E73: How to Ensure You Don’t Run Out Of Money Before Death

Nate: In this episode we will discuss one of the most frequently asked questions about money. How can I make sure that I don’t run out of money before I die? We’re going to give insight into why this happens and what you can do to make sure it doesn’t happen to you. She’s Holly and she helps people find financial freedom.

Holly: He’s Nate, he makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered. I want to make sure my family has money when I die.

Nate: It’s a very pretty important question. It’s a big fear for everybody. If you’re in your thirties, am I on the right track? Will I get to the end of the line and be 70 years old and I’m just way short?

Holly: I think we do see it becoming a more bigger, or a bigger concern over years because there was people that saved, that were frugal, that really were wise with their money and now they are 70 or 80 and realizing, “I don’t have enough money to live, what am I going to do?” It wasn’t … I’m going to be honest. It’s not because they were spenders, or they didn’t plan ahead accordingly, when they came up with the idea of, “I’m going to have a million dollars at retirement,” per se. That was an enormous number to them at the time they came up with it.

Nate: Man, a million does not seem like what it used to. We’re going to get into that. One thing I wanted to mention, just really quick it just came to my mind, was that Holly and I, we both don’t like the idea of retirement very much. You can go back to previous podcasts, you can hear about that. We’ve also had a guy on our podcast that we really admire, Rabbi Daniel Lapin, who talks about how important it is to get retirement out of your mindset. Honestly, I was just thinking about it right now that I know a way to alleviate the fear of running out of money for most people. Get retirement out of your life. It’s like-

Holly: Exactly. Don’t retire. That’s the point.

Nate: That’s a great way. I think the goal should not be retirement, the goal should be building wealth. That can enable you to retire, that can enable you to leave a legacy, that can enable you to give, a lot of things. As Rabbi Daniel Lapin would put it, one of our big missions has to be to help people and produce value. That’s what gives us pleasure and meaning in this world and a reason to wake up every day. No matter what we just say in this about helping you do it, it is true that if you get the retirement idea out of your mind, then you’re not going to be worried, “Am I going to outlive my money?”

You’re just going to work and you’re going to produce value in some way as long as you can. It can’t be forever, unless you’re like Nelson Nash. Nelson Nash [inaudible 00:02:45] the banking concept, just died earlier this year, was still doing seminars in his mid eighties. That’s the dream, to have such a passion for what you do that you love going to work and you’re in your 80s. Look at Warren Buffett. You look at some of these other greats. They don’t just hang it up, because they’re passionate. We encourage you to become passionate about something, especially if you can find passion in what you doing. Apart from that we are here to help you.

Holly: Yes.

Nate: So there’s some reasons why there’s a gap between how much people have saved and how much they actually need. We’re going to talk about why this has become an issue, especially today. Then we’re going to talk about some ideas of how you can help yourself not fall into that same trap.

Number one, just came to me right now, if you get it out of your mentality, it won’t be such a concern to you when you hit that point, because I find the people who are most worried about money are those who are about to retire. They’re about to say, “I’m going to hang up. I’m not going to come back. I want to make sure that whatever I built is enough.”

Holly: My aunt just retired. Yesterday was her last day working. In my head, “What are you going to do now?” This is all she’s known, the only place she’s ever worked.

Nate: Yeah, I mean it can be exciting. The excitement wears off and the worries start to come in. When you’re in your eighties and you retired when you’re 65, you’ve spent 15 years now. It’s not as exciting anymore and now that question of, “Is this money going to last? Is the stock market gonna Crumble? Is inflation going to ruin my money I have saved?” I’d like to start just with the reasons why it happens. We’ve already been mentioning one. You already mentioned it, too, is …

Holly: We have a dollar amount in our head. It seems like a lot of money at the time we say it. I’m going to go a little bit farther and say we have a dollar amount, but really it’s a number in our head, a million dollars.

Nate: Right.

Holly: Even now, “Oh, I’m going to have a million, I’m going to have two million dollars. I have this much,” whatever that number is. But we don’t actually see it through the lens of inflation and the inflational dollar.

Nate: A million sounds like a lot today. If you’re 30 and you look at these charts, and you see all the money you’re going to have in the future if you continue on the path you’re on, whether that’s infinite banking, whether that’s retirement, whatever path you’re on that’s going to get growing. “Man, I’m going to have so much money.” As Ray Potes, our mentor, has taught us many times, numbers and money are not the same thing.

Holly: They are not.

Nate: Three plus three plus three is always nine, but $3 plus $3 plus $3, that is always $9 but that $9 is not the same thing as it once was. In the future it will not be the same. One of the reasons why people fall short, as we’re talking about, is because they think they’re on the right track to have enough, but when you get to that point we don’t know how much that money’s going to be worth. That can be a scary thing.

Holly: That dollar amount isn’t a number amount. We decide this when we’re 30s, 35 maybe, 40. You decide what this dollar amount is. We have no idea 30 years down the road, 40 years down the road, what that dollar amount is actually going to provide for us. How much of it is taxable? How much is Social Security? How much … All these questions we can’t answer.

Nate: Exactly. I think that because it looks so big to us today, 30 years down the road the numbers look big we think, “Oh, I’m going to be fine on the track I’m on.” That’s one thing we’ve seen is that people planned, they saw a big number, they thought they were doing enough to get what they needed, and one of the reasons why people are running out of money before they die is because the number looked big to them, but the dollars just weren’t worth what they thought they were going to be.

Nate: Another big issue is that people think that these retirement programs, the stock market, mutual fund- based assets, they think that they can pull more money safely than what you really can. If you had a million dollars and you walk into like a retirement … A million dollars in like a 401k or an IRA, something with mutual funds as their main basis. If you walk into a retirement planning office, they sit you down, they look at you … You ask them how much money you can normally take out of your portfolio, a million dollars, they’ll say, “Today, …” If you want to be pretty darn sure, like 90% sure, that you’re not going to outlive your money they’re going to tell you, “On your million, per million, you’re going to be able to pull out about 35 grand,” or about 3-1/2%.

Holly: Most of you out there, … I mean, I’m just going to ask you, those of you that have retired, or are retiring or thinking about retiring, or even if you’re 30 or 40 right now … I can go back to my 30s and I was roughly making around $36,000 a year. I can tell you that when I turn 65 or 70, $35,000 would not have cut it, 40 years down the road. It wouldn’t even have cut it, it’s not even what I was making 30 years previous, yet that’s what you’re supposed to live on to conservatively have enough money so you don’t run out of money. That’s the reality. How many of you guys actually can live on quite a bit less? I’m talking less than 100% less than what I was making 30 years before. I got to live on less than that and it’s 30 years in the future?

Nate: That does not seem to compute to most of us. The fact that I’ve got a million bucks and you’re saying to me that I can only pull out 35,000 if I want to be like 90% sure that I won’t run out of money before we die? For those you who don’t know the reason why. They have this thing called the Monte Carlo simulation. What they do is they look back over a period of time and they look at the probability of pulling out $35,000 over a hundred years, because we don’t know what the markets are going to do. The day you retire, you’re 65, you’re 70 years. “I’m hanging up and I’m headed to the golf course,” whatever it is. We don’t know the future.

The biggest concern is, especially early on, if you have a stock market crash early on, if you were to retire in 2005, 2006 and a few years into retirement you lose half of your account, you’re probably going to run out of money before you die, unless you are only pulling out a little bit. That’s what they’re trying to say, I guess, in this Monte Carlo simulation. They call a withdrawal rate.

Holly: Yes.

Nate: Can I pull out 3% of my money? How about 4%, and so forth? You can pull out more than 35 grand, but that just starts to increase your chance of running out of money before you die. They ran like an 8% withdrawal rate, so if you had a million dollars could you pull out 80,000 a year? If you want to do that for like 25 years, you have a 50% chance of running out of money. We think that the money’s a lot, and we think we can pull more than we actually can. We ended up getting here, the dollars have been devalued. They’re not even worth what we were hoping to. The big problem is money doesn’t seem as big anymore. Then we get hit with this idea that, “Oh yeah, I can barely pull any money out of this thing if I want to make sure I do die before I run out. I don’t want to run out.” Those are some big headwinds against us, some misconceptions, or some misunderstandings, that people we just don’t put into place while we’re planning for this stuff.

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Holly: Just think and ask yourself right now, if we look at the Monte Carlo effect and what they say, do you honestly believe that when you are 65 or 70 … I’m 45 right now, so I’m just going to date myself. If I say at 65 I’m going to retire, 20 years from now. Can I live on $3,000 a month? That’s $36,000 a year. No, I’m just going to be honest. Right now today I couldn’t live on that, and that’s not counting my spouse, kids. I honestly could not afford to live where I’m at. We gotta start looking at this in reality. We are so dependent on what everybody else has told us. “Oh, you’re safe because you put money into the 401k. Oh, there’s a retirement program out there. Oh, when I get to be 65 you’re going to have to pay less in taxes, and you’re going to have less living expense,” and stuff like that.

Nate: Well, that’s a good thing you plan out, is that most people when they’re planning, they say, “Oh, don’t worry, taxes will be less. You won’t need to replace all your income.” They say all these things, and guess what that means to us? That says to us, “Oh yeah, that means I don’t have to save as much because my taxes aren’t going to be as high.” People are trying to get, “What’s the minimum I have to save to just be able to retire and be okay?” I’m like, no, no, no, no, no, let’s assume the freaking worst happens. Taxes are way higher, the inflation is crazy, then we make a plan. You can’t get the time back. You can’t go back 20 years before and prep for the reality. If we plan for taxes being higher, or if we do like infinite banking where we don’t have to worry about the taxes, then we’re in a better shape regardless. We’ve taken that risk away, taken that worry away. The same thing about the volatility of the market.

Holly: Even Ray, our mentor, said this the other day to me, he said he wished he knew what he’s learned in the last 15 years, he knew in the first 30 years of business. How different the landscape really would be, and just by changing things, the ability he’s been able to do to create what we call living wealth, a legacy, right? Nate said, “Get retirement out of your head.” We’re really talking about creating wealth that still lives and survives generation to generation, but survives and you’re able to use it while you’re still alive.

Nate: Exactly right. We talked about what are some of the issues, why we end up running out of money. Now I’d like to give some suggestions here on how to make sure it doesn’t happen to you. First off, one of the recommendations that the world has is that, “Oh, if more employers would offer these employer- sponsored programs, if everyone had a 401k,” which I think is ridiculous, by the way, because the people who have 401ks are really not any better off. 

I guess what I’m trying to say is the first thing I would mention is you got to take ownership of this thing. That’s the first problem. I don’t care if employers offer you a program or not, it’s your retirement, not theirs. They’re not here to look after you and nanny you. The government shouldn’t have to do that, though that’s what some people would want them to do. Regardless, you have to start taking ownership. I’m not going to just kick the [can out 00:14:27]. I’m not going to hope that it all works out, I’m going to figure out a plan to make sure I don’t run out of money. That’s gotta be step number one in all of this.

Holly: And understanding if you are doing those, and I’m going to say ownership is key here. You are responsible for yourself and your retirement and your future. It is actually not your employer’s job to be concerned about that.

Nate: They don’t do a very good job. It’s deceptive to me. In other words, people think that, “Oh yeah, I’m putting money in my 401k. I’m going to be okay.” That’s a deception. It is not okay. Just because you’re putting money into a 401k does not mean you’re going to be okay. Have you actually looked at it? Do you know what it’s doing? Do you know what it’s going to be there? You probably don’t, because the stock market we don’t really know, but do you have an idea? I think the fact that employer programs work is that we can follow the herd, and we might end up getting slaughtered. You’ve heard us say that many times. We just get plugged into the company program, start putting money in. We think we’re doing okay at that point. We think we’re going to be okay because that’s what everyone else is doing. What we’re saying is no, you got to take more ownership than that. It can be deceiving. We’ve got to do other things.

Holly: And the fact that you get an annual report most of the time …

Nate: That we don’t read.

Holly: … that you don’t read. I even had a client say this to me, the only thing they looked at was whether the average rate of return, which is different than actual, but the average, as long as it was positive they were okay. Regardless of knowing what happened last year they really had no idea what was going on, because while it was positive, it wasn’t … Our average rate of return was like 2%. “Oh great.” What they didn’t realize is maybe when it went negative for a few months and then it went back positive they lost some money but they had no concept, because, “Well, I’m just doing exactly what Nate said. I’m falling the herd.”

Nate: Exactly right. That’s what we’re trying to combat to some degree. We have this issue where people are not taking ownership. We got to get that done. Secondly, we’ve talked about how these market-based assets, because of the volatility associated with them, we can’t pull as much as you think without fear of running out of money, because we don’t know when the next crash is going to happen, so they say, “You gotta be safe. You want to have a high probability pull out less.” What does that tell us? Maybe you should try to look for assets, or things, that you can pull more income out and know that you’re not gonna run out of money. So those things would be like … We talked about infinite banking and whole life insurance policies here. Those are guaranteed to grow every single year, so we know exactly how much money we can take out without fear of running out of money, and it’s more than 3 to 3-1/2% of your cash flow that you can pull out. By switching where the asset is, we can actually pull more income from it without risking running out of money.

Holly: Money.

Nate: The same thing could be real estate. There’s a lot of alternative assets that don’t have market risks that we can know that actually produce passive income, which we talk about. So instead of having the whole like stock market thing where you actually have to sell your assets, you have to literally go in and whatever price they’re selling for that’s what you sell them for. So instead of selling your assets and liquidating your positions to produce income, which is just a means to an end, you’ve got to have one that produces income and then you just live off of what it can produce.

Holly: Yes, we’re absolutely proponents of infinite banking and dividend-paying whole life insurance 100%. The reason why is, regardless of what happens with our taxes, Nate, regardless of really the economy, it’s in a safe program, if you want to call it that. It’s something you control, you own, that grows tax free for you that the money’s there in the future as well as today. We’ve gotten into the system of just putting the money in, and I’m going to go back to the 401(k). Most of you, if you asked yourself this right now, if you’re contributing to the 401k, how much money are you putting in each month? Majority of people I talk to can’t even tell me that because it doesn’t get deposited in their bank just gets taken out of their paycheck. They literally have no idea exactly how much is leaving their paycheck every month because they’ve never seen it. You’ve never lived on it anyways. I’m only saying instead of doing that, maybe start making a deposit into your own bank account and putting it into a life insurance policy.

Nate: That all comes from that ownership, taking control, taking responsibility for it.

Holly: You don’t have to wait to use it. I think it is very crazy that we are putting money in something that we have to wait to use.

Nate: We’re penalized to use it now. Yeah, you’re exactly right. That’s what we’re trying to combat is not only what’s going to happen 30 years from now, but what you can do during that timeframe to free up your life, which is what we’re big proponents on, but also something that in the future we can pull income from at a high level without risk of running out of money, so we can solve for that. Even if you don’t want to do infinite banking, that’s okay. If you’re just listening to the podcast and you’re brand new to it, what you need to change in your mentality is not, … We’ve talked about this before, you got to get out of nest-egg mentality and into income mentality. Instead of just producing a big nest egg that could be here one day … A nest egg in a retirement program, it’s not real money it’s a valuation.

We’ve seen that change dramatically, obviously. That’s what they call volatility. One day your nest egg could be a million. The the next day it could be 600,000. We just don’t know, depending on what the market’s going to do. All that to say, “Get out of the nest-egg mentally go into the income,” something that produces value that’s not based on a valuation, that’s just guaranteed to come, like rental income. It’s not guaranteed but it’s not based on some valuation. You’re getting rental income. The same thing with a policy, you’re getting guaranteed cash value increase. We know that. It’s different than some sort of random valuation. Get into a place that’s producing income that you don’t have to sell to produce income and I think you’ll find yourself able to control the fact that you can make it without running out of money pretty easily.

Holly: We really want you guys to do something that’s better for you. Is a 401k the best place to put your money? Only you really know the answer to that or better yet, ask yourself why you did it to begin with. Chances are most people do it because everybody else was doing it, or it seemed like a good idea, or in your mindset it meant you didn’t have to save any more, it was taking care of your future for you.

Nate: I find that happens so often, is that people don’t like to think about it because it stresses them out to some degree. They like to just have it taken out of their paycheck and hope it all turns out okay. It’s going to stress you out now, or when you get there and you didn’t do enough it’s probably gonna stress you out then. You can avoid the issues of most of the problems of running out of money by changing the herd system based on Wall Street programs sponsored by the government. Those systems are so shaky that you’re going to have this fear of running out of money no matter what. It’s going to exist whether it’s today, or in the future, or probably both. If you can start building assets that you control, that produce income, that are not so shaking, then we know we can live and we know how much we can pull. We can make a plan and you can feel good about it. That’s the essence of it.

Holly: I think, too, what Nate said initially in the beginning, “having the mindset of not retiring,” having the mindset of creating wealth, a residual income for you, not a retirement, whatever avenue you take to achieve that, you want to be of value and worth to society. Whether you’re 65, 30, 20, 10, 75, 80. One of the ways of doing that is creating for yourself living wealth, wealth that resides, that is residual, that you can keep using, and growing, and you control. For us the best way of doing that is through infinite banking, but for yourself it might be a different plan of action, but really evaluate how you’re going to get to where you want to go and not just looking at a number and equating that number to a dollar amount. What is it you want to do? Really for your life. I thought it was brilliant. I’m just gonna say that, just get retirement out of your mind and you’re honestly 90%-

Nate: The question is pretty much over at that point.

Holly: Yeah, you’re not going to run out of money if your mindset is how much do I need to not work anymore, not to do anything?

Nate: Very rarely do you find someone who’s like, “Man, I really over saved for this thing.” It’s like, normally it’s, “Man, I wish I would have done more.” If we can solve that by doing what we suggest, or you can just stop the idea of an end day, of my career is going to end when I’m 65. Find a way to produce value and you can get rid of that issue. You’re not scared. That’s the way God made it. Well, guys, this has been Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e73.