Ken Moraif  0:00  

Will you run out of money during your retirement? How do you know? Well, one of the most important things that we look at is cash flow. During your retirement. We always say happiness is positive cash flow, and if you have positive cash flow, we think you can never run out of money. So in this episode, we’re going to be talking about how to calculate your retirement cash flow,

Ken Moraif  0:27  

hello ARPOA nation, and welcome back to another episode of the retirement planners of America podcast. And in this episode, what we talk about is what we call the retirement cash flow plan, rcfp, and it is a fundamental tool that we use to determine many things, such as, Do you have enough money to retire on? Are you going to run out of money in your later life once you are retired? What are your taxes going to be? What is all kinds of things that we can do? And it all comes from the foundational the fundamental belief that positive cash flow happiness is positive cash flow. And what I mean by that is that if you have more money coming in than going out, then under that math, you can never run out of money. So for us, the most important thing we want to look at to plan for your retirement is your cash flow. And so we use the rcfp. So I’m going to use Jeromy here as my guinea pig, so let me bring it over here, and we’ll follow along. So Jeremy, hello, see you again. Hello, indeed. I hope you are doing fantastically well

Jeremy Thornton  1:34  

as always. Awesome. I hope you are as well. I love

Ken Moraif  1:37  

1. I love it. So we’re going to construct this rcfp, and what we’re going to do is we’re going to pretend that you are not Jeromy anymore. Yes, indeed, okay, because we’re going to use an alter ego here. Okay, all right, so you’ve now become Jeff.

Jeremy Thornton  1:53  

Oh, I’m Jeff. All right, perfect. Okay, I’ve always wanted to be a Jeff. I think. Okay, so you’re Jeff,

Ken Moraif  1:58  

and it’s just to protect the innocent. That’s all of course, we’re using fake names here. So Jeff, formerly known as Jeromy, right? You’re also going to be 66 years

Jeremy Thornton  2:07  

old. Oh, wow. So just a little bit older, five years, I think, no, I

Ken Moraif  2:11  

think, what is it? 26 years? 40 right? Yes, right. So you just age 26 years in the space of that. That’s, that’s the magic. I feel

Jeremy Thornton  2:18  

like I look great. You do for 6266

Ken Moraif  2:22  

6666 you look pretty awesome. Thank you. Yeah, I appreciate that you should start selling, like, skincare treatments or something. Man, it’s great stuff. In fact, I want to be you All right, so we’re going to start off with so first of all, let me explain the concept behind how we create the rcfp. The thing that we want to do is we want to create what we call a semi worst case scenario. And what I mean by that is we want to, we want to exaggerate on the bad stuff. Yeah, you know, in other words, we want to assume high taxes, high inflation, low return on money. You know, your cost of your your social security is going to go up less than what we think it will. We want to. We want to be overly aggressive on the bad stuff, right? And then be light on the good stuff. Yeah. So the things that we think are going to be good, we want to be conservative with those, of course, and the idea being that if you’re okay under that kind of a scenario, that you’ll be okay under something

Jeremy Thornton  3:17  

better kind of plan for the worst, hope for the best. Yes, exactly, much, much better plan than plan for the best, and then something worse happens

Ken Moraif  3:25  

and hope the worst doesn’t happen. Yeah, that’s we don’t like to do that and but, and that’s a good point, because that’s what we are. We’re planners and so, and particularly for people that we work with that are over 50 who are retired or retiring soon, planning for the worst is very important, because once you retire, presumably you’re not going to have wages anymore, and so you’re relying on your social security and your investments to provide you your income for the rest of your life. And you know, there’s not a lot of margin for error there, so we got to make sure that we are erring on the side of being very conservative and then having a better outcome if those bad things don’t happen. Absolutely. Okay. So, So, Jeff, yes, 66 year old. Jeff, right here, yes.

Ken Moraif  4:11  

So, so the first thing we want to do

Ken Moraif  4:14  

is we want to segregate your money so you have two kinds of money. Okay, all right, so the first kind of money is what we call your after tax money. Okay, okay, so after tax money is everything you have that’s not in your IRAs, not in your life insurance, cash value, not in annuities or 401, case, any of those kind of plans where the money grows without being taxed, okay? Or it’s tax deferred, okay, okay, that kind of money we call your after tax investments, okay, okay, so we want to segregate those, and the reason why is because they are taxed differently than your IRAs, your 401 ks and those, because every dollar that you take out of those plans, in most cases, are taxed at or. Ordinary income, right? The money you take from your after tax investments, if you’ve invested them in growth, investments will be taxed at capital gains rates, which is lower, okay, okay, so because they’re taxed differently, and then the other thing we have that we segregate them, and then the other thing also that we take into account is the fact that once you turn a certain age, depending on your date of birth, you also have to take required minimum distributions. Yes, and those required distributions are taxable as well, but they only come from those before tax monies. They don’t come from your after tax so we want to segregate those out so we can calculate them both separately. Yeah. Okay, precision is important there, yes, and, and it does impact your taxes. And just as an aside, generally speaking, we don’t want to take any money to live on, right from our before tax money, IRAs, 401, KS, etc, until we have to, okay, why? Because we’re deferring the taxes in those plans. Yes. And the general philosophy we have is you defer, defer, defer, as long as you pay the least amount of taxes you possibly can until you’re absolutely forced into it, right, either because of the required distributions or because you needed to live on right. Okay, right. So that’s why we segregate those two.

Jeremy Thornton  6:16  

We do talk about taxes quite a bit, it seems. It seems to be an important kind of flow through for all of our conversations

Ken Moraif  6:23  

well, as a matter of Thank you, Jeromy. I almost called you Jeromy, but you don’t know who Jeff. You don’t know who Jeromy is. Right,

Jeremy Thornton  6:29  

correct? Who’s Jeromy? Yeah, nobody. So,

Ken Moraif  6:33  

so yes. And what we’re also doing in the process of creating the rcfp for clients and prospective clients, is we also want to look at the three worst enemies that we think you have to your financial well being. We want to look at taxes. And so in the plan, we’re going to overestimate on your taxes, right? We’re going to assume you have no deductions for anything, no personal exemption, no standard deduction, nothing, yes, right? So we’re going to exaggerate how much you’re going to pay in taxes. And we do that on purpose, because we don’t know that if in the future, they’re going to raise taxes, of course or not, but we just can assume that probably they will. So let’s overestimate on the taxes, right? The second thing that we will always want to look at is inflation, right? And so we want to exaggerate. So on the inflation front, we’re going to take your current cost of living, all right, whatever that may be, right and right now, according to our example, your cost of living is $40,000 a year.

Jeremy Thornton  7:25  

Yep, right? Yeah, yeah.

Ken Moraif  7:28  

I think you should spend more. I think so too. What do you think should be 90?

Jeremy Thornton  7:33  

I would love to see a $90,000 yeah, I want to go on vacation. Listen, I’m retired. I want to go on vacations. I want to splurge. I want to have fun.

Ken Moraif  7:44  

But what about your greedy, unwashed, undeserving heirs? What if you spend all your money and they don’t inherit from you,

Jeremy Thornton  7:49  

then what? Well, it sounds like they need to get a job. Oh, ouch.

Ken Moraif  7:56  

Oh, my goodness, you are cruel and mean. I can’t believe you just said that. So anyway, so on the cost of living, yeah, we want to, we want to start with your Okay, let’s go, What did you say? 90? Okay, 90. So we’re gonna go with 90,000. Is your cost of living. And what we’re gonna do is we’re gonna say that your cost of living is gonna go up with inflation. Okay. Now, statistics show that as you get older, you slow down. Yeah. And so the, you know, the general idea about inflation causing your cost of living to keep going up and up and up and up forever is actually fallacious, yeah. And in my experience, and I’ve been doing this since 1995 so a few years, something that I found that’s very interesting is that when people get into their middle 70s, whatever their cost of living is, then, right? It stays that way. Oh, interesting. Yeah. So if your cost of living, if what you’re spending is $90,000 as an example, when you’re 75 right, be careful, yeah? Because that’s what you’re going to spend for the rest of your life. I tell clients, be careful what that number is. And basically, it doesn’t mean that inflation stopped, right, right? Inflation didn’t stop, right? But you found your groove. Yeah, you’re spending, you know, 90,070 $500 a month. That’s your groove. You’re happy there, and so that’s what you spend. So it doesn’t mean inflation stopped. It just means that as you got get older, you’re doing less, but you’re still spending the same money. Yes, okay, so we want to take and but what we do is we assume that’s not the case. So we assume that your cost of living is going to continue to go up, and we but we assume that it’s going to go up at a decreasing rate. Yes. So what we do is we say for the first 10 years, it’s going to go up by 4% Okay, the second 10 years by 3% okay, and from then on by 2% okay, okay. The reality is, that’s not probably going to happen. So we’re way overestimating on your cost of living, right? So for example, on your 90,000

Ken Moraif  9:56  

in five years, it’ll be 105,000 in 10 years, 100 And 28,000 and in 15 years, it’ll be $155,000

Jeremy Thornton  10:07  

Wow, I’m a big spender.

Ken Moraif  10:12  

Your greedy, unwashed, undeserving heirs ain’t gonna get nothing, all right,

Ken Moraif  10:18  

it’s gonna be gone so but again, unlikely to happen, but that’s what we do on purpose, is we want to show that, you know, the the inflation factor. Okay, so then, so we’ve talked about, we’ve talked about cost of living, we talked about income taxes. So inflation and taxes, we’re going to talk in a little bit about the third worst enemy, which is to your financial well being, which we think is the biggest and worst, which is bear markets, right? And a bear market, pardon me, is a drop in the market of more than 20% okay, okay, right? If it’s less than 20% then it’s considered to be a correction, right? If it gets to be more than 20% it becomes a bear market, right? And we think that bear markets, and I’ve been doing this long enough that I experienced the Y 2k bear market, yes. And during that bear market, the stock market, the s and p5 100 index, went down 49%

Ken Moraif  11:13  

and I saw what that did to a lot of people. Of course, you know, my mother was an investor, and she experienced the 1973 74 bear market, where the market went down 65% over the course of time. And then also, you know, 2008 the market went down 57% and when I say market, I mean the S and P, yes, 57% right? So these are debilitating, devastating things, and if those happen to you, then your ability to support your lifestyle after that is significantly diminished, right, right? So that’s the third one enemy that we want to talk about in a minute. But for purposes of right now, we’re talking about inflation. So we talked about cost of living and what that’ll do. We talked about taxes. So we want to overestimate on your taxes. Assume no deductions, no nothing. The next thing we want to do is we want to underestimate as well as we can the rate of return you’re going to get on your investment. Okay, okay. So we want to be conservative right on the inflow, right as well. So we’re going to underestimate on the good stuff, which is your return on investment, right? And so we generally look at a four or 5% return on investment. Okay, not because you’re going to make that or because you’re making that now, but because that’s on the low end of what’s achievable.

Jeremy Thornton  12:28  

Yeah. Okay, yeah, we kind of how do you come up with these specific numbers? How do you come up with a number of 5% seven, whatever the case is, how? Why those numbers? I know it’s conservative, but what makes it a conservative? Guess what kind of data we use to come up with that? Well,

Ken Moraif  12:47  

if you think about, you know, the long term. And again, we’re talking about long periods, because when we’re looking to build a retirement cash flow plan, generally speaking, we’re looking to age 90 and beyond. Okay, so for many clients, that’s we’re looking at 2030, years, and so over that long period of time, now, in any shorter period, it wouldn’t be the case, right? You know, it can be, it can vary, but over long periods of time, decade at a time, yes, you know, a pure stock market type of thing, historically has made about 10% okay, okay, so depending on the amount of risk and one of the the outcomes, or the outputs, of the retirement cash flow plan is to determine, you know, how much risk is appropriate for you as well. Yes, right? And so based on the amount of risk that’s appropriate for you, we’re going to construct a portfolio to give us the highest chance of achieve, achieving the rate of return that you need to accomplish your goals, okay? And we have a investment principle that says, Take only as much risk as is necessary to accomplish your financial goals. Of course, okay? If you take more risk than that, then you’re being greedy. Yes, okay. And the stock market has a really, really uncanny way of spanking greedy people’s bottoms bright red, yeah? And, you know, I thought about that whole bright red bottom thing. And, you know, baboons look really good with bright, bright red bottoms, right, right, right? Humans, not so much.

Jeremy Thornton  14:12  

Well, you know, I don’t typically, speaking, can go around looking at anyone’s bottoms,

Ken Moraif  14:17  

yeah, but you uncovered, no, but you don’t want to see a bright red bottom on a human No, no, it’s not a good thing, right now. Baboons maybe. Okay, right? So you don’t want the market to spank your bottom bright red. So basically, take only as much risk as is necessary to accomplish your financial goals. So again, we want to be as conservative as possible to because our goal is for your money to last as long as you do right, right? That’s our goal, absolutely right. And so if we want to do that, and we want you to have financial peace of mind, then I think it’s important that you understand as a client, that we’ve built a very conservative scenario. We’ve been high on taxes, high on inflation, low on return of money. Me, right? So we’re erring on the side of everything being negative, and we’re seeing, how are you going to be under those circumstances? And if you’re okay under that, then you’ll be okay under something better. Yes. Does that make sense? Jeff,

Jeremy Thornton  15:11  

yes, yes, yeah, that no, that makes total sense. Being that conservative and having that idea again, goes back to plan for not planning for the worst, but we’re planning for semi worst.

Ken Moraif  15:24  

Semi worst, right? I mean, the worst is a meteor hits the earth, right, correct? Yeah,

Jeremy Thornton  15:28  

we all die. Right, yeah. And how do you plan on that? It’s like, okay, well, you need to start gathering jewels.

Ken Moraif  15:33  

I don’t know what saves you from that one or steel. I don’t know. I’ve had clients say, Oh, yeah. Well, what happens if you know, meteor hits the earth, then what? Well, you’re right. Our financial plan will not cover the meteor hitting the Earth scenario.

Jeremy Thornton  15:45  

You need a seed bank at that point. You just get us her gathering plants,

Ken Moraif  15:50  

different set of risks there that you address in a different way. So anyway, okay, so back to our retirement cash flow plan. So now we The other thing we want to take into account is Social Security. Okay, yeah, okay. And one of the beauties, I think, of our retirement cash flow plan is that it enables us to do what if scenarios on what is the best way for you, when and how to take Social Security? Yes, okay, because Social Security is very complex, and doing it the right way is extremely important, because after a year, once you’ve made your decision on how and when you’re going to take it, you have a year to change your mind. After a year, it’s locked in, yeah, and if you and there’s over 9000 combinations of how and when to take Social Security, I’m not even kidding. And so if you pick the wrong one right, then you’re stuck with that for the rest of your life, of course. Okay, so making sure that you understand the options and how and when to take Social Security is extremely important. So the one thing we want to do there with the retirement cash flow plan, which I’m not going to do for purposes of today, yes, is to do the what if scenarios. You know, you take it and Jeff, by the way, you’re married. I didn’t tell you this. Oh yes, wow, I forgot my ring at home, and your wife’s name is Anne. Oh, very good. I love an answer. You’re not wearing a wedding ring.

Jeremy Thornton  17:09  

No, no, I forgot it today that so that’s, that’s my van. I’m sorry, Anne, I apologize. Forgive me, man, I’m gonna get it. I’m gonna get it when this airs, I’m gonna get it at home, for sure. I

Ken Moraif  17:21  

do not want to be at home when that when you come home without your wedding ring on. So, anyway, so, so, you know, maybe Anne should take it when she’s 62 maybe she should wait till she’s 60, or maybe she should 66 or maybe she should wait till she’s 70, yeah, what’s the kind of, all those kind of scenarios? But be regardless of which one we settle on, right? Okay, then we want to make an assumption as to the cost of living increases, that your social security is going to get right, right? And over the last few years, with inflation, the way it was, we’ve seen the cost of living increases drama be quite dramatic, right? And back in the 80s, they were hugely dramatic. And then we’ve also seen periods where there’s been no increase at all, right? So basically, what we do when it comes to projecting Social Security is we say we’re going to assume a 2% cost of living increase on Social Security going forward, gotcha. And the way we look at it, that’s pretty conservative, because it assumes that it’s going to be less than what it is now. And therefore, once again, we’re underestimating on the good thing, which is the amount that your social security is going to go

Jeremy Thornton  18:22  

up each year, right? And I do, I do want to point out we do have a social security video, so we’ll link it in the description. So check that out as well. We go into a little more depth on the 9000 different options that you have there,

Ken Moraif  18:37  

and we cover every single one.

Jeremy Thornton  18:39  

It is a 18 plus hour. It’s non stop, live streamed. No, it’s not.

Ken Moraif  18:44  

It was a marathon. I grew a beer, right? Yeah? I mean, I hadn’t bathed or showered, and I’m like, what number are we on now? Oh, shoot, we’re on number 3000 we got 6000 to go.

Ken Moraif  18:59  

Yeah, yeah. Okay, so back to where we were. Okay, so now we’ve got your beginning, the amount of money you have that is not in IRAs and retirement plans. We’ve got the amount of money you have that is in those plans, and we’re going to assume a low return on investment on that, or what we think is an easily surmountable one. Then we’re going to look at, we’re going to have your taxes, which we’re going to overestimate. We’re going to have your social security, which we’re going to underestimate, and we’re going to have your cost of living, which we’re going to inflate every year at a rate that we think is going to be higher than what it actually will be. Yes, okay, so that’s we’ve kind of set the stage now. Yes, absolutely. Okay, so next step is we want to look at how does this all play together? Of course. Okay, so the first thing we do is we look at the amount of money you have that is not in IRAs, yes, right. And we assume, for example, for the sake of this, this presentation, 5% okay, all right. So let’s say you have $250,000

Ken Moraif  19:59  

in your. Your retirement in your non IRA money. So 5% of that would be 12,500 right? Okay, so you’re gonna get $12,500 from return on investment, yes, to help pay for your cost of living. Of course, the next thing we’re gonna do is we’re gonna add to that if you have any pensions or any income from stuff, okay? So we have clients, for example, that do get pensions increasingly rare. Yeah, it’s becoming more and more rare. But also, there are some clients that have rental properties, or they have sources of income, you know, they may work part time, you know, or they have a small business, whatever. So we have, you know, we take into account that there is some income that they might be getting, or you might be getting Yes, Jeff, yes during your retirement, right? That is not from your investments or Social Security. Okay, so we got that, now we’re going to add to that. So we add the income on your investments. Number one, we add to that any income you’re going to get, or pensions you’re going to get from pensions from work, or wages you’re going to get by working, continuing to work. And then we added that your Social Security, yes, okay, okay, right. So those are the three sources of income for most of our clients. Yes, all right, so we add those three together, and that tells us your inflows. Okay, next we want to look at is your outflows. Yes, so your outflows are your income taxes and your cost of living, yep. So we want to look at those two together. We add them together, and then we take the total amount that you’re getting from Social Security, from return on investment and from your pension, slash income, right, right. Take that number, and we subtract out your your expenses. And we want that number to be a positive number, of course, because, as I said before, happiness is positive, cash flow, all right. Now, if it’s a negative number, what that means is, is that you’re shrinking. Yes, you’re taking out more than your investments and Social Security are able to cover. And so now we have to look at alternative strategies. Do you work longer? Do you reduce your cost of living? Do you downsize? You know, stuff like that now comes into the conversation, right? Because we now can look at it and say, oh gosh, okay, you’re gonna run out when you’re 80. Yeah? That’s not good, yeah? So now we want to adjust for that, right? So that’s the conversation that we have and what we’re looking to do. We mentioned, you know, we want, we want, for most of our clients, the goal is to have at least the same amount of money when you’re 90 as you do today. Okay, okay, that’s good goal. And the reason why we say that is because between and what did I say you were 66 right? So between 66 and 90, we consider those to be your prime Skipper years. And for those of you who don’t know what skippers, it’s the acronym for second childhood without parental supervision. Okay, think about it. Skippers. And so when a client of ours retires, they become we call him a squipper, and we want him to go play absolutely so your prime Skipper years are going to be between 66 now that you’re retiring, yes, Jeff, yes, and age 90, right? So that period is your prime Skipper time. Right after that, hopefully you’ll still be vivacious and vigorous and everything else. But likely is that that’s not gonna be the case. So we want to maximize those years, and basically, at least have the same amount of money at 90 as you do today. Yeah. So what you’re doing then is you’re living on the milk, but you’re not dealing you’re not eating the cow, right, right? So if you are shrinking, you’re not going to last, and your money doesn’t last till 90. That brings up all the different strategies that we start talking about right? But for sake of conversation, let’s fast forward. You know those cooking channel, those cooking things, of course, you know how they say, are you gonna do this? You’re gonna do that, and then you’re gonna put in the oven for 20 minutes. And then they go, Okay,

Jeremy Thornton  23:52  

here it is. Yeah, they immediately pull it out of the oven, fully cooked. Yes, that’s what we just did. Also,

Ken Moraif  23:57  

the plan is all done, yes. And we’ve built in, we’ve taken into account social security, we’ve taken into account taxes. We take it in. Taxes, we’ve done all that. Yes, and we built the plan so that, and let’s say that, because you told me earlier you want to spend as much as possible, right, right? That you want to end up at age 90 with the same amount of money that you started with? Yes, okay, so we built that plan. We’re ready to go. We know in Social Security, we know all that? Yes. Okay, so here we got the plan. Well, there is a third major enemy to your financial well being that we need to address, okay, and that I believe, we believe, is the biggest, baddest, worst enemy to your financial being that you have, and that is bear markets, right? Bear market because inflation, you can invest so as to compensate for inflation. Okay, okay, and let me explain that. So inflation basically means that the cost of stuff is going up, right, right, right? And so if the cost of stuff is going up and a company is selling stuff, what’s happening? They’re raising their prices to cover their cost of whatever their product is, right? So they have their cost. They want to sell it to you. The cost to them went up, so therefore they raised their price to you. What are they doing? They’re protecting what’s called their margins they want to make, let’s call it five. Let’s call it 5% margin on every dollar they sell. They want to keep $5 of profit, so they raise their prices so as to keep that 5% right, all right. So let’s say that something they were selling was for $100 and now it costs $200 okay, okay. They were making 5% margin, right? So on $100 they were making $5 but now they’ve raised their prices to $200 they’ve kept their 5% margin, yeah, they’re now making $10 right, right? So, so their their profit went from $5 to $10 right? Now, did it really? No, because all it did was adjust for inflation. Yeah. But the price of a stock is, in many, many cases, most of the time, a reflection of profit, right? So if a company’s profit went from $5 to $10 then their stock price probably also doubled. Yeah. Now, did it really double? No, it’s just inflation inflated the stock price, right? So the stock market is a very good inflation fighter, and so we can invest to compensate for the effects of inflation. So even though inflation is, you know, the big fear, everybody’s scared of inflation, you know, fixed income and inflation, all that, we believe you can invest in such a way as to compensate for inflation, yeah, income taxes. Like I said, we assume more income taxes than you’re going to spend anyway. So if taxes go up, we’ve already accounted for it. Yeah, okay, so we got that covered. Okay, all right, so we’re left with the third one, and that is bear markets, right? So bear markets are the big bad ones are not frequent. But it reminds me, I don’t know if you’re a James Bond fan. You’re probably too young, even though you’re 66 I’m sorry, Jeff, but, but you probably don’t remember the Roger Moore James Bond.

Jeremy Thornton  27:14  

I do remember the Roger Moore. I had a very good upbringing, and my mother made sure that we watched James Bond. She had all of them recorded. We watched them constantly. It was, it was Sound of Music, White Christmas and James Bond. We watched, we want. I’ve watched every single all of the bad James Bonds, the good ones. I’m kidding that your mother forced you to watch, well, she was watching it, and we, there’s, you know, there’s one TV in the house, so we would watch it. And I didn’t, I didn’t dislike it. I love James Bond.

Ken Moraif  27:49  

Well, then you may remember in Moonraker, okay, yep. So in Moonraker, you know, the bad guy, like, tries to kill James, like, a million times, right? But every time he does, James shows up again, yes, and he goes, Mr. Bond, you reappear with the unwanted regularity of a bad season. So that’s what bear markets are. Yeah, they reappear with the with the regularity, the unwanted regularity. And so you have to account for them, in our view. Yeah, okay, we don’t know when they’re going to happen. That’s the thing. Like 2008 Why 2k the 80s, the 70s, the 60s, the 40s. I mean, you go back and look at every decade, almost there have been two. I think that where there has not been a major bear market. In fact, the one we just ended the teens, the 10s? Is it the 10s? 20? Yeah, we didn’t really have a major bear market in that decade. So it doesn’t happen every decade. But if you’re going to plan ahead, you should assume there’s going to be and these big, bad bears are when they last a long time. They last like a year, year and a half. Y 2k lasted two and a half years. 2008 lasted a year and a half, right? And the market goes down significantly during those terrible times, right? You know, the Great Depression was a 90 percenter. Yes, people were jumping out of buildings. They lost all everything the day of. Yes, it was horrible, yeah. And in the 40s, the same thing have not, not that great, but we had one in the 70s with the oil embargo, there’s always, it seems like, you know, as Gilda Radner used to say, it just goes to show you, there’s always something. There’s always there’s always something. So have to plan for it. And so I want you to imagine for a moment. Jeff, okay, you’ve got your nice nest egg. Congratulations. According to what I’m seeing here, you’ve got about $600,000 and you’re ready to retire. You can about for well, a well, yeah, I think you have. And so the goal is for your money to last as long as you do, right? We don’t want you to run out of money. And so our goal is for you to not become poor. Yes, okay, we’re not gonna try to make you rich. That was your job, right? Yes, right. Our job is to keep you from becoming poor. And. So we have to look at the three worst enemies, and we’re gonna talk now about that third one, bear markets. Yeah. So bear markets, as I said, happen on average every three and a half years. And this is according to Ned Davis research. So every three and a half years now, on average, means that it could go 10 years without it and then double up. You know, it’s like flipping a coin. Yes, it’s 5050, but you could get heads five times in a row, right? Okay, so it’s on average three every three and a half years. The average bear market is 37% okay, okay, and they last about a year and a half. Okay. So here’s the challenge that somebody who is retired has when it comes to bear markets that you’re going to have if you experience a bear market. So your cost of living, we said, was $90,000 right? So when this next bear market comes and your investments, if they are unprotected, have gone down. And 37 is kind of hard to work with, so let’s say it’s 40. It’s 40% okay. Okay, so you have 600,000 so you’re 600,000 just lost 40% Yeah, 240,000 right? So you went from 600 to 360 so first of all, how are you feeling right now,

Jeremy Thornton  31:17  

Jeff, I’m not feeling great. I’m not confident in my in looking at my investments right now. I mean,

Ken Moraif  31:25  

you were all proud. You had 600 now you got 340 and it all happened really fast, in six months. Boom, took my money. Yeah, yeah. And so now you’re thinking, I still want to spend my 90,000 I would like to, but you are you thinking you’re gonna, I can’t. You’re probably thinking I could eat a cut that trip to Europe that you were planning next year not happening. Cancel, right? Yeah, yeah. And you know, all those gifts you wanted to give to your greedy, unwashed probably not going to do that. You have a family meeting and say, Guys, family vacation off the

Jeremy Thornton  31:54  

table, I’m picking flowers from my neighbor’s yard. And they’re like, you get they’re getting flowers for Christmas.

Ken Moraif  31:59  

So all of a sudden you’re thinking about all these things and and, you know, I experienced those. I saw that, you know, because I went through 2000 y, 2k and 2008 Now, fortunately, with our investment protect strategy, our clients were in cash, you know, for 2008 in its entirety, right? Our strategy actually said to sell in November of 2007 so we didn’t experience that, but during 2008 I met so many people that literally were in a state of abject panic. Yeah. I mean, it was palpable. It was it was physical, yeah, you know, it was a fear that was physical, that they’re going to lose. They lost half their money, and it happened like that, yeah. And you’re thinking, when is this going to end? It goes on for a year and a half and y 2k went on for two and a half years. And you’re thinking, you know, is it going to just go endless? Am I just going to run out of money and be penniless? You know, it’s awful, yeah. And, you know, if you’re 30 or 40, you know, yeah, you could probably play through that, because you’ve got your wages and you’re living on that, and you got 20 or 30 years to build it back up again. But if you’re 5560 65 or 66 in your case, how long is it gonna take you to bring that back to even right? You know, maybe never Right, right? And that’s really scary. So our job is to help clients, you know, to have a strategy to protect against that. And the other thing also is that, you know, the buy and holders, people who tell you that you should buy and hold, you know, I think there is a place there is no strategy that fits everybody, right. Okay, so buy and hold, which says you buy high quality investments, you know, you rebalance them periodically, but you hold them forever, through thick and thin. It’s probably a good idea for somebody, you know, that’s in their 30s or in their 40s, but once you get into your middle 50s and your 60s and later, we don’t think that that’s a good strategy at all. Yeah. Okay. And the reason is this, you know, if you’re, if you’re taking money out of your investments to live on while they’re going down in value, then what happens is you have to sell more and more shares of your investment. Right? The price of the share went down. So to get that same $1,000 that you need, you got to sell more shares. Okay? So as it’s going down, if you’re living on it, you’re selling more and more shares to get the same dollar. Yeah, right, okay. And the buy and holders say, well, it’ll come back, don’t worry about it, okay. Well, eventually, hopefully it does come back, right? But by the time it comes back, you may have sold so many shares. You know, farmers call that eating your seed corn, of course. And if you eat enough of your seed corn, yes, growth season may come back, right, but you ain’t got nothing left to plant. And that’s the that’s the problem. Yeah, you know. So yes, the market could come back, pardon me. But even if it does, you may have sold so many shares to cover your cost. Cost of living that you’re you’ve got very little to come back with, right? And you may never come back.

Jeremy Thornton  35:04  

Yeah, the 5% growth on $250,000 looks a lot different than 5% growth on 150,000

Ken Moraif  35:12  

or 100,000 Yes, yeah, exactly. Now, the other thing also is that the the notion of buy and hold is predicated on the idea that the investments are going to come back, right? Don’t worry about it. You’re a long term investor, the market always comes back, so just stay play the course. You know, it’s all fine. Don’t worry about it. Okay, fine. However, where’s the guarantee that that’s going to happen? Yeah, right. I haven’t seen the contract that we have with the stock market or anybody else that says it guarantees that your investments are going to come back. And you know, if you look at the Japanese stock market, I was around when Japan was so successful that people in this country were worried because the Japanese were buying up all of our golf courses. They bought Rockefeller Center, yeah? I mean, by gosh, you know, it was like the Japanese economy was. We were so jealous. They were kicking our butts, and they were the envy of the world. They were growing and all of that. And their stock market reached all time highs, and then it all came crashing down, yeah. And do you know that today, their stock market still has not gotten back to where it was in 1989 Yeah, how many years is that? So if somebody who was a buy and holder that was Japanese or stinking is they’re going to come back? Well, guess what? It hasn’t, yeah, but I know what you’re saying, Jeff, you’re saying Ken, that’s Japan, right?

Jeremy Thornton  36:39  

We’re built different here. We’re America, yeah. We

Ken Moraif  36:42  

don’t play by the same economic rules that apply to everybody else. We are number one. We are better, right? So that would not happen here. It can happen. No, right? Well, let’s look at the Great Depression, yeah. So the Great Depression, the stock market crashed in 1929 it went down 90% Black Thursday, horrible. I can’t even imagine the pain those people felt. But because you’re 600,000 you’re left with, what is that 90? You’ve lost 540 of that nine, six or 54 right? So 540 so you’re left with 40,000 bucks or 60,000 bucks. Yeah, right. What are you gonna do now?

Jeremy Thornton  37:22  

Jeff, looks like I’m going back to work. Hopefully you can, yeah, if I can,

Ken Moraif  37:27  

so guess how long it took for the Dow Jones to get back to even. Even. Okay, so it went down 90% in 1929 1930 1931 32 right? The Great Depression. The big stock market crash. How long do you think it took before it got back to even?

Jeremy Thornton  37:47  

I’m going to take out of account my knowledge of World War Two and the huge industrial boost we got from the military complex. And I’m gonna say 10 years.

Ken Moraif  37:59  

Well, you said the World War and that came after 1940 Yeah. 1950 Yeah. So you were on the right path, yeah. 1954 it took 25 years, 25 years to get back to even, yeah. So even in the United States, right, even with the reconstruction, where we rebuilt the entire world after World War Two, it still took 25 years to get back to even. So if you took that big hit and you were living on your money, your money, even if you didn’t touch it, never got back to even for 25 years. But if you’re living on it, you never got back to even. You probably ran out. Yeah, in fact, if you lost 90% of your money and you got $60,000 left, and you spent 90 I

Jeremy Thornton  38:48  

didn’t get through the whole year. I don’t think you made it till December, did you?

Ken Moraif  38:51  

So that’s why we think that bear markets are the single worst enemy. And you know, you may say, well, the Great Depression was an anomaly, you know, that was a big bad thing. Well, we’ve had others, you know, in the 70s with the oil embargo and the whole thing that happened then the high inflation. We had in the early 80s, in y 2k in the early 2000s we had that in 2008 we had it. So don’t kid yourself, yeah, you know, again, what we said the top of this episode, we plan for the worst and we hope for the best. Yeah, we don’t hope that these things are never going to happen again, because it’s different now, which, by the way, Famous last words, we’re going to assume it is going to happen again. And how do we protect against that? Because we think that is the single worst enemy that our clients have to our goal, which is your money’s going to last as long as you do. Yeah. So having a strategy to address that super important. So as we build the retirement cash flow plan, one of the things that we also do is we look at, okay, Jeff, we’ve built this beautiful plan. You’re going to have the same money when you’re 90. You know, hopefully, based on all these assumptions, you’ll have the same than you have today. You’re going to enjoy your squipper years. You’re going to squipper your tails. Off. And by the way, don’t worry about squipping your tail off, because we have squipper tail cleanup crews. Oh, it’s fantastic. Yeah, yeah. They go all over the country picking up squipler Tails. So we love it when our scrippers are scripping their tails off, we encourage it. But you’ve been squipping your tail off here till you’re 90, you have the same money. But what happens if a bear market comes in. Yeah. And what happens if one happens? You know, twice. They happen every three and a half years. But let’s say between now and 30 years from now, you just get two of them. Okay, okay, 240 percenters. Yeah, two times that, you lose $240,000 out of your 600,000

Jeremy Thornton  40:36  

that’s debilitating,

Ken Moraif  40:38  

debilitating. I mean, you don’t have to be a math genius to figure that one out, and if you’re living on the money while that’s happening, that’s even worse. Yeah, so all three of those worst enemies need to be addressed, in our view, and by building the retirement cash flow, then we can show okay, what happens if you do get hit by one, two or three bear markets? Yes. And can you weather that storm. It’s important to know that, right? How strong is your defense? Yeah? And by the way, you know, one of the things that I’ve said for many, many years is that defense wins championships. Yeah, you know, if you look at, you know, who wins the Super Bowl and those kind of things, it’s almost always the team that has the strongest defense. You know, the offense sells tickets that the defense wins championships. If you can stop the other team from scoring, you can have a terrible offense and you can still win. In fact, you can win just on running interceptions back. Yeah, so defense is very, very important, and in our view, when it comes to your investments and your retirement cash flow, having a strategy to defend your retirement nest egg, the money that you’ve spent, Jeff last what, 30 years? How long you been working since you were 30?

Jeremy Thornton  41:52  

So, 3030, not? No, I’ve been working since I was 1515, yeah. Okay,

Ken Moraif  41:57  

so that’s what, 51 years. Okay, so the money that you’ve been building for 51 years, do you think it’s a good idea to have a strategy to protect against that?

Jeremy Thornton  42:07  

I would love that. Yeah, it’s just math, right? So

Ken Moraif  42:11  

protecting against bear markets is super important, and we can illustrate that with the retirement cash flow the effects of it, right? And then hopefully convince you, Jeff, since you’re a prospective client, you’re not one yet, of course, that having a strategy to protect against that is a really good idea. And so that’s how we do the retirement cash flow plan.

Jeremy Thornton  42:30  

That’s That’s great. That’s fantastic. Because no matter what causes the bear market, which we never know, nobody could have predicted the housing crash until right before how, I’m sure, you know, there’s a famous movie, I can’t remember the name of the movie now, where they did a mockumentary kind of deal. They talked about, somebody was basically saying, hey, the housing market is going to crash. They were, they were looking at the numbers and the lending and all that kind of stuff. But if everyone knew, then we wouldn’t have a crash.

Ken Moraif  43:02  

That’s true. That’s actually a very, very good point. You know, bear markets, the really bad ones, the ones that knock out the market, are ones that pretty much nobody saw coming. You know, I’m a big boxing fan. My wife told me that if she knew I was such a big boxing fan, she never would have married me. She thinks it’s barbaric and horrible. Yeah, so, you know, when she’s out with her friends, playing mahjong or whatever they you know, whatever they’re doing that night, I take the opportunity. You know, I DVR all the boxing matches and then I watch them. But if you if you’re a boxing fan, or if you’ve ever watched boxing, you could watch a watch a boxing match where these two guys whale on each other, yeah? I mean, they just beat the tar out of each other. Their faces are out to here, and they’re just wham, wham, wham. And nobody gets knocked out. Yeah? Why? Because they saw every punch coming, yeah. And they were bracing for it, yeah. And even though, you know their face looks like this, they braced for it and knock them out, of course. But then you look at the knockout punches, they’re usually the one where the guy didn’t see it. He was not braced for it. He wasn’t ready, and that’s what knocked him out. The most famous one, I think, is Muhammad Ali when he knocked out Sonny Liston, you know that one fight, if you watch the video of that, it’s like he barely hit him. Yes, it almost looks like it’s a fake Yes, right? And Sonny Liston just didn’t see that punch coming, and it knocked him out. And it’s this case in Malta. If you look at, you know, the Mike Tyson, you know things and all the knockout punches, you’ll see that the guy is looking this way, and the punch comes from over here, or he didn’t see it in Knoxville. Well, it’s the same thing with the stock market. The thing that everybody anticipates is not the one, yeah, if everybody I remember after the subprime mortgages and all that crashed, well, what happened after that was that everybody said what’s coming now is the real estate market is going to crash. Hmm. And they showed charts of subprime is like this, yes, commercial real estate is like that, right? And look at what that’s going to do, that’s going to collapse and kill the world. Yeah? Well, everybody knew that was coming, yeah? And because of that, they braced for it, they prepared for it, and it never happened. So the thing that gets us, unfortunately is a thing that we don’t see coming. So that’s why, you know it’s like a hurricane or a tornado, you can’t plan in advance when it’s going to come or the severity of it. That’s why you have to have a plan in advance to address it, so that when it comes, you’re ready and with our clients, that’s a fundamental part of our planning. We want to make sure we have a strategy to address it in advance. Now, is it perfect? No, but we It has protected us in the past, and we believe it will in the future.

Jeremy Thornton  45:47  

Awesome. Well, I really appreciate you walking me through all that, because there’s, there’s a lot of information there, and knowing that it’s different for me than it is for anyone else, right? So yes, planning for a bear market is kind of the same for everyone else, but we have to look at that, that positive cash flow, and what does that look like for each person? Because everyone’s investments are different. Where they have their money, what they’re making, what they plan on doing, all that kind of stuff. And this is something that I would guess, needs to be reviewed occasionally. It’s not something you do at the very beginning and then you set it and forget it. Well,

Ken Moraif  46:29  

you know what? That’s actually a very good point, you know, I’ve used this example many times because I think it illustrates well. So if you have a bow and arrow, you know? And you’re, you’re pulling it, and you’re going to shoot at a target. When you let go of that arrow, right? All of the information that that arrow is going to have is in it at the point of release, right? Because you’ve calculated, you’ve taken into account wind and sun and the target, the distance, and you’ve done everything, and you let go, and that arrow is, that’s it’s got all the if a gust of wind comes or somebody moves the target, it’s not changing, because the information it has is all at the point of release and it’s done, yep. Okay, so we don’t want a financial plan to be an arrow, right, right? We’re at the point of release, and then you just set it and it’s gone, and then if everything changes, it’s going to miss the target. Yeah, we want a guided missile, or a heat seeking missile, yes, right? Because what it does is it adapts. It’s going but, oh, the target moved, okay, I’m going to move. The wind gust came, so I’m going to adjust. So you want the plan to adjust, just like you want a guided missile, yeah? And the guided missile, in our case, is to have you enjoy your Skipper years, until you’re 90, at least. Yeah? So, yes, you’re right. So, so reviewing it at least twice a year is very important to update your retirement cash flow plan to take into account all the stuff that’s going to happen and stuff happens, yeah, good and bad?

Jeremy Thornton  47:53  

Yeah, I may want to buy a car. Maybe I win the lottery. Ooh, that Jeff is living the good life. Well, I greatly appreciate you taking the time.

Ken Moraif  48:04  

Well, you’re welcome, Jeff. Thank you and Jeromy, you did a great job being Jeff. That was a great invitation. So ladies and gentlemen, I hope you enjoyed this episode of the ARPOA podcast, retirement planners of America podcast, and I hope that you will go to our website. We also have our market alert video, which we send out on a weekly basis. It’s short and sweet, gives you what we think is going to happen next in the markets, reactions to Fed policy, inflation, all the stuff that happens and changes every week. Please like and subscribe this. Make sure you never miss an episode. And I hope this video and this podcast finds you healthy, wealthy and wise, and we will talk soon retirement planners

Ken Moraif  48:51  

of America, RPOA.