Billy Joel vs. Vanilla Ice: The Longevity Quotient

Billy Joel started touring in the fall of 1971 as an opening act for The J. Geils Band and The Beach Boys. He released Piano Man in 1973. His first #1 hit came in 1980 with It’s Still Rock and Roll To Me.

This fall, a mere 46 years after his first tour, he’s still selling out huge ballparks…from Wrigley Field to Fenway Park to Madison Square Garden. In the last 12 months, he’s been the highest paid singer in the world, earning about $75 million from June 2016 to June 2017.

Reginald Kenneth Dwight has also had remarkable longevity. You might know him as Elton John. His debut album was released in 1970, and he’s had #1 hits spanning from Crocodile Rock (1973) to Candle in the Wind (1997). Because of his contract with Caesars Palace, you’ll have to go to Vegas if you want to see him live these days. Unless you want to catch him on the international tour in places like Spain and Georgia (the one on the Black Sea, not the one where the Braves and the Falcons play).

Paul McCartney is still touring and still making millions, even though he’s 75 years old and looks like an androgynous women’s basketball coach these days.

Two interesting notes on Sir Paul. First, he’s a strict vegetarian and animal rights activist, and demands the enforcement of a strict “no meat” policy while touring. At whatever venue he’s playing, employees are informed that they’re not allowed to have meat in any form backstage or anywhere around Paul. If someone brought a meal from home that includes meat, they’re expected to eat it in a private office, or in their car.

Second note: Paul still performs all of his songs in the same key that he originally wrote them in (which, for many of those songs, was in his 20s). That’s pretty rare for a musician of his age. For instance, Billy Joel has dropped most of his songs a key or two to accommodate his aging voice.

And any conversation about musician longevity would have to at least include a mention of the Rolling Stones, Bruce Springsteen, and U2.

At the other end of the spectrum, there are plenty of artists who had a huge year (or several years) but weren’t exactly cut out for a multi-decade run. Vanilla Ice, Britney Spears, Duran Duran, Tina Turner, Nirvana, and Foreigner were all huge acts at one point, but none of them stood the test of time (for various reasons) in terms of ongoing income potential.

You could probably collect a wide range of opinions as to why some artists’ careers span multiple decades and others flame out in just a few years. That’s not my area of expertise, but we see the exact same phenomenon with retirement income plans. Some are set up to last as long as they need to, while others are in danger of flaming out too early.

Let’s take a look at some of the reasons behind early flame-outs.

1) An unsustainable withdrawal percentage

Most people used to subscribe to the 4% rule as a guideline to help with knowing how much they can take out of their retirement accounts each year. This rule essentially stated that you could withdraw 4% from a classic stock-and-bond portfolio every year throughout retirement with relatively little chance of running out of money before you die.

In today’s environment, the reality is that a 4% withdrawal rate from a standard portfolio leaves you with a much higher chance of running out of money. Many experts have amended this to the 2.8% rule. On the other hand, with a portfolio that’s truly structured for income generation (instead of just the typical mix of stocks and bonds), you can usually generate more than 4% over the course of your lifetime, but it takes a much more specialized approach to construct that portfolio.

2) Bad choices on spousal benefits

Too often, we meet with people who have already started their pension and made a bad choice. When you start getting a monthly income from a pension, you usually have the option to take a certain amount (let’s just say $3,000/month) with no spousal continuation; or you could take a slightly smaller amount (let’s say $2,850/mo) but your spouse continues to receive some or all of it after you die.

Most people don’t take into account the income gap that gets created at the death of the first spouse. We’re already going to lose one Social Security benefit when the first spouse dies. If we exacerbate the problem by taking away a pension too, that could leave the remaining spouse in a position where they suddenly need to rely much more heavily on their investments—possibly to an unsustainable degree—for their income.

3) Not enough lifetime income streams

It's almost never a good idea to enter into retirement with Social Security as your only predictable lifetime income stream. In most cases, unless you live very simply, that means that the overwhelming majority of your income is being generated by a market-based portfolio. That means that if you spend through everything in the portfolio, a meager Social Security payment is all you have left.

It’s crucial to explore other options for predictable lifetime that don’t run the risk of drying up after an account balance hits zero. Pensions, annuities, rental income, and business income are all examples of predictable income streams that could suffice as a supplement to your Social Security.

So how is your income plan structured? Are you on track to have a retirement that looks like Billy Joel or Paul McCartney, with strong paychecks coming in for several decades? Or are you on the Vanilla Ice track where you’ll eventually have to start hosting a reality show on the DIY Network to make ends meet?

Yogi Berra: Retirement Planning Strategist

“Nobody goes there nowadays, it’s too crowded.”

I don’t know what Yogi Berra was referencing when he dropped that quip, but I can only assume he was talking about Brigs at the Park on Highway 55 in Durham. Nobody even thinks about going there after church on Sunday because it’s just too crowded.

But Yogi’s quotes are good for more than just brunch advice. We can actually extract a lot of retirement planning wisdom from some of the things he said. Let’s break down a few classic Yogi-isms and find the financial planning wisdom within…

“I never said most of the things I said.”

Have you ever had an experience where you thought you were buying something with a particular feature or benefit, but then down the road you discover that everything you remember from the sales pitch isn’t actually true?

Cable companies are the worst examples of this. The sales guy will promise you literally anything just to get the sale made. Then when the tech guy shows up to install everything, you suddenly find out that the laws of physics don’t mesh with what the sales guy told you.

“They said the TV would be able to read your brainwaves and you could change the channel just by thinking about it and you don’t even have to use the remote? No ma’am, we can’t actually do that.”

But good luck getting anyone at the cable company to acknowledge the fact that you were led astray.

“Oh, Ted told you that? He’s not with the company anymore.” Or in other words, “We never said most of the things we said.”

In the financial world, this confusion usually manifests itself in the form of investment projections. It’s important to understand the difference between something that’s contractually guaranteed to happen and something that could happen. If you’re being given a sales pitch for a particular product, there’s a good chance that a lot of time will be spent on what could happen. Be sure you have a clear understanding of what’s being promised, as opposed to what’s being projected.

“A nickel ain’t worth a dime anymore.”

Well Yogi, I’m not positive that a nickel was ever worth a dime, if we’re being technical. But your point is understood. Inflation can really take a toll on the buying power of a dollar.

When you think about the fact that inflation hums along at a rate somewhere between 2.25-to-3% per year (depending on which statistician you ask), that metric by itself doesn’t seem all that daunting.

But once you start adding up the cumulative effect of inflation over the course of a 30-year retirement, suddenly the situation appears to be a bit more daunting.  If you’re retiring at 63 and you want to spend $8,000 every month, that means you’re going to spend $16,000 each month when you’re 85, if you want to have the same buying power.

Most people understand the concept of inflation, but haven’t really stopped to assess just how much it needs to be factored into their retirement income planning.

 “It’s like déjà vu all over again.”

The cycles in the stock market usually look pretty similar. Things are going well and everybody is buying, then there’s a crash or a correction, and suddenly everybody is panicking and selling.  Nobody can predict when these things are going to happen, but the way that people behave during these periods is always startlingly predictable.

And everybody always thinks they learned their lesson from the last crash…until we get a few years down the road and suddenly everybody behaves the same way they did during the last crash.

I spend a decent portion of my week talking to other advisors around the country, and the consensus is that most of them aren’t bringing on nearly as many new clients as they were five or six years ago. The reason for that is five or six years ago, the crash of 2008 was still very fresh in everyone’s mind, and they recognized the need for help with their retirement planning.

Today, in 2017, it’s almost as if nobody remembers that crash. Most people don’t perceive the need for any help or guidance. The average investor is quite content with the performance of their 401k, and assumes that they’ve finally gotten the hang of this game called investing. The reality, of course, is that a bull market has the power to cover up a lot of mistakes, so you don’t recognize the things you’re doing wrong.

But then the market crash will come and it will be déjà vu all over again.

The key, as always, is having a solid plan in place that addresses all of these issues and more—inflation, market volatility, tax efficiency, predictable income, etc.

Because, as Yogi said, “If you don’t know where you’re going, you might wind up some place else.”

The Gilligan Plan: Surviving Your Financial Shipwreck

You don’t have to look very hard to find a lot of fun conspiracy theories about Gilligan’s Island.

One theory is that the whole ordeal was perpetrated by the Howells. Their businesses were collapsing so they decided to create a new world for themselves. They specifically selected certain people to end up on this boat with them in the middle of nowhere. The Professor was essentially MacGyver, with his ability to make anything out of random spare parts. Ginger and Mary Ann were eye candy for Mr. Howell. The Skipper was there for manual labor for Mrs. Howell. And Gilligan is the buffoon who constantly ruins the plans to get off the island, thus solidifying the Howell’s reign forever.

After assembling their dream team, all they had to do was check the weather reports and head out for their boat ride on a day when they knew they were likely to get swept away by a storm.

The best support for this theory is the fact that the Howells are wearing different clothes almost every episode. Why would somebody bring so much luggage for a three-hour tour? Maybe because they knew it was actually going to be 98 episodes instead of just three hours?

Another theory is that this was a drug deal that hit a few snags. Thurston Howell was a dealer to the rich and famous who was on his way to rendezvous with a supplier in the South Pacific. That would explain his suitcase full of cash.

The Professor was there to put his chemistry degree to work. Gotta have somebody to check the quality of the merchandise.

Ginger was a movie star. Obviously one of Howell’s customers. And Mary Ann was either an unsuspecting tourist, or a narc who was hot on Howell’s trail.

Finally, there’s one conspiracy theory that’s actually true…or mostly true. The theory posits that the island is hell, with each of the characters representing the seven deadly sins. Mr. Howell is obviously greed. Mrs. Howell represents gluttony. Ginger is lust. Mary Ann, always jealous of Ginger, represents envy. The Professor, with all of his fancy book learnin’, represents pride. The Skipper is wrath. And Gilligan embodies sloth.

Years after the show went off the air, Sherwood Schwartz, the show’s creator, wrote in his book that this last theory is actually true. Not the part about the island being hell, but the fact that each of the characters was based on one of the seven deadly sins.

None of these theories have anything to do with my main point. From time to time, we like to break down classic TV characters and see what they can teach us about retirement planning (see previous posts about Fred Mertz and Jed Clampett). Today, I really just wanted to talk about Gilligan, but somehow ended up wandering down this conspiracy theory rabbit trail.

In any event, forget about the seven deadly sins. Instead, think about Gilligan the way that most people remember him. He was so lovable. Innocent, naïve, and really had the best of intentions. But at the same time, he also had some really bad luck and an accident-prone way of clumsily stumbling through life.

I recently met somebody who was in the same boat. (Pun intended). He was a real life Gilligan.

Super nice guy. He sees the good in everyone. Even if you’ve only known him for five minutes, he acts like you’ve been best friends for 35 years. He stops to give money to every panhandler he sees and can’t help but pick up the phone to make a donation to the ASPCA when he sees the commercial with the abandoned puppies.

And when it came to his investing life, he was a toxic combination of bad luck and terrible decision-making.

When he got divorced several years ago, and his ex-wife’s legal team ran circles around his attorney. He got taken to the cleaners on that deal.

He’d invested some money in his brother-in-law’s business about a decade ago. That was $50,000 that evaporated almost immediately.

His cat has a rare blood disease that requires a specialized treatment that costs several thousand dollars a year.

After the market crashed in 2008, he decided to get out of stocks altogether, and he never got back in. So he took all of those losses, sold at the very bottom, and then parked himself in cash and hasn’t experienced the growth of the last eight years.

And the crowning blow—he’d had a “financial advisor” who swindled him out of tens of thousands of dollars about 15 years ago. That guy is now in jail, but our real-life Gilligan never got his money back.

The sad thing about Gilligan’s Island was that the show ended with everybody still stuck on the island. When the third season of the show ended, a fourth season was expected. So the last episode of season three ended just like all of the other episodes, with the bubble-headed Gilligan ruining everyone’s chance to get off the island. But then season four was abruptly cancelled, and Gilligan and his buddies were stranded forever.

For our real-life Gilligan, fortunately, there was hope. It took several months of helping him get organized, rectifying some old tax mistakes to pacify the IRS, putting together a plan that had him putting his money into legitimate investments instead of fantastical family businesses or too-good-to-be-true scams.

It certainly wasn’t an overnight fix. After decades of bad decisions that had him financially marooned on a deserted island, we weren’t going to be able to rescue him with the snap of a finger. But with a logical course and a clear destination, he’s in a much better position than he used to be, and improving more every month.

Here’s the point. For some people, once they decide that they’re a financial Gilligan, they just give up and assume they’ll be stuck on this island forever. They assume that they’ll be working until they’re 78, then living in poverty for the rest of their lives after that. But I’ve never actually found a case that’s completely hopeless. A little planning can make up for a lot of past mistakes.

And it’s funny how it usually unfolds. When you take charge of your own situation, instead of just being depressed about your situation, that’s when your ship usually comes in.

Micro-Frugality: Does the Latte Factor Matter?

Matt Miner, guest blogger from Design Independence

I recently changed primary care physicians, and as a result got my first physical since sometime when my age had the number “2” in the tens-place.

One result of this was an early-morning blood draw today, for which I had to fast (something I’m not particularly gifted at) in advance of the draw.  No wonder I only go for physicals every ten years.

As I began to head out the door this morning, my initial plan was to grab Starbucks and a breakfast sandwich on my way to work.  But I paused.  I was faced with a Latte Factor decision.  The Latte Factor (tm) is a concept from David Bach, a solid mainstream personal finance author.  His presupposition is that most American consumers will stay normal, American consumers, and so he provides specific recommendations for tweaking spending at the margin to improve savings rates (though I don't think he uses that term).  You can get a great flavor for Mr. Bach's work in my favorite of his books, The Automatic Millionaire (you should buy the book via my link at the bottom of this article, both for Mr. Bach's solid content, and to support DesignIndependence.com).

But now back to my morning.  Rather than the fast-food option, a different choice would be to assemble my usual bowl of cereal and make my usual coffee, and find a creative way to bring the ingredients with me.  In fact, it wasn’t all that creative: I put the coffee in a thermos, milk for my cereal in a travel cup, and covered my dry cereal with plastic wrap.  Total incremental time, including dish clean up tonight: 10 minutes, max.  And now I sit here cozily enjoying my cereal, sipping my coffee, and typing some words into my computer for you.

But did this decision matter financially?  I’d say I saved $8 at Starbucks (latte and sandwich).  We can safely divide that by an after-tax rate pay rate of 60%, which gets us to $8 / 60% = $13.33 in gross income for ten minutes of work.  That’s $80 as an hourly rate, which is fair, as such things go.  And certainly my chosen breakfast had fewer calories, less paper waste, and less delicious salt than my SBUX fare would have offered.

How about over a lifetime?  Well, I get my blood drawn every ten years.  Ignoring the time value of money and assuming ten more blood draws in my life (yes, I know the frequency will likely increase in the out-years, but those are the most discounted from a time value of money standpoint), we calculate un-discounted lifetime savings of $133.33, for making this same decision every time I get a blood draw...

Read the rest at Design Independence...