirees report having to retire earlier than planned is a cause of concern for the “work longer” retirement strategy many plan to use. It’s simply not an option for the majority of people.
- So the 24% spent on debt is on top of a mortgage? Yikes! As someone who’s spent almost 25 years without debt of any sort, this number seems really high to me.
- If most people are forced to retire earlier than they expect (which appears to be the case) AND most people have a pittance saved up for retirement (which also appears to be the case), isn’t that cause for concern? What’s going to happen when all these people retire?
In the end, the stats tell a somber story about retirement in America. Hopefully this book will be the kick in the pants so many people need when it comes to retirement saving.
Managing an Inheritance
Hogan has a lot to say about inheritances that I agree with, both in how to plan if you expect to receive one as well as what to do if/when you actually get one.
Let’s begin with his thoughts on how to incorporate a potential inheritance into your retirement plans:
Counting on something like an inheritance is a recipe for disaster. An inheritance is great if you are blessed with one, but you can’t count on it as part of your plan.
I would look at an inheritance the same way I did with work bonuses and do Social Security — if they happen, that would be great, but I’m not making them part of my plan. If I get them, they are just “extra”.
Even if you “know” you are getting an inheritance, you shouldn’t plan on it IMO. Why? Because things can change. And if you spend your whole life counting on a large amount of money and then it never shows up, you are in a world of hurt when it comes to retirement.
As for how to deal with a windfall should you receive one, Hogan has the following advice:
The first thing you should do is just take a big, long, deep breath. The second thing you should do is take that money and put it in a money market account for three to six months and leave it alone until you come up with — you guessed it — a plan. Being intentional ensures that an inheritance will be the kind of blessing it was meant to be.
He goes on to say that without a plan it’s likely that the money will simply melt away here and there until it’s gone.
I agree with this line of thinking. If you do receive a large amount of money, take some time, think about it, and then come up with a plan. This way you’ll be making good use of the money and putting it toward something intentionally.
I also think this has some lessons for the person who might leave an inheritance. Perhaps recipients shouldn’t get the money all at once, but in installments over time. In that way, if they do blow some up front, they have later payments coming and will have hopefully learned their lesson.
By the way, something else I found to be a good idea in the book was an illustration Hogan used. A lady left a sizeable estate to some relatives, but before they could get it, they had to attend Dave Ramsey’s Financial Peace University (FPU) so they knew how to manage money. It doesn’t have to be FPU, but I do like forcing people receiving an inheritance to get some sort of financial education. It just makes sense as it will give them the best shot at managing the money they will be receiving.
Debt Should Be Minimized Prior to Retirement
Hogan and I both agree (mostly) and disagree (a bit) on this one.
Being a Ramsey personality, he’s clearly on the “no debt” train even more than I am. And IMO he gets a bit extreme in some of his debt viewpoints.
That said, I have lived the no debt lifestyle for over two decades and can testify that it’s been awesome knowing that I don’t owe anyone anything.
Let me share a few thoughts from Hogan that I can support. Here’s the first:
Debt isn’t just borrowing money that you don’t have from the bank; it also means borrowing from your dream. Every dollar that you send out to debt payments — every dime you willingly commit yourself to for a period of months or even years — is money that you would’ve, could’ve, and should’ve used for investing in your retirement plan. Debt always leads to a dream deferred.
There’s obviously a balance and most Americans err too much on the side of debt IMO, so I see his point. And on consumer debt, we agree 100%.
I’m not sure we agree on house debt (I think we do but it’s unclear) or college debt (we don’t — he advocates no debt at all and I’m ok with an amount that’s in proportion to expected earnings after graduation), but we’re pretty close overall.
Hogan goes on with this:
The people I know who are diligently creating real wealth over the course of many years will tell you that debt is the number-one enemy of progress.
I’ll let that one stand on its own and simply ask you: agree or disagree?
He does introduce an interesting concept (or at least an idea I came up with after reading the following):
The truth is, there is more to debt than basic math. The really terrifying downside to debt is risk. In addition to borrowing from your dreams, debt places you at risk. No matter what it happening in your life, no matter what life deals you, that debt will always demand a payment each month.
That may not seem like a big deal when you’re working and bringing home a regular paycheck, but what happens if you lose your job? What if you get sick and suddenly find yourself under a mountain of medical bills on top of all your other debts? What if you’re married and the primary breadwinner dies or loses their income? What if you suddenly find yourself in an unexpected divorce? Those real-life risks you face when you play around with debt — even mortgage debt.
It’s interesting to think of no or low debt as a form of disability insurance. For instance, if your home is paid off, doesn’t that lower the risk/impact to your finances should you become disabled? I think it does. So you could look at paying off debt — and even your mortgage — as making insurance premium payments to yourself — ones that actually grow your net worth (versus being an expense). It’s an interesting concept to consider.
Dislikes Reverse Mortgages
I don’t know a lot about reverse mortgages since I’ve never had to consider one, but the more I hear about them, the less I like them.
First the financial planner at our first retirement seminar said he viewed reverse mortgages as “a backup plan to a backup plan.” In other words, only if you have no other choice.
Now Hogan piles on and rails against reverse mortgages. His thoughts:
Some of the worst scenarios I hear about when I am talking to folks who are nearing retirement are related to the new fad of reverse mortgages.
There are too many disastrous consequences and hidden penalties in the fine print of these agreements to count, but I’ll quickly hit a few. First of all, this choice decreases anything that you were planning to leave your heirs. Second, you also must continue to pay property taxes, homeowners insurance, and upkeep on the home. And third, if for some reason you cannot pay the property taxes, then you can actually end up in default on the loan and the lender gets to take your house.
He gives some other reasons not to like them (for instance, if you have to move out to assisted living the mortgage becomes immediately due) and recounts the story of a woman who both lost her home AND owed the bank an extra $21k in fees in a reverse mortgage. Yikes!
Instead of a reverse mortgage, Hogan offers this:
Here’s the bottom line: If you have a paid-for home but need cash that badly, then just sell the house and either rent or dramatically downsize.
As I said, I am nowhere close to a reverse mortgage expert. Anyone ever used one or known someone who has? If so, what’s your opinion of them?
Don’t Try to Keep Up with the Joneses
Haha! It’s easy to beat up on the Joneses, but I still love doing it.
Thankfully, Hogan does as well, and offers these thoughts:
I call it (keeping up with the Joneses) fake rich. It really is all about trying to finance an image. Living a lifestyle beyond your means so that you can keep up appearances and fit in with the neighbors is a sure way to wreak financial havoc on your life.
Later in the book he continues:
Avoid competing with others over what you drive, where you live, or what you wear. You need to stop comparing yourself to your parents’ lifestyle.
Behind all that nice stuff, the Joneses are really broke and stressed out. Their life may look pretty good from the outside today, but let me tell you, you don’t want to be in their shoes when retirement arrives.
Lots of thoughts on this one:
- It certainly is fake rich. This is why there’s a huge difference between people who appear to be wealthy and the average wealthy person (like the millionaires I interview). It’s exactly what The Millionaire Next Door told us all those years ago.
- My wife and I saw this situation over and over again when we used to coach people about money. On the outside they looked like they were doing great. But when you studied the details of their finances, there were in very bad shape. Forget having a terrible retirement, they were barely holding things together in the present.
- Living in an expensive area and then trying to keep up with your neighbors is a disaster waiting to happen. In addition, there are many higher expenses associated with living in an expensive area/home (property taxes, maintenance, insurance, etc.)
- I never really worried about competing with others — at least with houses, cars, and certainly not clothes. I always competed on net worth, playing a game that most others didn’t even know we were competitors in. LOL! This is one reason why people who have made much more than I have are still working (and probably will be for some time) while I’m working on my fourth year of retirement.
- That said, most of my competition was with myself and the national averages (on net worth).
- I don’t know why so many people expect to have what their parents have when it took the parents 30 years to accumulate everything. But the kids want and even expect it today. So strange…
In the end, over-spending is the real issue which is my worst money move anyone can make. Avoid it at all costs.
Summary
I could go on and on. I have probably 20 more things I loved about this book and that’s just from the notes I took during my first reading. I’ll leave you to find those for yourself.
As for me, I completely recommend this book to anyone wanting to know and think more about retirement. That’s why I included it in my 12 Books that Will Make You a Financial Expert in a Year.
That said, I am not in complete agreement with the book. There are a handful of things I disagree with.
In addition, there are a few issues Hogan brought up that are quite intriguing. These are concepts that I want to think about with you.
So I’ll be doing another post — listing both my disagreements and the concepts we should consider.
Stay tuned.
Not the Joneses says
You talk about not giving your beneficiaries money all at once but rather spread it out over time, this is something my wife and I did for our children.
We set up the “4% rule”. Upon our passing our children will split (50/50) 4% of the trust value each year indefinitely.
Our hope is that this will allow them to make something of themselves and not just depend on an inheritance. This also , IMO, won’t let them squander the inheritance, like the 70% you referenced in the article. They may “shoot themselves in the leg” one year by spending it all but won’t ever get the chance to “shoot themselves in the head” by spending everything.
Plus by only taking 4% per year the money, should, be able sustain itself.
I’d be curious your opinion on this.
ESI says
How much will they get in total?
Not the joneses says
It depends on the value of our estate at passing. It’ll be close to 5m at that time. So each child will get approx 100k/year. The amount will go up and down depending on the market. It’ll, hopefully, turn into a nice little pension for them.
ESI says
Wow. That will have a dramatic impact on their lives.
Personally, I think that would be too much for my kids — to handle that sort of wealth. It could lead to a life of laziness and leisure I’m not sure would be good for them (or most people).
And yet that money donated could have a dramatic, positive impact on the lives of others, so that’s where most of our wealth will go.
We want to give our kids a hand up in life, not set them up for life, which is why we’ve structured things as we have.
Others may want to do something different, which is completely up to them, of course. It’s their money.
besides, our kids might actually get nothing when we pass. It’s likely we’ll give them their inheritance before we die — if they have need of it. One example: my daughter and son-in-law are moving here next fall and we’ll likely help them (substantially) with the cost of getting a house (which we’ll deduct from their inheritance). Otherwise it’s very tough for a young couple to afford a nice house in CS.
We’d much rather give it to them now when they need it most and it can work the hardest for them. If they are in financial difficulty at 50 when they would probably inherit the money, then it’s likely any inheritance would be blown anyway.
We have talked about a more income-based model (like leaving them $20k per year for the rest of their lives), so that could happen, but again that helps them, it won’t make them. $100k per year would simply be way too much for us and them.
Arkad says
@NotTheJonses
I completely agree with that methodology! That’s exactly what I want to setup and do with all future generations of my family! I’m going to setup a generational trust, that pays off a “salary” to all my of my heirs in perpetuity, based off of a % of market return, divided among the number of heirs.
Art says
I have been thinking about doing something similar only restricting the payments to 80% of the actual money earned on the trust and having a provision to continue passing the payments down to the next generation down after the first generation to receive payments pass.
I would love to hear more details of your plan, I’m sure it would greatly help my thinking on my plan. Thanks
Not the joneses says
Only issue with this plan is the new SECURE act requires the money from IRAs out in 10 years. So we will have to change the language a bit to have the 4% pulled from qualified money first and let the non qualified money defer for those 10 years. After those 10 years the IRAs remaining balance will be distributed and reinvested into our “non qualified” investments, inside the Trust, and it will continue with the 4% distribution. This will be subject to Trust tax rates (higher), but it is what it is.
getagrip says
I find it funny how everyone assumes the “Joneses” can’t afford to live the life they live. IMHO that is the wrong definition of the Joneses because the point is (or should be) THEY can live like they are living and do very well, but you can’t be copying them because YOU don’t have the income or advantages they have. I think it’s time to stop picking on the Joneses for doing okay, they’ve been talked bad about and looked askance at enough. Take a six pack or a bottle of wine and go and get to know them, they seem like really nice folks.
ESI says
I don’t think the Joneses are doing ok. I think they over-spend to present a lifestyle of luxury that’s generally funded by debt.
They are barely hanging on, living paycheck to paycheck in most cases.
On the outside they are living large, but on the inside their finances are a shambles.
As such, to try and keep up with them would be folly, even if you earn a good amount.
Marco says
Agree that having low or no debt is a form of disability insurance. Most still need long term disability to produce income replacement, but with the majority of long-term disability plans only replacing a portion of your pre-disability income, having no or little debt definitely lessens the risk and potential impact to a household.
The same reduction of risk benefit could be said for life insurance and job-loss. Having no or little debt lessens risk in these scenarios as well.
On the topic of reverse mortgages, I have seen several retirees rely on this to rid themselves of house payments in retirement due to having no or little retirement savings. Quickly eats away at any equity they had in the home which puts them in a worse situation when they need to move or can no longer live in the home for whatever reason. Without adequate retirement savings and coupled with still carrying a mortgage, many are finding themselves with no other option, which is indicative of the stats shared above.
MrsMula says
A few things resonated with me
– About 8 years ago my aunt passed and left me an inheritance of about $16K. This is very likely the only inheritance I’ll see in my lifetime. I was early in my career with very few assets – my mom immediately pressured me to spend the money on a new car. Instead, It still sits in an investment account today earning interest. Someone will always have an opinion about how to spend your money.
– My husband and I quickly realized we were not keen of “keeping up with the Joneses”. We instead compete each month of how much we can increase our net worth. At 34, my personal retirement accounts will hit 300K this year. Each year we challenge ourselves on how we can increase our net worth more than the prior year. On our current path – we could be fully FI in the next few years.
ESI says
I LOVE the “compete” idea!!!
JJ says
The stats about people paying 24% of income to service debt reminded me of an example. I was at one of the quick loan places to buy a money order, and I overheard a middle-aged lady at the window doing her transactions. She made a payment on loan #1, paid off loan #2, and then opened a new loan #3. I believe these places charge as much or more than credit card interest, and it’s sad to see people addicted to this kind of credit.
My pet peeve is that high schools don’t teach much or any money management. No wonder people make so many bad money decisions.
Xrayvsn says
I like the concept of being debt free and having a paid off mortgage as sort of having made insurance premium payments to yourself.
Having paid off my mortgage and becoming debt free several years ago was a freeing moment for me.
After that, money coming into my household was mine to do what I pleased, not already vacuumed away to pay interest to someone else.
Tom says
In terms of SS making up 90% of retiree income for a lot of folks, it’s not a very telling stat on its own because of the widespread elimination of pensions. Unless people have passive income (real estate) or annuities, income comes from whatever your portfolio is throwing off and SS.
For us, those two combined will cover about 30% of our spending budget. The rest is going to come from drawing down principal. We’re not concerned about spending it all – no kids!
JayCeezy says
Liking the thoughts on ‘no debt’. Reminds me of this sage quote…
“Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.” – Norm Franz
Also enjoyed Hogan and ESI’s thoughts on inheritance…“Even if you “know” you are getting an inheritance, you shouldn’t plan on it IMO. Why? Because things can change.”
Am watching this (“change”) play out in real time with some long-time friends who (separately) have been counting on a sizable inheritance. Health problems for parents have required remarkable cash outlays. These long-time friends have strong reactions to watching their parents’ hard-earned nestegg be whittled away. Talking about the money as if it was ‘theirs’ is a bad look, nobody feels sorry for them.
Kristy says
I’m an early reader of “Retired Inspired” — very good review & comments.
I also really enjoyed & agree with ‘Notthejoneses’. I have similar opinions regarding leaving an inheritance, legacy.
Vigaro says
Well, almost glad I’ve read the two-part review and ‘disagreements with Chris’ points and article (most helpful), except I can tell I’ll go straight to the appendices should it have them, skim a bit here and there, then drop it off at the thrift store so they can eventually convert a cash sale into food for others. Very sorry to hear more of this great bashing of SS, something millions and millions of working Americans have been forced to contribute to for years, now treated in certain circles like losers or idiots for thinking they have it coming to them. Passing blows, perhaps, to make the greater point that with more resources come greater options and something like a bid for happiness, though I still remain a bit skeptical. One’s general health is far more important, which never gets easier the older you get, and then US healthcare and Medicare have become screaming wrecks. Pretty clear a great number of our citizens kind of know they’re screwed, SS or not, because wages and salaries have frozen in place for years at a time, we’ve seen pensions defunded, real estate prices soar insanely ever higher and so on, the suicide boost among Gen Z. Terribly sad, but I don’t think they’re wrong; it’s not getting any easier, so the rest of the living now clamor for socialism, the scourge of the earth and true end of all, unless you think Venezuela sounds fun. What happened in Detroit isn’t just some unfortunate thing but a call to violence for others. If any of you think defrauding 400 million or so Americans in one great swoop (whatever the number is) without horrifying pains and further consequences, I think you’re dead wrong. They’ll be skipping leaning fish shacks, cabins with rotting roofs, the slums, instead going straight to the high rises, enclaves and suburbs and have some great field day, making Rwanda look like a bad birthday party. Or, we can ALL try just a little harder to strike a decent economic balance in which more, not less, escape losing it all along the way. Suze Orman shared most of Hogan’s lesser rhetoric some twenty years ago and running, now calling others idiots for falling short of ten million or something before expiring. I simply think most are unsafe with less than 4 million, but very much hope to be wrong. Maintaining SS as promised would certainly help that, more than a little, so please consider not playing one’s part in wishing it gone for good.
Vigaro says
High on french roast, a few sprinkles of organic turmeric, cinnamon and black pepper on the bottom now. Never really much of a difference, as stated elsewhere. Straight, sober, somewhere or anywhere in between, whatever time of day, inclined to feel the same, no more or less cogent. A fixed personality they call it, loose or unwieldy as it may appear.
Vigaro says
Or like it’s nothing, should say. I’ll take whatever resource and advantage I can get, especially those paid for and promised. Not too impressed by these forthcoming $1200 plus checks, while millions float out to choicer corporate interests. I wouldn’t call it crumbs, I very much know what to do, it just seems a little . . . skimpy, like a butt pat. Seeing my tax rate drop 5%, now that was something. Anyway, good luck out there, people. Have an excellent day, try and be industrious.