July 7, 2021
Trish Regan here…
We each have our own vision for our golden years… When you retire, maybe you hope to travel the world, spend time with grandkids, or buy that sports car or boat you’ve been dreaming about.
Now, whatever your plans are, I’m sure they don’t include running out of money. But this will happen to some people…
It’s devastating to have to worry about this at that stage of your life.
You may have noticed that prices for almost everything are absolutely soaring… while at the same time we are running out of… well… practically everything from computer chips to appliances to building supplies.
Maybe you’ve heard the stories of crazy bidding wars for houses or read about how rental prices across the board are up 100% or more. In resort towns nationwide, rentals are completely booked.
And the more you dig into the numbers, you see soaring prices and shortages for practically everything we need and value in our society. Oil, lumber, copper prices have all skyrocketed… Car prices are sky-high, too.
I’ve been pounding the table on this for some time now… America is about to experience one of the greatest inflationary periods in our nation’s history.
Someone else who also believes this is Dr. David “Doc” Eifrig. Doc has been an American Consequences contributor for a few years now. You may remember his remarkable backstory… Doc worked on Wall Street for decades before retiring, and then went to medical school and became an eye surgeon. Retiring again, he joined Stansberry Research to share his health and wealth knowledge with readers.
Today, Doc writes about a crucial message, one that affects all of us.
Retirement Life Is More Expensive Than You Think
It always amazes me when folks vastly underestimate just how much they will spend in retirement.
I’m placing an emphasis on “vastly” because it’s not by $10 or so every month. It’s much more… I’m talking potentially hundreds of dollars or more a month.
And if you don’t have enough saved, this overspending can ruin the rest of your retirement. I’ve seen it too many times where new retirees burn through a good chunk of their nest egg in just a few years.
It puts so much more stress on your golden years – when you should be enjoying them.
Even the best budgeters and Excel sheet wizards fail to estimate the true cost of retirement… especially in the first few years after leaving the workforce.
Most folks think that expenses will go down significantly in retirement. They don’t have to commute to work, which will cut down on the gasoline bill… There’s no business lunches or new clothes to buy for work… Maybe they downsize or pay off their mortgage… And the kids are out of the house, so no one is nagging them for spending money.
All of that may be true…
But most folks fail to realize how much extra time you will have once you retire. And what do most retirees do with their newfound freedom?
They travel, go out to restaurants, start new home projects… you name it. There’s only so much sitting on the couch you can take.
According to the international travel agency network Virtuoso, the average retiree spends $11,077 a year on travel. That’s a lot, considering half of all Americans aged 65 and older bring in less than $27,398 in yearly income.
The table below looks at how much you should prepare to save for different things in your retirement. Keep this in mind as you plan your projected expenses…
Of course, not everyone will have all of these expenses. But you can see how a few vacations a year, a home renovation, contributing to a child’s wedding, or a new car after your 20-year-old car suddenly dies can really add up.
Then you also have to consider higher medical costs. As you age, there’s a need for more medical care. And the cost of medical care keeps shooting up…
Fidelity estimates that an average retired couple needs approximately $300,000 saved after taxes to cover health care expenses in retirement. And that’s an increase of about 4% from a year ago.
Getting old gets expensive. You need to make sure you’re able to afford everything that comes along with retirement.
Because there are so many unforeseen costs when you retire, I can’t stress enough the importance of a rainy-day fund. Every retiree needs one. Trust me, there will always be unexpected costs, and you will likely have to spend more than you planned for in retirement.
As a general rule, you should always have about three to six months’ worth of expenses in cash.
While you can budget out everything from how many vacations you take per year to how many times you eat out, there will always be expenses that pop up that you just weren’t expecting. You have to be prepared for those and have enough money saved.
If you’re getting close to your retirement age or already retired, I want you to be able to be comfortable in your retirement and be able to do the things you want to do.
I want you to be financially stable.
And to do that, you have to make your money work for you. You have to be generating a return on your portfolio… and that’s scary today with all the threats to the stock and bond market. There’s an overvalued stock market, inflation, and historically low bond yields.
This former Goldman Sachs banker urges you to take these four vital steps right now to preserve your family’s wealth while you still can.
Use These Tips to Take Retirement Into Your Own Hands
If you’re more than 40 years old, you may have a pension, also known as a “defined-benefits plan.” It’s a retirement account that your employer funds and controls. When you retire, your employer agrees to give you either a lump sum of money or monthly payments.
With a pension, you have zero control over what happens. You can’t increase or decrease the amount that’s being invested. Also, companies hire managers who oversee where pension money is invested. And the fees they charge dilute returns.
Plus, if you die right after you retire, your dependents might get nothing.
But there is a solution…
You can move money from your pension into a self-directed individual retirement account (“IRA”).
This gives you total control of your money. You get to grow your money tax-free, just like a pension… but there’s no limit on how much you can make.
A self-directed IRA is exactly what it sounds like… It puts you in charge of your investments.
In addition to the conventional investments you can make in a typical IRA – like stocks, bonds, and covered calls – a fully self-directed IRA allows you to invest in many other assets, including real estate, private stocks, businesses, and even precious metals.
You can invest in just about anything, as long as it’s not employed for your personal benefit. This simply means you must avoid any conflicts of interest. You can’t, for example, invest in companies you have a 50% interest in. But you can buy the house next door through your IRA and then rent it to a neighbor. You can also invest in a local small business (again, as long as it’s not your own).
I use my self-directed IRA to generate income by selling stock options. When I use this account for options trading, I don’t have to follow any accounting or tax requirements.
In fact, if you do all your trading inside a retirement account, you don’t have to report any trades to the IRS. The goal is simply to maximize your total returns as quickly and as easily as you can… and get better returns than a pension could offer.
There are two ways to move your pension to an IRA…
One is to “roll over” the pension directly into an IRA. The broker or custodian you’re opening an IRA with should have all the necessary forms for you to fill out. I have mine with Fidelity and TD Ameritrade.
You can also take a lump-sum payment on your pension and then move the funds into an IRA. If you do this within days of taking the lump sum, you’ll avoid being taxed on the money and the 10% early withdrawal penalty. (If you can, though, just roll over the pension directly – you don’t want to risk incurring taxes and penalties.)
And make sure that you check with your employer’s pension-plan rules for any fine print.
However you do it, don’t wait. Why leave your pension – the money you’re counting on for retirement – in someone else’s hands?
If you only take away one thing from this essay, let it be this: You can’t trust others to take care of you. That includes the government…
Plenty of folks are nervous about coming changes. Uncertainty about health care reforms and fears that rising deficits will lead to cuts in programs like Social Security and Medicare are enough to keep anyone on edge.
And here’s the truth…
Social Security is bankrupt. In 2004, the benefits paid out began exceeding the tax revenues brought in. Worse, no actual assets support Social Security. So the government must use current cash flow to fund future liability. Imagine telling your doctor you want health care today, but you’ll pay him in 20 years.
The website for the Congressional Budget Office (essentially the government’s accountants) will show you page after page of tables and graphs explaining how this will all work out OK.
But the bottom line is this: In 2018, Social Security had to use its trust fund to pay benefits – for the first time since 1982. By 2035, Social Security’s fund will be depleted.
In my newsletters, I try to stay out of politics. My goal is to empower you to make the most of your retirement, regardless of what may or may not happen in the country. That’s why today, I’m going to cover a few of my favorite ways to make your money go further in retirement… so you can protect your nest egg and your future…
1. Avoid overspending. This simple technique can save your retirement. Just making a budget ahead of your retirement helps avoid the dangerous lure of overspending.
In fact, according to the Employee Benefit Research Institute, about half of all households spend more in the first two years of retirement than they did in the years before retiring. Worse, about 28% of folks spend 120% more, regardless of income level.
Before you retire, figure out how much you’ll need to spend to maintain your current lifestyle (typically, that’s about 80% of your current income level). Then figure out how much you’ll have in income from retirement accounts, savings, and Social Security, and how that will cover your bills. Create a monthly budget before you retire to help you make the most of your retirement.
2. Lower your medical bills. Most tests or procedures are ordered with enough time to allow you to compare prices. One of the best resources for this that we’ve found is something called Fair Health Consumer.
Simply enter the test or procedure, along with your zip code. You’ll find the range of costs in your area. You can use this to negotiate and ensure you aren’t overpaying for your next test or procedure.
For example… In Baltimore, the average price of a colonoscopy with biopsy ranges anywhere from less than $1,600 to about $3,300.
3. Take advantage of guaranteed lifetime income through annuities. Annuities are a financial contract between you and an insurance company. In the simplest terms, you pay a large amount up front, then the company pays you back over the following years… either for a fixed number of years or until you die.
Annuity structures vary in so many aspects that people find them difficult to understand. Many have poor designs and high fees. And annuity sellers often use aggressive sales tactics because they want a commission.
But when used correctly, annuities are a powerful tool to help ensure a secure, comfortable retirement.
I’m not sure if you remember books, America, but it’s what people used to sink their faces into to avoid dealing with family and strangers. Our editor-in-chief, P.J. O’Rourke, has written a few in his time, and he’s re-releasing his bestselling Eat the Rich, complete with a new chapter to take on the absurdity of 2021 economics. And as an American Consequences subscriber, you can have access to the newly released edition for free! Claim Your Copy Now.
P.S. Doc has spent nearly four decades growing and protecting money at some of the top global financial institutions – and at Stansberry Research, too.
Along the way, he has experienced firsthand several major market crises and crashes. Now, he’s issuing an urgent new warning…
Doc says a reckoning is coming to the American financial system… and it could wipe out everything you’ve spent years building. In short, a dramatic shift in America’s retirement situation could deplete your nest egg if you’re not prepared…
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Publisher, American Consequences
With Editorial Staff
July 7, 2021