The show begins with Steve and Dave “waxing poetic”* about the end of summer, and quickly moves into a detailed review of a great column by Michelle Singletary about the emotional fraught of retirement. Then Steve debunks Michael Burry’s latest doom and gloom market prediction. If you’re worried about your money running out, and a fan of shorting the “Big Short” guy, you’ll love episode 105 of Plan For Life Now
*Fancy words for complaining
Michelle Singletary Washington Post
CNBC: Millionaires are feeling financially Insecure
Steve:
Welcome To Plan for Life. Now, episode number 1 0 5. We are sitting here at the end of August, and I know we said it in the last episode, but I just can’t believe how quickly the summer has gone by.
Dave:
It really flies by, I just have no room to complain. Basically with my summers, although they are, it’s really seemingly just June. By the time you get to August 15th, it feels like the summer’s ending. And to me it doesn’t really start till June 15th. So it’s really a two month summer of real hardcore summer, not worrying about anything else. And then life creeps in after the 15th of August.
Steve:
Wow. I mean, does it keep creeping in for you? I mean, your kids are all out of the house doing your own thing. I mean, I’ve got three kids in three different schools. First days of school yesterday, today, tomorrow. Nobody’s crying for me. But it’s, you know how it’s okay.
Dave:
Well, for me, creeping in means I go out of my mode of professional pickleball, player and golfer and into the real world of the real world, and it’s all, its machinations. That would be the difference. But you’re right though I’m not comparing myself to your, I remember that. I remember those times. Well,
Steve:
I hate the people that you start to complain about something and then they’ve always got it worse than you. Oh, your thing is nothing. My thing is really, oh
Dave:
No, you do have it worse than me.
Steve:
We’ve all got our own challenges. So what we wanted to talk about here today, Dave, you sent a really a fantastic article by the Washington Post columnist Michelle Singletary. A lot of people in the DC area at least probably familiar with her writing, and I think I might’ve talked about her writing in the past. And for me, I’ll be very honest, it’s a little bit geared towards, usually really geared towards things that I find to be a little too simple. And I don’t want to come off as some sort of, oh, it’s too simple for me. I’m so high and mighty. But it’s a lot of things that I think should be common sense. Hey, don’t carry a big credit card debt and spend more money than you have. But I get it. I understand that a lot of people need that advice. That’s critical.
I mean, we’ve all seen how many people have credit card debt, how stuck they are in that, how it just becomes a spiral there. You can’t escape. But that tangent aside, this article really I thought was phenomenal and really on point for a lot of our clients. And she’s talking about herself here, the title of the article. My husband just retired, I’m scared to death of running out of money after 30 years in the federal government. Now comes the hard part. So she talks about how her husband retired at the end of June and someone who writes about personal finance for a living has done all of the projections and the analysis to know that they have enough money. She is filled with sleep deprived nights, worried that they don’t have enough money that they’re going to live into their nineties, that there’ll be some sort of health issue that’ll come up. And I think this is a very, obviously it’s a very natural thing. We deal with it all the time, but in particular, she talks about how hard it is to spend money in retirement. We’ve all had this drilled into us that we need to save money. You’re someone who needs to save. You got to avoid those lattes. You got to put money away, save regularly, and flipping that switch and going to spending money, I think that’s really hard for a lot of people.
Dave:
And this is the reason I sent it to you. I thought this article is the number one conversation I have with people. Forget about just clients, obviously with clients, but also with just friends and other people I even meet and they find out what I do for a living. And the conversation gets often to this, the notion of you’re not working anymore and there’s no real income coming in besides social security or whatever. And now you’ve always watched your nest egg grow. It’s interesting that this is a problem of people who tend to be good clients and good savers and people who are, these are not people who never thought about it and oh, all of a sudden I’m retired. These
Steve:
Are people
Dave:
Who watch their nest day grow, and that means they are good savers and they see these goals and now that part’s over and money’s not coming in and there is a fear. And you know what? We don’t help that fear too much with our, I mean the financial planning industry, we talk a lot about what the 4% rule or what we call it, the three and a half percent rule for every million dollars. I can take like 35,000 off that it’ll last a certain amount of time. It’s that kind of talk that leads to people with a million dollars or more, a lot of times more of retirement assets still in a very fearful position. And I think that’s been exasperated by the recent inflation,
Steve:
I mean the recent inflation. But you can always pick some sort of topic that’s going on, current events that’s going to make everyone worried and scared because we all know that’s how news operates nowadays. You don’t get clicks and views for saying, you know what, just stay the course. Everything will be fine. You get clicks and views by inciting, anxiety, fear, anger, all of that stuff.
Dave:
You know what though, with my talks with people, and remember, I’m older than you, so all the people I talk to are all in this boat. I get a lot of anecdotal, not just clients, everybody who I know. The difference is a lot of these people understood the notion of I’m not selling my stocks when they’re low because of the s and p downgrade or covid or whatever. But what they never experienced and now they’re retiring is this high inflation than not knowing or things that continue to cost so much. I’ve noticed that a level of, I don’t want to say intelligence, but a level of real awareness of things that we always talk about. A lot of people have gotten past the ups and downs of the market. They know that they’ve even built a mote around. They’re not all on stocks, many of ’em. But the inflation thing was a brand new thing. I mean, everybody remembers it. You don’t, but from the eighties or whatever. But now it’s a new thing in retirement. And I find this to be a big fear driver amongst my fears.
Steve:
I don’t have any data to back it up, but I would bet that people have gotten better. Not saying everyone’s great, but gotten better at dealing with some of the ups and downs of the market. This is through education and experience, but we don’t have experience with high inflation, or I should say we don’t have it when we’re close to retirement, right? A lot of people tell stories about the seventies and eighties and what they dealt with, but that’s really different when you’re in retirement and you’re actually dealing with that. And that makes me think of, and I’m going to get this exact quote a little bit wrong, but it’s one of these famous market quotes where they say the market will figure out the way to cause the maximum pain to the maximum number of people at any given time. Meaning if we all really want something to go up, well, it’s not going to go up. It’ll actually go down. And if now we’ve gotten used to market fluctuations kind of as best we can now introduce inflation and pick your poison as to what the next thing will be. I can’t sit here and predict it, but that it’ll be something else that we’re not thinking about right now. That will be the next thing to cause pain and anxiety and all of that.
Dave:
The next thing I thought about when I read this article was this is so easy to say since this is what we do, but people really need to find financial advisors that they can trust to put these plans together. Obviously you need to put a sophisticated plan together to deal with this fear.
This is why everybody should at least, I don’t know too many advisors like us who don’t do the Monte Carlo analysis. We do the software work, and that stuff’s really important. It should not be poo-pooed because you could basically see, put all your assets in there, figure out what your needs are, you’ll see how much money you can spend, you’ll see how much money you have. You can look at projections and that type of work along with helping you with the right investments and emotional things. It’s just how else does an intelligent person who’s not in our business deal with this?
Steve:
And I always talk about, I think one of the most important things we do is that what if analysis where we come up with some reasonable assumptions for mortality, inflation rates are returned, all these different things, but we got to poke holes in those. I assume inflation at 3%. What if it averages 5% for the next 30 years? What does that look like? Does that blow up your plan or is it okay but not quite as good? And one of the things that I saw in this article that I said, yeah, that totally makes sense to me, no question about that, is there was a survey here. It was done actually by the Federal Reserve, and it looked at retirees who were more likely to say they were doing okay financially in retirement. And 53% if you have private pension, so you have no sort of pension outside of social security.
And that number jumps all the way up to 78% said they were doing okay if they have a pension, and of course jumps even more if you’ve got interest, dividends, rent, things like that. But to me that 53%, you’re okay, no pension, 78% with a pension. Yeah, that’s probably what I would’ve guessed. Something like that, a 25% increase. And even in this article, they talk about Michelle Singletary and her husband talk about how they have or will have a couple social security incomes and a pension from the federal government, but not everybody has that. And some financial advisor that she interviewed for the article said, if you don’t have a pension, it’s worth considering utilizing an annuity to generate that kind of pension income. And this is something that we’ve said for years. Somebody who’s got a nice big pension covers most of their expenses.
They’re good to go. They don’t need any more annuities. Someone who doesn’t have any sort of guaranteed income. I think some sort of annuity planning should be part of their portfolio. And unfortunately, I think the financial media, going back to what the financial media does wrong, is they have all these articles talking about the negatives of annuities, of which there are plenty. There are a lot of things that can go wrong when you’re buying an annuity and they don’t talk about what we started off talking about this fear factor, this idea in your head that, oh my gosh, I’ve got to start to spend this money and how the annuity can help with that. I think that’s the thing. If you sit down there with a spreadsheet and you say, well, over the past 30 years, a person in a balanced portfolio would’ve done 1.2% better in this portfolio than using an annuity, therefore they shouldn’t utilize it. Well, that totally ignores the stress, the sleepless nights, the feelings of anxiety when they just look at that balanced portfolio and they don’t know what the future is. It’s so easy in hindsight to say, yeah, you would’ve been fine, but in real time it’s not nearly that easy.
Dave:
Yeah, I mean, back when we did those live seminars way back in the day, when you put this retirement strategies for people over 55 thing together, when you put the seminar, your number one bullet point was secure your income.
Yeah, you have a pension and social security and other sources you don’t have to worry about. You’ve secured your income by the time you’ve come to us. But when you don’t, that is a huge emotional issue. And just like you said, you can crunch all the numbers you want. It doesn’t factor in the emotional side of all of this, which is such a key part, which reminds me and my mind has drifted, and I’m just going to throw this out now for everybody, and some of you aren’t going to like it. Mark my words. AI will not replace US
Steve:
Financial advisors.
Dave:
Yes, AI will not replace us. And this conversation is exactly why. Well, there’s actually two reasons. There’s two reasons why. One is this conversation, and two is the market’s always going to go up, down and sideways, and it’s unpredictable. There were ever predictable. There’d be no market. So that unpredictability with this conversation about emotion is why I predict AI will never replace us, and when it does, everyone listening to this will be dead. So my prediction is still true.
Steve:
So what I wanted to touch on here, Dave, was that C N B C article that you sent that talked about people feeling financially insecure, and this makes sense, somebody who’s not making much money and they’ve got debt and things like that. But what this really focused on was people said 10% of people, or no, I’m sorry, 25% of people making more than $175,000 classified themselves as poor or very poor. Now, I think there should be a big asterisk next to this that says, well, where do you live? Because if you live in Manhattan, I’ve never lived there, but I think 1 75 might classify you as poor or very poor. But if you live in Omaha, I think you’re probably doing pretty well. But I think this all just comes back to what we were talking about, about people not feeling secure. They’re never going to feel totally secure in the financial media that we have nowadays. It’s just not designed to make us all feel good. It’s designed to make us feel anxiety and angst and all of that. So I found this to be very unsurprising, but maybe other people feel differently.
Dave:
Yeah, I don’t have too much more comment on what you said about that. I think I probably sent that to you because it’s just like, well, I guess it doesn’t really matter what you make. You’re always going to be worried about money. It’s just a different context.
Steve:
Yeah. So the next thing that I wanted to talk about, Dave, do you remember the movie or the book, the Big Short, the book by Michael Lewis?
Dave:
Yeah. I never read Think Half the book, but I certainly remember the movie. It was a really good movie.
Steve:
It was very well done movie. It had Steve Carrell in it, it had Christian Bale in it. So the character that Christian Bale played was this guy called Michael Burry. And if you don’t remember the story and the history on all this, Michael Burry was, he was originally a doctor. He was originally an md, and he got into investing on the side, and I don’t even remember the story. There was some super rich guy that staked him with some money and basically set him up with a hedge fund and said, okay, you can invest other people’s money. He was a doctor, but he was doing this investing stuff on the side. And so he had this hedge fund, and around the year 2005, he looked at the housing market and said, this doesn’t feel right. Everybody’s buying these homes. They’re not putting any money down.
They don’t have to tell the truth about their income. If you remember, they had loans that everybody just called liar loans because you could put down whatever you wanted for your income. So you had guys working at McDonald’s buying million dollar houses. Yeah, sure. I make $200,000. Not actually true. So here was this guy in 2005 who saw what was coming, and long story short, he placed these massive betts on the housing market, and in particular, subprime mortgages melting down. And I give all of this context because here was a guy who was right about the mortgage market and what was going to happen, but he was way too early. He was way too early 2005. I mean, really, the cracks didn’t start to occur until 2007, and really everything didn’t hit the fan until fall of 2008. So this guy was right, but his investors at the time, because he was bet on the housing market going down, his investors were looking at him like he was crazy.
And his investors were saying, you idiot, get your money out of here. You’re so wrong. We’ve never had a national decline in housing prices. But this guy stuck with it. He stuck with it, and he made hundreds of millions of dollars for himself and probably billions of dollars for his investors when the market finally did meltdown. Right? So that’s the whole backstory, just absolute legend in the trading world. He made this massive trade and stuck with it. There are plenty of stories of guys who made a trade like that and just they couldn’t stick with it. The pressure, the you’re wrong month after month after month. So I’m telling you all of this because this guy was really right about that one trade. But then he’s had a history since the financial crisis of making predictions, and he’s a big Twitter user, and I don’t Have you gotten used to calling it X? Now? I don’t.
Dave:
I guess. I think that was the worst marketing move in the history of, no offense to Elon Musk. He has a good track record, but yeah, everybody calls it Twitter. That’s a brand. Let’s change it to X. I don’t understand that. But yes, since X is on my phone now and not Twitter, yes, I’ve gotten used to it.
Steve:
I just can’t get it off my tongue. It just doesn’t roll out of my mouth. So he’s big on Twitter and somebody put together, he recently, there was this recent headline and it said, Michael Burry Betts, 1.2 billion on a market crash coming up. Basically he’s predicting this market crash in September. So first of all, let me take issue with how distorted that headline was from reality. So you see that headline, I see that headline. I go, geez, 1.2 billion. He’s betting 1.2 billion on a market crash. That’s a lot of money. Even for Elon Musk. That would be a lot of money though. He seems to be burning money left and right. Well, that wasn’t even true If you dug into it, he bought options, contracts that could potentially have a value of 1.2 billion. But with options contracts, you put down a tiny, tiny percentage of that, so maybe a 10th of a percent.
But that’s just classic. Somebody reads a headline, they pass on the headline. There’s very bitter kernel of truth to it, but not really. But here’s my point, Michael Burry, 2015, he said, crash coming in the next couple of months, May, 2017, global financial Meltdown is coming September, 2019. This was an interesting one. This was back. He was saying there was a bubble in index funds. So he was essentially making this argument that index funds, because they just buy the index, they don’t care about different stocks. What stock this one or that one, they just buy everything. He was saying, okay, they’re creating all these zombie companies and they’re buying these companies and just propping them up. March of 2020, this is after Covid hits, he reveals a massive bearish bet, right? Stock market was up 72% over the next year, February 21, market bubble crash coming January of this year. He sent a one word text. This was January 31st, a one word text sell. That was it. He just said, sell.
And of course, these most recent buying some of these options here. So my point in going through all of this is not to say this guy is dumb or he’s an idiot, or even to say he’s not worth listening to, because I think it’s worth listening to a lot of different opinions. But my point is that a lot of people will make their riches on a big trade or a big bet, and then people think they’re going to be right forever and ever. And the fact is you can be really right one time and then wrong for a lot of other times,
Dave:
Right? Correct. It’s like you can’t predict the market.
Yes, this guy was right. It was good analysis, and yeah, he dug into that and he was right, but you can’t predict the markets. Even that prediction, maybe something would’ve changed along the way from 2005. Maybe the government would’ve got involved seeing something and prevented a meltdown. It didn’t happen, and we did have a huge meltdown, but you can’t predict. But hey, people are going to follow that stuff no matter what. People are going to read things from, like you say, we are really hammering the media today in our show. The media is out to do something. They’re trying to get clicks. They’re trying to get you to invest in something. You see commercials and stuff like that. They’re going to use every psychological trick they can. Or you just have this guy who believes in what he believes in, which I’m sure he does, and sometimes a couple, well, he’s right that one time. He hasn’t been right for a while. But you can’t predict a crash, and you certainly can’t base your investment decisions on those predictions you can, but you’re going to be a basket kid,
Steve:
And I think you’re going to be wrong more often than you’re right. Alright, let’s wrap it right there. Thanks for joining us. Hopefully all of you can enjoy the last few days of summer. In my mind, summer ends at Labor Day, still having trouble coming to grips with the fact that kids go to school, back to school before Labor Day. When I was growing up back in my day, it was always the day after Labor Day
Dave:
Always was that that’s when you went back to school. We’d watch, well, this is even before you. I think we’d watch the Jerry Lewis telethon. It was always on labor.
Steve:
That is,
Dave:
We’re this on Zoom. But because he’s Steve’s face, he’s like, what? Most people listening to this know that you watched the Jerry Lewis telethon and it was depressing. Not obviously because or the reason for it, but because the next day you were going back to school. That was always on Labor Day Monday.
Steve:
All right, well, enjoy the rest of summer and we’ll talk to you again soon.