In this episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, tackles a critical issue facing many Americans: the retirement crisis. Darryl breaks down the risks of running out of money in retirement, emphasizing how financial insecurity can impact both individuals and families. He shares insights into the characteristics of financially secure retirees and highlights the alarming fact that many seniors in the U.S. do not meet these criteria.
Darryl also covers essential steps for those in both the accumulation and distribution phases of retirement, offering practical advice to help listeners build a secure future. From saving 15% of income during the accumulation phase to “stress-testing” finances for different scenarios in retirement, he presents actionable steps to address potential gaps in retirement plans.
Key highlights of the episode include:
- Understanding the factors behind America’s retirement crisis and the common challenges faced by retirees.
- Insights into building a financially secure future, including Darryl’s 15% rule for retirement savings.
- The importance of “stress-testing” retirement funds to prepare for unexpected life changes.
- Practical advice on navigating Social Security uncertainties and maximizing 401(k) contributions.
- Darryl’s perspectives on financial security and retirement planning, rooted in over 20 years of experience.
Retire in Texas Podcast Ep. 153 – Transcript
Hey, this is Darryl Lyons, CEO and Co-Founder of Pax Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice, visit Paxfinancialgroup.com for more information, visit Pax Financial Group. Go to the connect with us button. I keep messing that up.
Contact Us button on the website and, you can meet with the financial advisor, 15-minute consult over the phone or Zoom just to see if it’s a good fit. No obligation, no pressure there. But that’s just a good way to connect with us. Okay, so I want to talk about the retirement crisis in America. You know, whether it’s a crisis or not, I think is debatable.
I’ve seen, different opinions on this, but it can be a crisis. It can be a crisis for family. Whether it’s systemic or not, that’s a different question, but it absolutely can be a crisis for family. And what is a retirement crisis? It’s when you run out of money, when you’re old. I mean, you’re just you just don’t have any money.
So what do you do? I mean, you can’t go to work, but you would like to go to work, but you just had a knee replacement, so you can’t stand at a teller line very long or at Walmart. And you used to be a good secretary administrative assistant. But the idea of using a yellow pad is much different than the technology that’s being adopted today.
So that learning curve is difficult. But running out of money when you’re old is the crisis. Some people, you’ll see a lot of pundits talk, talk about financial insecurity. That’s just a really kind way of saying broke. Like a lot of people like this, America has a financial insecurity issue. You know, America, a lot of people are going to be broke when they’re old.
That’s just the that’s the very candid way of saying it. So, if you’re 65, you’re very likely going to live 85. And so what does that look like? There was an economist at University of Massachusetts. His name’s Christian Weller, and he defined, if you’re financially secure, this is the profile of who you are. So let me go through these six specific statements of what he would consider define somebody who’s financial, financially secure. A financially secure retiree can be defined as a person who has no credit card balances, no medical debt, no recent use of predatory financing like a pawnshops or payday loans, and can pay all bills and manage a $400 emergency that’s financially secure, according to this economist.
What’s interesting is only 51% of seniors satisfy all six of those conditions. Being that large of a population sample, not sample population, I guess it is a sample, but that percentage of a population that don’t meet financial security and alternatively would be broke. Yeah, that could be considered an American crisis.
Now you’re looking you’re thinking about this and saying, well, it’s not me. That’s not going to be me. I, want you to just not have that overconfidence. There was a documentary I was watching recently with an accountant, super smart guy, super detailed, super diligent, very successful guy. And he lost $400,000, didn’t have a super high net worth, lost $400,000 on one bad investment.
Despite his due diligence. And like, what was the lesson that he learned? This is not exactly the point of the dialog today, but I’d like to share that with you real quick. You know, there’s no path to getting rich quick. And he felt he had uncovered something that was unique, and he bet on it and he lost it all.
And that’s what happens is, like, smart people do dumb things with money. Stupid people do dumb things with money. It’s not exclusive to somebody’s intelligence, but smart people do dumb things with money. I’m raising my hand to this. There’re bad people out there that will manipulate us, and then there’s bad investments. And that’s sounds like commercial, but that’s why we’re pretty passionate about our advisory role, because we feel we reduce that risk in a lot of people’s lives just by having a counselor, somebody who’s a thinking partner. And there’s wisdom in the council of the advisors.
So, this could, in fact, happen to you. Even though we’ve got everything checked, we can’t be overconfident. You know, being an election year, this is also, I listen for it, but it’s not been talked about a lot about Social Security and whether or not it’ll be there or not. AARP, like them or not, they still do research, has found that voters over 50 in battleground states are more likely to vote for candidates who commit to protecting Social Security, among other issues.
So, you’ll see that in the election conversations coming up, a lot of people talking about, I’m going to save Social Security, that’s a talking point. So, there’s not going to be a lot of really heated arguments because they’re going to kind of stay away from that issue as much as possible, because it’s very sensitive.
But the reality is, is this retirement crisis what it does, yes, people live too long and they are broke and it does affect them. And it’s sad not only because they’re out of money, but oftentimes they’re lonely or can’t get the medical care, but it also puts a burden on the state system in general. The country finding the money to be able to support people who don’t have any.
And it puts pressure on the kids oftentimes the kids have moved off. Now, we know that, you know, the environment that we’re in today is much different than 30 years ago, but it does put pressure on both families, kids, siblings. I’ve seen, you know, that over the years and of course, the state. So, I want to talk about the long introduction, but, I want to talk to two different groups of people.
Regarding this retirement crisis. I want to talk about those that are in the accumulation phase, those that are still accumulating money. In other words, you haven’t quite retired yet. And many of you, you guys know I’ll interchange the word retire to pivot. It’s my preferred word. But for the purpose of clarity here, I’m still using retirement. But those, the first part of this I want to talk about those that are accumulating money.
And then the second part, I want to talk about those that are in the distribution phase. Those are actually retirees. So, let’s talk about those in the accumulation phase. Here’s what I’m going to tell you. If you’re accumulating money, you have to save 15% of your gross income. You have to and you’ve got to stop making excuses. I know there’s a lot of things that you want to do, but you are absolutely setting your future self-up.
In a situation where you’re going to regret not saving 15% of your gross income, you have to save 15% of your gross income. Now, your financial advisor will tweak the numbers to suit you, but 15% is a pretty good number. Financial Planning Association, a long time ago, a research, paper that I read said 16.67 is the, the better rule of thumb than the 15%, just use 15%. You’re going to be okay. Generally speaking. Again, you can pencil that out. You can sharpen your pencil there a little bit more for your particular situation. But you have to save. It’s hard to think about like a lot of people go, well, you know, my plan B is just to work if and I hope that’s the case.
I hope you can work. But not everyone gets that option. I’ve had, 60-year-olds get dementia. And you know what? They thought they were going to be able to work just wasn’t going to happen. Or cancer or strokes. I’ve seen this stuff over the years working 20 years. I’d like to think that we can still work, and we can pivot and, earn some money.
But your plan B of working may not be a choice. And I know retirement’s, like, far away. But we all know by now that this life moves fast. And. Yes, I’m with that group that made the mistake of pulling out money out of an IRA because, you know, we were just dead broke, and we’re starting a business.
I’ve been there. But if you’re thinking about doing it, don’t do it. Keep the money in there. I know the market’s going to go up or down. Don’t try to yank that money out of your IRA with all the penalties. Don’t borrow against your 401K. Leave it alone. In fact, put more into it. There’re people out there that have these nonsense reasons to not invest your 401K.
They’re stupid. They’re absolutely dumb. I’ve seen them on, I’ve seen them on YouTube. I’ve talked to clients who pass it along that say don’t invest in your 401k for all these reasons, they’re absolutely idiots. Invest in your 401k. I’ve seen plenty of people accumulate a ton of wealth in 401k they’re amazing vehicles.
We actually at PAX, we actually set up for one case for small businesses. We’re passionate about it because we know that it’s a vehicle that can help people save very well because it’s automatically deducted. You don’t see it. Oftentimes it’s your auto enrolled. Sometimes they do these things called automatic escalation where they continue to, to increase your contributions.
A lot of these things are adopted legislatively because legislatively, they know that people aren’t saving enough. And so they are encouraging more 401k investing. We love people doing that back. John FitzSimon does an incredible job. He just got a comment just recently from a client that said this. Thank you again for coming out last week.
We have already seen four team members increase their contribution since your meeting. I wanted to get you that feedback because what you do is very important to the well-being of our team and their families. Boom! We love doing 401ks, for businesses and helping people save. Social security is not an option for many people in the accumulation phase.
It is Social Security insecurity. And right now that trust fund, it won’t be able to pay full benefits in 2033, which isn’t that far away. So, they’re going to only be able to pay partial amount of benefits. They’re very likely going to change the retirement age before you can even get your money in Social Security from age 67.
This is for retirement age to age 70. I can see that very, very easily happening. Bottom line if you’re in the accumulation phase, I need you to save 15% of your gross income. And I don’t need excuses. Okay. Distribution phase, those that are retired. By the way, if you have kids, you need to make sure you tell them what I just told you.
But those in the distribution phase. Here’s what I need you to do. I need you to stress test your money. I need you to run different scenarios with your advisor and say, if I died, what is my spouse’s situation look like? It is very. I’ve had too many widows sit in front of me, and.
And, the husbands were too cute with their money. Look, I’m a guy, and so I’ve got this degree of, like, I got this thing figured out, but. But when it comes to your spouse and living 20 years without you and without enough money, that’s. That’s not worth the risk of being arrogant, sitting down and saying, I’m really nervous.
I want to see what my spouse’s life looks like without me and with the money we have. And I want to make sure it’s okay is humility and wisdom. And so, I want you to stress test that scenario. I want you to stress test, major health insurance, one in which you can’t eat, bathe, drink, bowel movements, what we call those activities of daily living where you’re needing chronic care and the expense and burden that puts on your family.
I need to stress test that I need you to stress tests, a market condition in which we get a recession. Or I should say a bear market. Stress test that on your portfolio. I need you to do stress tests, and I need you to always do stress test. And you got to do a budget to stress test.
Now, your budget’s going to have some variability to it, because when you retire, you have your go go years, your so-so years and your no go years. And for those that are retired, know what that looks? That looks like, you know, you your go go years. You’re enjoying life. Your so-so years are when like these plane rides are a little bit more uncomfortable.
You know you don’t want to do an excursion on a cruise. The long road trips require too many bathroom breaks. Those are your so-so years. But your budget would reflect the variability that occurs in different phases of retirement. And then when you look at your budget, you say, okay, can my portfolio or investments be able to support me, along with Social Security and your amount of withdraws from Social Security?
The rule of thumb is you shouldn’t take out more than 4%. Now, your advisor can modify that based on your unique situation, but 4% has been the rule of thumb. We didn’t have to deal with this a long time ago because there’s pensions, and so pensions are not around as much. Some of you guys that still have it are very fortunate, but many of us don’t get a pension now.
You can buy private pension, which is an annuity. That’s fine. They’re a little bit oversold. Promises are a little bit too big, but they do have a place. So don’t be afraid of annuities. Just don’t go to somebody that’s what they do. They say they’re financial advisor, but they’re an annuity salesperson. I think that’s just a bad situation to put yourself in and you’ll regret it.
But if your advisor recommends an annuity and they’re fiduciary and you feel like they’re, they’re reasonable in the amounts, then yeah, they can have a place for sure. I’ve had to deal with situations before where somebody absolutely didn’t have any choice like they were done. They were destitute, they didn’t like nothing to their name and like they weren’t going to be able to pay for food in those desperate situations. I’ve actually walked them down a home equity or reverse mortgage, as painful as that was. But that’s like an extreme.
But your house, your residence is an asset. So, the utilization of an asset for purposes of, you know, survival, I get it. But it’s like the last thing, and, you know, you just have to take inventory of all your resources and put them in a, in a priority of how you draw from those resources.
In a 2023 updated analysis revealed that, most older Americans lack the resources that would allow them to weather a financial shock, such as a long-term care need, a health issue or loss of income from a divorce or widowhood. And so, in this analysis, they had found previously, and this was, 2018, that 80% of older adults that’s about 47 million people are financially struggling today and are at the risk of falling into financial, economic insecurity as they age.
So, in other words, the 2023 study said that many people lack the resources to weather a shock. And then the 2018 study, prior to that, said that people are at a risk of going broke. So, we continue to see these studies year after year saying, like we’re teetering on the edge. And so that’s why I say stress test, stress test, stress test, stress test Alzheimer’s stress tests, you know, dying.
Don’t stress test divorce. I’d rather you try to reconcile that another way. There’s an old saying. The easiest way to be a millionaire is to be a billionaire. And get a divorce. It’s a very expensive. Only the attorneys win. And at this age, you’ve worked with your spouse for so long, I think you can continue to work together and figure things out.
So, stress tests a lot of the conditions though in your portfolio work with your advisor. And I think if we do that, well, we’re not going to be perfect because we don’t have a crystal ball, but I think we’ll be able to navigate any potential crisis that comes down the road. And frankly, I think that you’ll, you’ll feel better.
You will. You won’t be a stressed out when those crises do come, because they will come. So, there you go. There’s the kind of the summary of the retirement crisis in America. Yeah, I could say it’s potential based on some of these studies, but I’m actually more focused on the person sitting in front of me, the, the, the clients that we serve.
And I want to make sure that we get in front of this social security is not an option. I mean, it’ll likely be there, but it’ll be it’s not something that you want to depend on. People are living longer. I don’t want, you to put pressure on your family, your kids, your siblings, or even the federal government.
But take this phase of life, this retirement phase, this pivot phase very seriously. Hopefully you have very good health. You’re very vibrant. You’re hanging out with grand babies and doing everything that you want to do. But always plan for the unknown. And remember, you think different when you think long term. Have a great day.
For more resources, visit http://www.paxfinancialgroup.com. If you found this episode helpful, be sure to share it with a friend!
Resources:
Voters 50+ Share Their Candidate Preferences and Top Issues for 2024 in These Battleground Surveys
No Matter How We Measure It, There’s No Retirement Crisis | American Enterprise Institute – AEI
Republicans and Democrats agree: America faces a retirement crisis
Social Security, Medicare benefits at risk with looming shortfalls
Addressing the Nation’s Retirement Crisis
Disclosure: Testimonials are based on unique experiences from current clients and are not representative of all client experiences. Testimonials are (un)solicited and no cash or non-cash compensation was paid for such testimonials.
Disclaimer: Clicking the Like button does not constitute a testimonial for, recommendation or endorsement of our advisory firm, any associated person, or our services. Clicking the Like button is merely a mechanism to circulate our social media page. “Like” is not meant in the traditional sense. In addition, postings must refrain from recommending us or providing testimonials for our firm.
Listen on:
