David: For many baby boomers the perfect retirement is all about simplicity, oftentimes their goals don’t include things like cruises, trips abroad or even vacation homes. Some baby boomers want less of everything, in other words, as I like to say they plan to retire small, but retiring small doesn’t always mean retiring cheaply or at least as cheaply as some people may believe. There are some unique challenges to consider and we’ll be covering those on today’s show, it’s now time to tune out the hype and focus on the facts. Facts that matter to you the income generation. Let’s get started, get ready to separate reality from myth.
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Hello, I’m David Scranton, you know as baby boomers we lived through some pretty stressful times, we’ve had to adapt to major social and technological changes. Not to mention some huge financial challenges all during our prime working years, so it’s no wonder many boomers dream of retiring small. Of downsizing to the bare minimum and leave living really a much simpler life, there’s a lot of appeal to many people with this idea but it’s important to understand that a small simple retirement doesn’t mean the planning process can also be simple.
You know earlier this year we did a show about the potential dangers of complacency among retirees and near-retirees who think I’ve got plenty. Well, complacency is just a great a danger among those who think I don’t need too much during retirement which is a mindset some people fall into when their retirement goals are relatively small and simple. We’ll talk about how to avoid that pitfall and others on today’s show, helping us out we’ll meet personal finance expert and host of A and E’s big spender, Larry Winget and author Hyrum Smith. But first, let’s explore some of the more popular options among people wanting to as I say retire small.
You know, for most people one of the first and biggest questions about retirement they struggle with is where? So, if you think about it while some decide that the place in which they had their career and raise their families is the best answer. Many people though make a change that’s especially true amongst those whose retirement goals are to downsize and live simply, in fact, in most cases the house you raise your family in is much more suited to a family than it is to a couple or an individual after the kids have grown and moved out of the home. Everything about it now seems too big the lawn, the rooms and yes also the bills everything from the utilities to the property tax seems too big. You want something smaller possibly in a place warmer, definitely something less expensive that’s generally true for most people whether the retirement goals are simple or extravagant. But if your goals are small and simple then choosing the right location is especially important, not only do you want someplace affordable but you want someplace well suited to your personal needs and interests. For example, perhaps it’s a place with plenty of options for boating or fishing or rural area good for gardening or perhaps a community with an active art scene and lots of cultural offerings.
The point is that you want someplace unlikely ever to give you cause to regret retiring small. Why? Because everything you’re interested in and enjoy is right there in your own backyard. But again it also needs to be affordable. So how do you find that perfect spot? Well, fortunately, there are many publications online and resources that specialize in keeping track of the nation’s most affordable retirement friendly cities and communities. Typically the compilers of these lists take into account a wide variety of factors, including the overall cost of living, housing costs, taxes, availability of health care, economic vitality, geographic and cultural diversity. And of course, climate and you might be surprised by some of the places that frequently end up on these lists, in fact, reviewing them can open your eyes to certain cities and areas of the country you might never have considered to be retirement options. For example, Tucson Arizona, Nashville Tennessee, Charlotte North Carolina and San Antonio Texas are a few of the cities that have made some of the most recent lists of affordable, retirement friendly cities. Others may include Boise Idaho, Bend Oregon and even Tampa Florida where there are any of these locations on these lists appeal to you will obviously depend on your individual goals and priorities. However, if your small retirement plans include an apartment or a small house in a place you know will satisfy your personal wants needs and interests. These places typically offer much more affordable options than you could find in major cities like Boston or retirement hot-spots like Naples or Myrtle Beach. Of course, affordable doesn’t mean free the two thousand and eighteen median rental price for a two bedroom apartment nationally is eleven hundred and sixty dollars per month according to apartment List dot com. And obviously the nicer the place and the more popular the area, the higher the costs so even for a small simple retirement, the upfront income need for housing can be significant. Of course, there are other options besides apartments and small houses, for example, as you may know, a popular trend in recent years has been something called the tiny house. And these tiny houses have become increasingly popular among retirees looking to keep things small and simple according to history ask them it’s as much as forty percent of the market for tiny houses is made up of people over the age of fifty.
If anything that percentage is expected to grow as more boomers enter retirement and explore more affordable lifestyles. In a way, the tiny house epitomizes that baby boomer idea we talked about at the top of the show, a simplified life that enables you to significantly reduce your living expenses while giving you the option to stay put or be more mobile, whichever you prefer. Of course, for all their apparent charm and appeal the tiny house life obviously isn’t for everyone and that includes even those who know their goal is a small simple retirement. Nor is it as affordable as you might think at first glance, even mid-range tiny homes cost between twenty thousand dollars and that’s for a do it yourself model. And perhaps forty thousand dollars plus there are plenty of other expenses to go along with them if you choose to put the house on a foundation, for example, you’re most likely going to have to buy land or pay rent to use it. If you plan to keep the house mobile you’ll obviously need a vehicle powerful enough to tow it along with all the gas and maintenance costs that come with owning it. On the road, you need to make sure you park your house in approved, in appropriate locations R.V. parks with utility hookups are the easiest options. Some have even begun setting aside sections for tiny homes with fees that can range from twenty-five to seventy-five dollars a night, all the way up to four hundred dollars per month. The bottom line is this. Even the seemingly smallest simplest retirement plan may require more income than you think, which is why falling into the mindset of glee, I don’t need much can be such a dangerous pitfall. Is there a way to figure out just how much you’ll need to save to achieve your simple retirement goals? Well, in fact, there is and we’ll talk more about that in just a bit, we’re excited to welcome back to the show our friend Larry Winget. Who’s known as The Pit Bull of personal development, Larry is the author of six national bestsellers, the host of A and E’s Big Spender and a veteran of thousands of other T.V. and stage appearances. He specializes in personal financial self-help and uses a tough love approach to help everyday Americans take charge of their financial future. Larry, welcome back to the income generation.
Larry: Oh, I appreciate you having me. Thanks.
David: So do you find as I do that you know most people when they retire really want to live a simple retirement, most people don’t want to buy a second home or buy a boat or anything like. Is that just me or do you see the same thing?
Larry: No, it’s just you.
Larry: No, I’m serious. I live in Scottsdale Arizona.
Larry: And I have people around me who are retired by multimillion dollar homes. And…So I’m not buying into the fact that when people retire they want to live more simply, I see people spending way too much money on retirement for some silly reason.
David: Well, you go to dinner on any given restaurant on a Monday night, heck you can go to McDonald’s on a Monday night in Scottsdale and you see Rolls Royce’s and Bentleys parked outside. So take yourself out of the realm of Scottsdale for just a moment…
David: As I take myself out of the realm of Southern Florida, we have the same thing here in… You know we’re talking today about our show, about those people specifically who want to do something we call retiring small. In other words, they want to shed as many fixed expenses they can, downsize their home and everything else. Not because they want to retire cheaply but because they want to be able to spend that money on things that bring them passion in life, be it travel, be it spoiling grandchildren and things like that. So put yourself in that mindset for just a moment here and you know what do you find today are people’s biggest decisions, the hardest decisions they have to make when they’re retiring in terms of whether the dollar goes here or whether the dollar goes there? And how do people make those decisions outside of Southern Florida and outside of Scottsdale Arizona?
Larry: All right, we’ll remove all those places and talk about regular folks in the rest of the country then. What… here’s the biggest problem I’m seeing, is that people want to retire more simply and they do want to cut back on all those other kinds of expenses. However, I saw a study recently that said that almost two-thirds of baby boomers, people approaching retirement some of them already in retirement are financially supporting their millennium children in some way. So the first thing that you have to shed is the dependent children that are grown and should be taking care of themselves. That would be where I would start.
David: Now some would say to you gosh Larry, that’s easier said than done you know papa might say kick the kids out of the house so we can go on more cruises, but mama is going to say… They are our kids we’re not going to do that so…
Larry: Mom is wrong.
David: Okay, that simple mom is wrong well…
Larry: Mom is wrong, here’s the deal the goal of parenting is for them to go away so you should have raised your kids with the ability to thrive and survive on their own at some point in their lives. And to support them while sacrificing your own retirement, I think is sad and does your kids a disservice and it does a disservice to your spouse who you worked hard to get to the place where you’re finally able to say. Let’s not go to work anymore, let’s not… we’re not in a place where we can bring in any new revenue, generating any new revenue. And we’re going to enjoy our lives and you can’t do that when you have so many things that are dragging you down and that’s just the place to start.
David: Fair enough, providing the children don’t have any disabilities of sorts you can push them out kick, them out of the nest if you will, make them fly on their own and they might be stronger because of it. But how about the members of the (unclear 12:08) generation who have the opposite problem, who are caring for parents you know in the sixty seconds or so we have left in the segment. How do you handle that, that’s not as easy?
Larry: That’s not as easy, that really isn’t as easy and I will totally agree with you on that, much more sad for people who are that sandwich generation and they are stuck between both sides and now they’re stuck with aging parents and they have to do whatever it takes. And they, that’s your mom and your daddy out there, you need to do what it takes you know there’s only two ways to have more money and that’s increase income or decrease expenses. So you’re going to have to go somewhere else to offset your expenses so you’re able to take care of your aging parents…
David: Yeah, really simple you’re right. You either have to work longer or cut other expenses and be more conservative in other places. Or if you’re in a place where you feel pretty confident that they’ll be an inheritance down the road which I always get nervous depending on. Then you maybe…maybe that helps but so Larry you have held true here to be the pit bull of Personal finances and having a tough love approach. Telling people to kick the birdies out of the nest, I love it stay with us Larry we will be back for another segment.
Larry: All right.
David: If you stay with us to our income generation viewers a lot more, in terms, of words of wisdom for our good friend Larry Winget. Now some of you might recall earlier this year we did a show all about how to answer the question, how much do I need to retire? And the answer is different for everyone of course, but the process of figuring out the answer should include some common steps. Even for those with the smallest and simplest of retirement goals, the approach that I recommend starts with something I call a top-down financial analysis. In other words, instead of adding up your expected retirement expenses from the bottom up, instead, start by identifying the expenses and contributions that you expect to go away once you’re retired. So let’s say, for example, you’re earning one hundred thousand dollars a year pretax while working. How much of that hundred thousand is going into your four one K? How much of it is going toward FICA tax? If you add up those expenses because those expenses are both things that will go away after you retire, if you add them up and subtract them from the one hundred thousand, now you see that retirement need number starting to drop. Now, what if you expect to have your mortgage paid off once you retire? Then you can subtract that monthly payment as well, just make sure that you… for every subtraction you make you determine whether it’s pre-tax or post-tax. Post-tax expenses such as the FICA deduction and car payments will need to be grossed up for income taxes, why? Because an expense of seven hundred dollars a month might actually cost you one thousand dollars a month before tax in order to net seven hundred dollars to pay that expense. The point of top-down approach is this since you already know what your current income feels like by… simply by subtracting the expenses you’re not going to carry into retirement. You get a really good feeling for how much the same basic lifestyle will cost after you retire and very often the answer comes as a pleasant surprise. By the time you’ve subtracted now all of these expenses and obligations you won’t have after retirement, you might realize that the one hundred thousand dollars you’re making now can be reduced to… Let’s say seventy thousand dollars per year of pretax income with no negative impact on your current lifestyle and let’s be clear most people planning for even what we call a small simple retirement don’t intend to make drastic changes to their lifestyle. The point of retiring small for most people actually is not to live more frugally, it’s to live and to enjoy the things in life that they like the most. It’s quite the opposite of living frugally, the point is to scale away the excess to get rid of as much baggage as possible so you can devote more time, attention and money to things in life that are fulfilling. And that gives you pleasure, for most people that baggage is mental, logistical and financial and a big house encompasses all three of those which is why most people like to downsize at or near retirement. So that’s why a top-down budget analysis is a perfect step for determining how much you’ll need to retire, you can deduct a lot of that financial baggage right off the top. Your big mortgage bill, big property tax bill, big utility bills, home maintenance bills etc… Etc… Of course, now none of those are going to disappear completely and the income you’ll need for even modest housing that allows you to maintain your lifestyle your custom to is often more than most people realize as we discussed a few moments ago. And that leads us to the important next step for determining how much you’ll need for your simple retirement goals. That is, identifying exactly what those goals are and how much those goals are likely to cost in retirement, now we’ve talked about some of the options and possibilities at the top of the show. A small apartment in an affordable city or community that suits your needs and lifestyle, buying or renting a small house or even purchasing a tiny house if you’re more adventuresome. The point is once you sit down to identify your retirement goals it’s time to get as specific as possible if you don’t have a new home or location identified yet then at least try to narrow it down a little bit in terms of the options available. And give yourself a yearly budget based upon perhaps even just median housing costs, living expenses and taxes in those areas. Now, if you plan to increase your favorite pastimes and activities you need to calculate roughly how much that will add to your current expense each year. Really visualize the retirement you want and try to think of everything, once you have a rough idea of how much it’s going to cost to live smaller and to pursue your goals each year, you can measure the total alongside the results of your top-down analysis. And let’s stick with the example of seventy thousand dollars, after your top-down analysis and subtracting all the expenses that will go after retirement you’ve determine you’ll be able to live that same basic lifestyle for seventy thousand dollars instead of one hundred thousand that it requires today. So now the question becomes will that seventy thousand still be sufficient now that you’ve added up the cost of achieving your retirement goals? If so, how much of it will need to come from your savings and your investments? To answer that next question you need to calculate and identify your other sources of retirement income. Such as pensions and Social Security benefits, although a qualified financial advisor can help you maximize your Social Security benefits, you can get an initial rough idea of how much you can expect to receive by using the retirement estimator available at Social Security dot gov. Once you’ve added up all your additional income sources, pensions and Social Security now measure that total against the number you came up with after doing your top down financial analysis and calculating the cost of your goals. So, for example, let’s say you’ve done all that and you’ve determine that you’ll need your savings investments even after accounting for pensions and Social Security to generate forty thousand dollars a year in income to have the retirement you want. Forty thousand from investments, so now the next question is how much money will I need in a lump sum at retirement to generate that forty thousand dollars a year? Now that’s a slightly trickier question because it depends not only on how you invest your money but also on your longevity. In other words, it’s important not just to identify a lump sum but to have an asset allocation that helps ensure it won’t be depleted before death now I’ll talk more about how to approach that process in just a bit. And share some more tips for achieving the small simple retirement that you might very well desire. Right now let’s welcome back one of the income generation’s good friends, Larry Winget. Larry, you’ve written a book more recently and I want to make sure I get the straight here and titled, What’s wrong with damn near everything? Why is it I have to cuss on television just to read the title of your book Larry? What’s wrong with damn near everything? The collapse of core values is destroying us and how to fix it, now this happens to be a topic near and dear to my heart because my book Return on principle talks about core values in the subtitle also. So tell me what is it you think that’s all screwed up today about people’s core values?
Larry: You know there’s so much we talk about honesty if I went out and asked every parent, do you believe that your kid should always tell the truth or always tell you the truth? They would say absolutely, I want my kids to be honest and yet twenty-seven percent of Americans cheat on their taxes, so we’ve made our core values conditional. We’ve made up situational, tell me the truth but not if it saves me a little bit of money on my taxes. I think that’s wrong when you look at honesty let’s look at our politicians. Do they tell us the truth? If we’re voting for people who are dishonest then the core value of honesty doesn’t mean much to us, those are just a couple of examples about core values. I think the values of honesty, integrity, a strong work ethics, kindness just flat out being a nice person I think we’re seeing those destroyed every single day. We don’t have much respect for people anymore and that shows up in so many areas of society.
David: It’s funny.
Larry: Go ahead.
David: I would say two of my core values are aligned with yours, I call it diligence and set a work ethic and I call it honesty but it seems to me like the most difficult thing when it comes to honesty is people being honest with themselves you know. Can I really afford to retire at this rate not whether or not people are… you know can do the math, it’s a question of being honest with themselves am I saving enough, am I going to be okay? So, in the final minute or so we have in the segment tell me how do you get people to be if anybody could do it you can but how do you get people to be honest. Brutally honest with themselves?
Larry: Well when it comes to money, money is very simple in my opinion. It’s logical, it’s not emotional and anything that’s logical can be trapped so people should get out a sheet of paper and pencil and write down where they are. I’ve been working with people on their finances for a lot of years and I’ve yet to find anybody at any income level who knew exactly how much they earn or had on hand and exactly who they owed and who they owed it to. So when you get a good grasp on your finances and you can look at them on a sheet of paper in black and white that’s the time to get brutally honest. And it’s when you also can start to track your expenses to say did I really need that? Do I need to keep spinning in this way? Have I let my appetite throw my money? And that happens a lot so it’s time to get honest but you can’t do that when you’re only using your mind, you have to know and you only know when you write it down.
David: Sounds like tough love all over again, Larry thanks for being with us today I really appreciate it. Most of us will probably love to live to a ripe old age as long as we can remain in relatively good health and are enjoying our quality of life. It’s actually part of the motivation many people have for wanting a small simple retirement. Scaling back your possessions, your obligations, your financial burdens helps decrease the stress level as well and this is widely known to improve overall health. You know, the good news is that people are living longer today than ever before if you’re a regular viewer you’ve heard me quote the statistic before from the U.S. Centers for Disease Control. For a couple in their sixty’s today, there’s about a fifty percent chance five-zero, fifty percent chance that at least one of them if not both will make it into their ninety’s. Unfortunately, that good news is also potentially bad news where retirement planning’s concerned at least it presents a challenge unique to this generation. Because this generation living longer and longer now means that they have to plan, we have to plan for retirement of up to thirty years that’s why as I’ve discussed earlier longevity combined with your asset allocation is such a critical factor in determining the lump sum necessary to generate the income you’ll need to meet your goals. And this is once you’ve made the determination, of course, about your goals now some people might think it’s as simple as the longer you expect to live after retirement, the bigger lump sum you need. And that’s part of the equation, but that’s not necessarily the entire story once you factor in your asset allocation. So let’s break it down, most people are aware of the four percent rule which says that for average investors the most they can draw from their retirement accounts each year without running out of money is four percent. What most people don’t realize though is that there’s a recent study by a top mutual fund family, actually mutual fund rating agency. That concluded that in today’s economic environment a safe withdrawal rate for average investors now stands at just two point eight percent. This study was based on the well-known Monte Carlo analysis, which seeks to identify a figure that gives you a ninety percent chance of success and in this case success simply means not running out of money. Now ninety percent sounds pretty good, but let’s keep it in the right perspective the study is saying that even at only a two point eight percent withdrawal rate there’s still a ten percent chance of depleting your assets, why? Because if you’re withdrawing money from your accounts to meet your income needs even at that low rate you’re depending on the markets to grow and to replace these withdrawals. But of course, the markets fluctuate sometimes dramatically as we’ve seen in these last few months. And as we saw back in early two thousand’s and again from two thousand and seven to two thousand and nine when the stock market plunged by fifty and sixty percent respectively. That can happen again and after the age of fifty, you start to lose the luxury of time to recoup those kinds of losses. That’s why as I stressed many times on the show take the income from principal or I should say take withdrawals within ten or fifteen years of retirement is a slippery slope. If, for example, you’re selling shares from a mutual fund every year to meet your income needs, you end up cannibalizing your account, why? Because now you have to sell more shares when the market’s down to get the same amount of money. Now, this brings us back to longevity factor and why it’s such an important variable when determining the lump sum needed. You know cannibalizing your assets may not matter if you only live ten years into retirement, but if you live longer and you’re part of the majority then the question of your running out of money becomes a race against time. And oh, by the way, remember the example where we determine forty thousand dollars was the amount of income we need our lump sum to generate in order to meet our simple retirement goals. Well, if you’re allocated in such a way that you’re taking two point eight percent in annual interest to meet that income need. Simple math indicates you need a lump sum about one and a half million dollars at two point eight percent to get you that forty thousand a year. A whole half million dollars more than if you could generate four percent, so on the other hand if you had your allocation set up properly so you could stay closer to that old four percent rule then yes that one and a half billion dollars becomes five hundred thousand dollars less, a cool level one million dollars. The bottom line is this whether you’re retirement plans are simple or extravagant your top two priority should really be the same. Protecting your principal and reliably generating enough income through interest and dividends to meet those goals. How do you do that and what are some other contingencies you need to be prepared for? We’ll talk about that in just a bit but now it’s time to introduce our next guest, Hyrum Smith, he’s one of the original creators of the popular Franklin day planner. The former chairman C.E.O. of the Franklin Covey corporation and the recognized father of time management, Hyrum’s written a great book for today’s topic The Purposeful Retirement, how to bring happiness and meaning to your retirement. So tell me Hyrum, first of all, welcome to the show.
Hyrum: Thank you. It’s great to be here David.
David: You’re very welcome but first of all tell me why… what motivated you to write this book?
Hyrum: That’s really an interesting story, this woman that used to work with me at Franklin has helped me do quite a few of my books over the years and she approached me she says. We want you to write a book about Purposeful Retirement, we’ve already got a title for you would you write a book called Purposeful Retirement? And I said her name is Annie, and I said Annie why would I write a book like that I haven’t retired yet? And she said that’s why we want you to read the book.
David: (Unclear 29:32) done trying to kick you out of the organization to me but hopefully that wasn’t the case.
Hyrum: No, no. I’ve been out of the organization for a long time. We’re still good friends and I told her, I said you know I just celebrated the twenty-fourth anniversary at my fiftieth birthday why would I be talking about retirement?
David: That’s right, why even consider that at this point, right?
David: You know funny, as you know our show today the concept is about we call you know retiring small, simplifying your life, living as simply as you can so you have money left over for all the things that bring you pleasure. So this is I know for the most part in the line with your basic philosophy about retirement but tell us more about this.
Hyrum: Well it’s interesting you know we discovered a model a lot of years ago we call it Belief Lindel model and it’s about how we get beliefs on our… in our belief system on what matters to us and what gives us value. And one of the beliefs that a lot of people get on their… in their belief system is that my self-worth is dependent on my job. Or my self-worth is dependent on my stuff and if you believe that then you’re going to acquire a lot of stuff and if you believe that you’re whole self-value as a human being is tied into what you do for a living, then all of a sudden you know you’re asked to retire and you’re a mess. And I tell a story in the book I had… I was giving a talk once and this guy came up, the guy looked like he could be the C.E.O. of any company in America. A very distinguished guy, graying at the temples and he said you know Hyrum, I’m an American Airlines pilot and he said I was forced to retire a year ago when I was sixty years old and he said when they took my wings off my whole life ended. I said you’re kidding, I said is that the only thing that gave you value? And he says, well not anymore, I’m going to change my belief system but it just destroyed him.
David: So how do you change your belief system then, there’s a lot of people in our generation that are workaholics so to speak, I for example, even get a lot of value from being what most people feel as a financial guru. It brings pride to me so how do we…how do you fix that? How do you rewire your brain?
Hyrum: Well, I think you have to ask a question we’ve got to remember that your belief system drives your behavior and what’s the question you need to ask yourself is. Will the results of my behavior whatever I’m doing right now or however I’m feeling right now with the results of my behavior meet my needs over time? And if the answer to that question is no, David then I’ve got a bad belief system. I’ve got something wrong in my belief system and so I’ve got to go back and re-evaluate you know why am I so depressed now that I’m retired and will being depressed about being retired meet my needs over time? The answer no, so when… Go ahead.
David: No, I was going to say I agree with you. I talk a lot about people, I see there’s a difference between values and beliefs, you know is it really a value, is it something that you’d rather die than give up? If it’s not then you’ve got to figure out how to overcome if it’s just a belief system you can overcome it.
Hyrum: Yeah, you… The thing that separates you and me from the animals is we can change our belief system, we can decide that I’m not going to believe that anymore David.
David: That’s right, that’s right. Hyrum we need to take a quick break and we also need to go and do another segment but stay with us please, I want to talk to you more about changes, belief system in just a minute, please stay with us. If you’re a regular viewer of the show or if you’ve read any of my books you know that I advocate protection as the number one priority for investors within fifteen years of retirement. And protection starts by making a paradigm shift from focusing on a portfolio of growth instead to focusing on a portfolio of retirement income which is what everything we’ve discussed here today. Has that income as a focus, in fact, in the end, it may be true that in order to achieve your simple retirement goals, you might just not need as much. Relatively speaking that is, but determining what you will need in terms of income is still essential if you really want a shot at achieving your goals. Once you realize that you’re on the right path for determining the best allocation to meet your income needs without running out of money, I know from experience that the whole concept of income first growth-second sounds counterintuitive to a lot of people. And that’s partly because we’ve been taught that in order to increase our retirement income we need to keep growing our portfolio and maximizing our returns. Naturally, that’s what Wall Street wants you to believe, why? Because they’re more likely to continue chasing capital gains in the risky stock market, in that case, helping you thinking gee. The more my mutual fund grows the greater my income, but the reality is that total return is really a sum of two things growth plus income. The income portion comes in the form of interest and dividends while growth is measured in terms of capital appreciation, buying something at this price and hoping that it grows to that price. Yet based on the misconception I just mentioned many people believe that in order to increase returns you must increase growth. And at the best way to do that is by staying invested in the stock market, even in turbulent times like this, in other words, these people have the idea that in order to increase your retirement income you must increase your risk. And that’s simply wrong, why? Because as I discussed many times on the show if your growth turns to shrinkage as a result of a major stock market plunge your return also shrinks and so does your income. So how then does focusing on income first change all this? Well, when you’re focused on income, you’re typically investing in things designed to satisfy your income needs through interest and dividend. And to better protect your principle from market volatility in risk in shrinkage. So while increasing your portfolio growth might require increasing your risk, in my experience increasing you’re retirement income starts with actually reducing your investment risk. And as one more misconception about shifting your focus to income that I frequently run into which is this. The idea that focusing on income before growth means you have to sacrifice growth, it doesn’t, it simply means adopting a different approach to growth more accurately it means working with an advisor who specializes in income to create an actual growth strategy. As opposed to simply choosing investment options because a lot of outdated textbooks say they offer the most growth potential, which is why some advisors and many do it yourselfers approach it that way. They basically cross their fingers and toes hoping to get growth but to put it simply with a strategic income-based approach. You have the potential to grow your portfolio the old fashioned way, organically, by reinvesting the income you don’t need in other income-based strategies. The result can be reasonable portfolio growth with far less risk and reliable interest and dividends generated, yes, in the range of four percent. Not two point eight even in today’s low-interest-rate environment, this approach can work especially well for couples and individuals whose retirement plans are simple why? Because they often find that their income needs do decrease once they downsize and move to more affordable communities, but because it is a specialized strategy more often than not it’s also one that requires working with an advisor who specializes in these income-based strategies. We’re back talking here with author Hyrum Smith. So Hyrum, again I understand the belief system thing but when someone gets value from their work, I can understand if they get value from possessions how you know that has to be rewired. But, when somebody’s entire life they get value about work in their occupation like this pilot. Give me some keys of how people can rewire their brains when it comes to that.
Hyrum: Well it all comes down to what I believe is the root cause of happiness and for most people, for just about everybody really the root cause of happiness is that I’m making a difference. I’m doing something that matters in the world, I’m doing something that really makes a difference and it matters to me and so if I could change my job. So what I say in the book is you know retire from your job that’s fine but if you retire to T.V. and golf you’re going to be dead in three years and those are the stats, David. So how now can I make… continue to make a difference so that I can value what I’m doing and as long as you know I have the opportunity to hearing Winston Churchill speak? Two years before he died in one thousand nine hundred sixty-three. And he said an interesting thing he said, you know I have always been obsessed with a need to make a difference and then he said, I hope I’ve made a difference. And I’m sitting there I’m nineteen years old and I say are you kidding, you save the free world.
David: I know, I’ve talked about somebody who made a difference and now I understand why you said you even consider retirement at fifty in twenty-four years, I get that Hyrum stay with us we’ll be right back for another segment. We’ll be back in a minute you stay with us too for more words of wisdom from my new friend Hyrum Smith. We’re back talking with author and New Friend of the income generation Hyrum Smith. So, I get that you had to figure out what helps you, what gives you purpose in life beyond your employment, but now how about the people that are addicted to all the material things. You know Madison Avenue is more powerful than Wall Street in so many ways and they are in the same city, so how do you break that the materialism, the yuppie syndrome of people having to always have one up on their neighbor? How do you get people to break that?
Hyrum: Well it’s not easily broken but I’ll tell you there’s a new growth industry in America right now and it’s called Garage Sales. People who are discovering that having stuff isn’t what really matters and it all comes back to your value system you know. And one of the things I’ve taught forever is find out what you value most and then ask yourself are you doing something about it, for example, if I value being physically fit and I weigh four hundred pounds I’m in pain. Why? Because there’s a gap between what I’m doing and what I value and I talk about that in the book and I think every human being has an innate desire to achieve inner peace. Inner peace comes from doing what matters most to you if you haven’t decided what matters most to you then you’re adrift so you got to sit down and I ask people to write their own constitution. Put your values in writing and then ask yourself are there any gaps in my life? And I’ll tell you everybody has gaps.
David: Of course.
Hyrum: And when you’re working on closing the gaps, inner peace comes and you know what you’re making a difference it’s very cool.
David: Yeah, and I think it sounds like most people actually on their own realize a certain point in life that it’s not all about the stuff which is really good so I have got to ask you this okay, in about the last minute or so we have left. I’d like you to share some thoughts about time management, you know you’re the guru on time management for working folks. So now in sixty seconds or less tell us about time management as a retiree.
Hyrum: Well I think the thing we’ve got to remember is that time management has nothing to do with the Clock. Time management is all about making choices, what we need to remember is that every person on the planet has the exact same amount of time. You and I have the same amount of time that Warren Buffet has, that’ll probably make you mad but we all have the same amount of time so when you hear someone say, I don’t have time, they’re not telling the truth. What they’re really saying is, I value something else more time management David is nothing more than you making the choices every day that you’re going to do what matters most to you.
David: Making a list of your values, your beliefs and making sure that frankly, everything that you do that you give priority in terms of time is in line with those values and beliefs not in conflict with them.
David: Hyrum, it’s been great having you today. I wish we had more time I really do because I could talk to you about this for a long time, I’m a big advocate of a Purposeful Retirement. But I want to give a quick screenshot here for you book Purposeful retirement from our good friend Hyrum Smith. Hyrum, thanks again.
Hyrum: Thank you, David nice to talk to you.
David: I like to thank both our guests for joining us today for another episode of the income generation. I also like to thank you our new and returning viewers you know in my thirty plus years as a financial advisor, I’ve learned that most people have similar goals for retirement to a certain degree. Yeah, there are a few who want to travel the world or buy multiple vacation homes or maybe the yacht they’ve always dreamt of. But most have much simpler plans and priorities, the majority of people do intend to do some traveling maybe take a few cruises or visit some of the places they’ve always wanted to go. But beyond some of those bucket list items, most people are looking forward slowing down, devoting more time to the hobbies and activities that they love and spending quality time with family and friends. And for a certain group of people that’s really all they want, they spent years traveling for work, they purchased everything they’ve ever needed and didn’t need. Now they want nothing more than to shed as much of that baggage as possible and to settle down into a very small simple retirement. And that’s great but as we’ve learned from today’s show even the humblest of retirement goals can be jeopardized by complacently. Falling into the mindset, I don’t need much just because your retirement goals are relatively modest is a potential danger to be aware of and a potential danger to avoid. In my experience your odds of successfully achieving your retirement goals big or small improve dramatically by following the right process, it starts with identifying your specific retirement goals. And with analyzing your finances from the top down to determine just how much retirement income you’ll actually need. Then it’s all about shifting your focus from growth to income and to financial strategies designed to protect your principal and generate income through interest and dividends. And to provide an opportunity to grow your portfolio organically or as I like to say the old-fashioned way. Thanks for watching, bottom line is if you’re close to retirement and really want to know how to protect and maximize your money. It’s absolutely essential that you stay informed and up to date and right here is where you can do it on the income generation. I’m David Scranton and thanks again we’ll see you next week. If you’re near or in retirement, head over to the income generation dot com and download your special report written specifically for the needs of the income generation. Again those born before one thousand nine hundred sixty-six, I’m David Scranton and you’ve been watching the income generation. We’ll see you all next Sunday.