Issue 7: 2020 Is the Year You Rethink Retirement
It’s been a shocking few weeks since my last Donohoe Bulletin. I hope you and your loved ones are safe, healthy, and in good spirits.
My greatest desire for this month’s edition is to inspire and motivate you to thrive during what will likely be one of the greatest challenges of our generation. I want you to have a glimpse at what could equally be the greatest opportunity for you, your family, and your career/business.
What Will Be the Legacy of 2020?
It seems like yesterday that we greeted 2020 with an attitude of euphoria. We had all-time highs in the stock market, 401(k) balances, and home prices. The unemployment rate was low and credit was flowing freely—with record low interest rates to boot. Although there were signs of vulnerability, they paled in comparison to the positives.
We are at a standstill. The world, in a matter of days, has become awfully quiet. Humbled is an understatement to describe what I am experiencing and seeing all around me. Schools are closed and kids are at home, not even able to physically interact with their friends. Stores, restaurants, offices, and roads are empty, every professional sport—even the Olympics—all on hold. Unemployment will soon reach historic highs, and there doesn’t seem to be an end in sight.
Who could have ever anticipated something like this?
The team at Paradigm Life was fortunate to get ahead of the curve, and we were able to move our entire company virtual in only a few short days. We have hardly skipped a beat. Here is a picture of the team doing one of our daily Alley Rallys on Zoom.
I am so grateful for such an amazing team, for stepping up, rallying together, and doing everything possible to minimize any disruption to the business and service to you. Now that we are settled, we are asking ourselves a much different question. Perhaps, the same question you are asking.
What do we do now?
Taking Back Control
A few weeks ago, I shared the following passage from the book Man’s Search For Meaning by Viktor Frankyl with my team:
“The last of the human freedoms: to choose one's attitude in any given set of circumstances, to choose one's own way. And there were always choices to make. Every day, every hour, offered the opportunity to make a decision, a decision which determined whether you would or would not submit to those powers which threatened to rob you of your very self, your inner freedom; which determined whether or not you become the plaything to circumstance, renouncing freedom and dignity.”
There is so much of life which is outside of our control. The one thing that circumstance can’t take is our ability to control our attitude, mindset, and paradigm.
We can act, or let ourselves be acted upon.
Austrian economist Joseph Schumpeter is known for originating the term creative destruction—when longly held ways of doing things are destroyed but are necessary for the birth of even better and more innovative solutions.
We as a global society are experiencing history in the making and in the months and years to come. These very moments will be seen as necessary steps that give way to the extraordinary innovation to come.
The question I have been asking my team, the podcast audience, and now you is: Will you stand by and be a spectator? Or embrace these times and use them as fuel to live an even more fulfilling life?
The list of what will change is potentially endless but undoubtedly includes: the way our children are educated, how we work, how we travel, the role of government, healthcare, manufacturing, money, and today’s topic—retirement.
It’s Time to Rethink Retirement
In my book Heads I Win Tails You Lose: A Financial Strategy To Reignite The American Dream, I articulate why retirement is a flawed idea and empirically demonstrate that the average individual would have to save 50% of their income to adequately retire. Current market conditions reinforce just how vulnerable retirement accounts are, which are primarily made up of passive investments.
Rethinking retirement may not be easy because the rest of the country is hooked on the same broken system. But when is going against tradition ever easy? In fact, “traditional” retirement isn’t even an old idea. It was created in the last 50 years as a tool for companies, letting them off the hook for pension payments. It was an employer benefit, not an employee benefit. Ted Benna, the creator of the 401(k) has since said he created a monster because Wall Street used it as a vehicle to exploit the individual worker. It was never meant to be used as it is now, relied upon by employees to fund a mythical retirement.
Here is the good news: I am convinced that ‘being retired’ isn’t what people want anyway.
I’ve found most people seek something better. And what they’re seeking can be easier to achieve than mainstream retirement. It doesn’t mean retirement is impossible; it means you have to rethink what retirement means to you and reshape your strategy.
Let me give you an example.
The Life of Bryan
Bryan sought out Paradigm Life in his early 50s to set up a Wealth Maximization Account™ as part of his estate plan. The policy loan feature of his account was particularly useful and gave him the financial freedom to start investing in real estate.
Up to this point, Bryan’s financial plan was fairly typical of most Paradigm Life clients: Set up a Wealth Maximization account to grow wealth tax-free and use policy loans to invest and make large purchases.
As life went on, Bryan’s financial situation and goals changed. I can guarantee yours will too.
As he grew closer to retiring, growing wealth took a back seat to securing future passive income. Bryan felt he wanted to do more to ensure his savings and investments would last him for life. Even though he had a solid financial strategy, he wondered, “Is it enough?”
A major factor in this concern stemmed from his 401(k), which he was still contributing to because he received a generous employer match. In spite of the match, his funds were still recovering from the Great Recession. His main worry was that another market correction, like the one we’re experiencing now, would wipe these funds out.
Hating the thought of having to work a job with no exit strategy in sight, he decided it was time to revisit his Wealth Maximization Account and set new goals. Namely, how to position his assets for the greatest amount of cash flow and the least amount of risk.
First, we looked at his 401(k). In Bryan’s mind, his employer match was like a 100% return on his investment. Diving deeper, the benefit of the match was actually much less than he supposed. At the time, the match was $9,000 per year, but it was only available if Bryan also contributed $9,000. His 401(k) balance was $1.2 million, which meant his employer match was only adding 0.75% annually.
Next, we analyzed the future portfolio income of his retirement account using the Monte Carlo simulation.
The Monte Carlo Simulation
The Monte Carlo simulation comes from the gambling and casino world. Basically, it determines the odds of something happening. When it comes to retirement accounts, it takes into consideration different portfolio scenarios, like various investments in gold, stocks, bonds, and commodities. It factors in the percentage of annual withdrawal you take over a number of years and the probability of that distribution rate lasting throughout your lifetime.
When I taught Bryan this, we were assuming that over the coming years his 401(k) balance would grow to $1.5 million. At that amount, the yearly distribution recommendation given by typical financial planners would be $45,000 to $60,000. For Bryan, that wasn’t even close to what he was expecting. Even with his real estate cash flow and Social Security, the number still left him short.
Fortunately, Bryan had sufficient whole life insurance for a strategy we call the Covered Asset, which could boost his income by 100% with a lifetime guarantee. Instead of the projected income from the Monte Carlo simulation ($45,000-$60,000) he could have a guaranteed income of $90,000 to $109,000 for the rest of his life.
I also calculated the best ages to file for Social Security for Bryan and his wife, looking at the provisional income tax thresholds that would trigger income tax on up to 85% of their benefits, as well as Medicare surcharges. (Yes, your Wealth Strategist can do these calculations for you too!)
As I spoke with Bryan, we both came to the realization that he didn’t really want to retire. He wanted to rethink retirement.
Pursue FInancial Independence
Over the course of Viktor Frankyl’s imprisonment, he developed what came to be known as Logotherapy. Logotherapy is a psychotherapeutic approach to what causes stress and anxiety. It is the drive we all have to discover our meaning in the world. In other words, how we are valuable and important as it relates to others.
When we work and are paid, unconsciously we know we are valuable because someone is willing to pay us for our time, energy, and knowledge. We find meaning in our work. According to a study done by Gettysburg College, the average worker will spend 90,000 hours working over their career, which means we spend a lot of time being validated for who we are and the value we bring to the world. If people stop working and the meaning they’re used to experiencing is gone, the end result is not pretty. They are not happy, no matter how many rounds of golf or games of bridge they play.
A few years ago, the American Association of Psychology connected the dots in an article titled “More Than Job Satisfaction.” It emphasizes that when you spend a lifetime accumulating knowledge and experience, you begin to associate it with who you are. It validates your worth and brings you pride. It proves you’re valuable. To simply stop sharing that with the world at age 65 leaves most retirees feeling unfulfilled, unsatisfied, and depressed.
Talking with clients and friends over the years, I’ve learned the main reason people want to retire isn’t because they don’t want to work. It’s because they aren’t growing, don’t care for the leadership they’re currently under, they work in an office with poor culture, or they don’t feel they’re appreciated and rewarded to the level they deserve.
I am convinced that the end result people are really after when they talk about retirement is financial independence.
We stand by our charge of pursuing financial independence now, not retirement at 65.
So how do you achieve financial independence now? First, stop thinking about retirement and start thinking about the contribution you make to society that rewards you the most.
How to Start a Career Rebirth
With a secure financial future in place, Bryan began looking for opportunities to use his knowledge. He started by making a list of attributes his dream career would have. Things like working remotely, creating his own schedule, having time to travel, and the flexibility to only work 20 hours a week. He also created a list of his skills, experience, and overall business sense, including his vast professional network of executives, business owners, and influencers. The end result: Bryan could have a career rebirth as a consultant and freelancer.
There is no better time in history to reinvent how you make money. In our current climate, with so many businesses forced to work remotely, this will be a norm for employment going forward. You can do the work that is most fulfilling, from wherever you are located, and on a schedule you choose.
You may not be qualified yet, in experience or technical ability. However, if your aim is to achieve this work criteria as the end result, and you could get there in half the time, wouldn’t you be ready to rethink retirement and make a plan of action?
The Three-Legged Stool
I see financial independence as a three-legged stool. Remove any one of the three, and the stool won’t have enough support to stand. The three legs are as follows:
1. Purpose-Driven, Fulfilling Work
I cannot emphasize enough how important it is to know your skill set, personality type, and have a solid picture of what you want your future to look like. Without this, none of the other legs matter. You have to know what you want.
Discover a fulfilling career that aligns with your talents and abilities that you love. Structure your career so that it provides the ability to schedule your life and time in a way that you feel alive and like you can work on your own terms. This may take awhile as you gain experience and discover what you really want to do, but with modern tools and technology, working 20 hours or less a week and working remotely from any place in the world, are very real possibilities.
Regardless of your age, start looking now for ways to make this dream a reality. Build your resume for the purpose of working remotely, network, and start now so you can scope the appropriate time to make your transition.
2. The Right Financial Tools
Your wealth strategy needs tools that have both long-term and short-term benefits and fit your unique requirements. There can be benefits in 401(k) for retirement purposes, including tax deferral, asset protection, company match, and forced savings, but since your outcome is NOT retirement, the majority of these types of plans are usually not suitable.
The Wealth Maximization Account is the ideal foundation because it offers many of the same long-term features but it has additional short-term benefits such as liquidity without penalty. This new source of capital for financing needs not only helps you avoid high-interest debt, but offers you a funding source for training and professional development. Additionally, it gives you a degree of certainty that is unprecedented and allows you to capitalize on opportunities during downturns in the economy such as the one we are currently experiencing.
3. Cash Flow Investments
A vital step toward financial independence is learning how to make good investments, specifically ones that give you monthly cash flow. We utilize The Hierarchy of Wealth as a check and balance to help you determine the degree of risk an investment has. I believe that financial independence is possible using the most safe tiers—Tier 1 and Tier 2. It is an iron-clad financial foundation that can accelerate your timeline to achieve your goal of independence.
Tools and Tips for Reinventing Your Career
If you are considering holding on to your traditional job, but you want to start making the shift towards working remotely, I recommend searching for remote work on Indeed, or look on job and project platforms like Upwork, Twago, GoLance, and Jobspresso. If you enjoy working with startups, AngelList is a good reference.
I can’t stress enough the inspiration and guidance I’ve found in great books. My recommended reading list for budding entrepreneurs, freelancers, and consultants is as follows:
- 1. Linchpin: Are You Indispensable? by Seth Godin
In this book, Seth outlines the importance of bringing your personality and your passion to your work. By taking pride in your work and truly loving what you do, the work is no longer about collecting a paycheck. The work becomes about bringing value.
- 2. The Art of The Start by Guy Kawasaki
This book aims to inspire you in your pursuit of creating the life you want and gives ten major tips for starting anew, whether you decide to embark on a non-profit venture, entrepreneurship, freelancing/contracting, or simply making the switch to working remotely.
- 3. For Better, or For Work: A Survival Guide for Entrepreneurs and Their Families by Meg Cadoux Hirshberg
For Better, or For Work is geared towards couples in business and examines the impact of remote work life on family life.
Simon Sinek gives some powerful insights to help people find more inspiration in their work, how to become creative about problem solving, and how to inspire others.
- 5. The Fringe Hours: Making Time For You by Jessica Turner
This book is geared toward women who are considering working remotely, but the message applies to anyone. It offers perspective on how women can take the time they need to practice self-care and do the things they love.
What If I Am Older Than 55 or Already Retired?
A common misunderstanding is that, like a 401(k), a Wealth Maximization Account must be started early. The truth is I speak with many clients 55 and older. It’s never too late to start shaping your future. Most older clients have assets in place and good savings. They’re not starting at zero, they have established finances. It’s simply a matter of repositioning and using some of those assets to build a foundation with whole life insurance.
If you want the same results as everyone else, keep carrying on down the same retirement path you’ve been following. But if you want a BETTER version of retirement that leaves you fulfilled and financially independent, speak with your Wealth Strategist and create a personal solution that fits your unique goals. It’s time to rethink the way you look at your future and it’s my passion to help you get there.