Why Most Americans will Never Be Able to Retire

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Episode Transcript

Speaker 1 (00:00):
The United States of America is facing a retirement crisis.
And no, it's not because the Social Security Trust Fund
will be completely empty in less than nine years. And no,
it's not because pension funds have been gorging themselves on
high risk investments. And no, it's not because people have
been under investing in their own retirement accounts for decades.

(00:23):
And it's not even because people have been choosing terrible
investments inside of their own retirement accounts. It's because all
of those things are happening at the exact same time,
which means most Americans alive today will never be able
to retire. But the good news is that as long
as you know what it takes to get there, and
then you actually do what it takes to get there,

(00:44):
you can And if you follow the very straightforward path
that I'm going to lay out for you at the
end of this video, you'll be able to avoid this
retirement crisis and set yourself up and your family to
be financially secure. When I graduated college, I was completely
flat broke. Like most people, I had about two hundred
dollars in my checking account. My job at the time
I was getting paid about four dollars per hour, and
I had about thirty thousand dollars in debt, so negative

(01:07):
net worth, no money, no income, and I had this
lofty goal to someday become financially free. I just didn't
know how I was going to get there, and so
I thought the best way to do that was to
get inside the finance industry and learn from the people
who were actually doing it. So I became a stockbroker. Now,
throughout my time as a broker, I learned a lot.
I made a ton of mistakes and lost a lot
of money, but I also learned how to make a

(01:28):
lot more money as well. During my first couple of years,
I worked primarily with low net worth clients, and then
during my final couple of years, I worked primarily with
higher net worth clients and specifically regarding clients who were
retirement age. There were basically two groups of people. One
group of retirees was poor and dependent, and the other
group of retirees was rich and dependable. Now, the main

(01:50):
difference between these two groups of retirees, through my interactions
with hundreds, if not thousands of them, and looking at
their income and their financial habits and their plans and
their needs and hearing their stories, I noticed really one
main difference between these two groups. Those who had a
large nest egg and who are prepared for retirement. They
had consistently for decades planned and acted as if someday

(02:14):
they would be responsible for taking care of themselves and
for taking care of others, whereas the group that was
poor and completely dependent on others or on the system
had spent their entire lives consuming everything they produced, and
they just hoped that someday somebody else would be there
to take care of them. Now, I never wanted to

(02:34):
be in that group, and I don't think most people
ever see themselves someday being in that group. But the
reality is it is difficult to choose to sacrifice what
you want right now for something that you want most
later on. And that's actually why we have a retirement
crisis today, starting with social security, because the very promise

(02:55):
of social security is that you can live your entire
life in bliss, full of ignorance, live in the moment,
never plan for the future, and someday when you're old
and you have nothing left and you're not producing anything anymore,
and you have nothing saved because you've consumed everything, and
then some somebody else will bear the cost of supporting you.
And unfortunately for everybody who has believed that lie, that's

(03:18):
about to come to an end, because the Social Security
Trust Fund will be completely depleted by the year twenty
thirty three. That's in less than nine years. Now. With
many economic predictions of doom and gloom and projections into
the future, it seems like they just keep on getting
farther away into the future and they never actually arrive.
But specifically with Social Security, this trend has actually been accelerating.

(03:42):
That drop dead date of when the Social Security Trust
Fund will be empty has been getting nearer and nearer.
In fact, take a look at this report from the
Social Security Administration themselves that was published back in twenty ten.
At that time, they knew the Social Security Trust Fund
was going to run out, and they thought that it
wouldn't run out in till twenty thirty seven. But every

(04:02):
year that date at which the Trust Fund would be
empty has been getting closer and closer, because the amount
of money leaving the fund has been greater than what
has been going into the fund. One of the driving
factors of this is that the number of workers who
are contributing to the Social Security trust Fund is declining
as a percent of the number of people who are

(04:23):
getting paid out from it. Now, when this trust fund
hits zero, that doesn't mean that social Security paychecks immediately
hit zero. What it means is that we have two
options on how to move forward. The first option is
the default, in which the paychecks to Social Security recipients
would be reduced by twenty five percent. Essentially, the amount
of money getting paid out in Social Security would have

(04:44):
to exactly equal the amount of money coming in, which
means that beneficiaries would receive a twenty five percent cut. Obviously,
that would be extremely politically unpopular, and so they may
have to change some laws or jump through some legal
loopholes in order to get to option number two, which
is the government would borrow extra money to spend the difference. Now,

(05:04):
if they do go with option number two, this means
that the amount of money in circulation will be increasing
as a result of keeping the Social Security paychecks the same.
And as we know, when you print money in order
to pay out to individuals, that drives up prices, which
means that no matter which option we're looking at, option
number one or option number two, social security beneficiaries are

(05:26):
going to receive a pay cut. Either way, they're either
going to be receiving fewer total dollars or they'll get
the same number of dollars, but those dollars would just
have less total purchasing power. But either way, it's a cut.
Now for younger people today, there's a widespread belief that
social security is something that we should not even think about,
not even something that we should remotely imagine we could

(05:49):
depend on. But unfortunately that hasn't translated into people taking
more responsibility and using their four one ks or their
own retirement accounts to make up the difference. If we
take a look at data buy Empower, which is a
four to one K provider, we can see the average
four to one K balances range from seventy four thousand
the age range of twenties up to a high of

(06:10):
five hundred and fifty five thousand in the age range
of the sixties. Now, for those of you who are
not aware, averages can be skewed when you have somebody
with a large amount in the group. For instance, let's
say we have one hundred people in a room and
ninety nine of them have one dollar, but the last
person has a million dollars. To get the average, you

(06:30):
would take the total number of dollars in that room,
which is one million, ninety nine dollars, and divide that
by one hundred people, and you would see that the
average wealth in that room was ten thousand, ninety nine dollars,
which is obviously very different than the vast majority of
people who only have one dollars, just being skewed by
the one person with a million. And so these average
numbers of the four one k bounces are going to

(06:51):
be skewed to the top side by some individuals who
have exponentially more. It means that the media numbers are
going to be far more accurate because the median just
lines everybody up and take the middle person and sees
what they have, which is going to give you a
more accurate representation of what the average person actually has.
We can see that these numbers are even worse with
the median balance for people in their twenties at twenty
nine thousand, topping out at a median balance of two

(07:13):
hundred and forty seven thousand for people in their fifties.
And we have this data from more for one k
providers than just in Power. If we take a look
at Vanguard's data, we can see that under twenty five
has a measly median balance of one nine hundred and
forty eight dollars in their four to one k and
even the top balance is a median of only seventy
one thousand dollars for the age range of fifty five

(07:35):
to sixty four, for those that are literally about to
enter into retirement age, they don't even have enough in
their retirement accounts to last one year in retirement. And
the data from Fidelity is very similar, with the twenties
age range having an average balance of ten thousand, five
hundred and the top age range of sixty to sixty
nine having one hundred eighty two thousand dollars. That's average.

(07:58):
I couldn't find the median, and we know that the
me will be a little bit lower. At least now,
this situation is not unsalvagable for most of these age ranges,
most of the demographics. If they contribute enough, we've got
enough time to let that compounding interest work to have
enough in retirement. Unfortunately, that's not what's happening with Americans
actually pulling money out of their four to one ks.

(08:19):
At Bank of America, who has more than four million
planned participants, they saw a thirty six percent increase in
hardship withdrawals during the second quarter of twenty twenty two,
and in the last five years, these hardship withdrawals have
actually tripled. At Fidelity and Vanguard reported that theirs have
doubled in the last four years. Essentially, instead of Americans

(08:41):
continuing to load up their future with saved money that
can grow for them to take care of them when
they're older, they're taking from it right now, interrupting that
compounding interest so they can consume it right now. And
as if that wasn't bad enough, in order to do this,
you have to pay taxes on that money and penalties
for taking it out early. This means that if you

(09:01):
need ten grand to cover an emergency expense today, you
might actually have to take up to sixteen thousand dollars
out of your four to one K just to end
up with a net ten thousand dollars. And that money
never goes back in. It doesn't keep on growing for you.
It's done growing for you forever. Now, all that sounds
pretty bad, but the icing on the ke for four
to one ks is the way that people are investing

(09:22):
these accounts more and more recently, over the decade from
twenty thirteen to twenty twenty three, planned participants at Vanguard
moved out of equity funds into target date funds. Equity
funds moved from an allocation of thirty four percent down
to a recent twenty six percent, whereas the target date
funds moved from thirty four percent up to sixty three percent.

(09:44):
Over the years of twenty thirteen through twenty twenty two,
we saw a decrease in investors allocating to equity funds
from forty four percent inequity funds down to thirty eight
percent inequity funds. Over that same time period, target date
funds moved from an allocation of nineteen percent up to
forty percent. Now you'll probably notice that if you look

(10:05):
at the totals on the top of that chart, that
equities totaled seventy one percent in twenty thirteen and we're
still around seventy two percent in twenty twenty two. They
really didn't change, and that's because target date funds are
funds that are specifically designed to change as you age,
which means when you're still younger, they have more of
an exposure to stocks, and then as you grow older,

(10:26):
they sell the stocks portion and go more into bonds.
And so while the current allocation is still about seventy
two percent equities, which hasn't really changed since twenty thirteen,
as each of those planned participants continue to get older,
those allocations go more and more into fixed income. And
if you think that's not a problem, just hang on

(10:46):
until we get to the next section when we talk
about why fixed income investments are such a problem going
into the next few decades. Now, just in case you're
thinking it'd be better if people had retirement accounts where
they couldn't control the investments, in other words, pension funds,
well you'd be wrong, because pension funds are actually doing
the exact same thing. And while pension funds are currently overfunded,

(11:08):
they have been doing the exact same thing with the
investments moving out of equities into fixed income. Now, the
first reason why over exposure fixed income in retirement accounts
as a problem is because of leverage. Because as long
as you can hold a bond until maturity, you are
very likely to get paid back your principle plus interest.
But if you have to liquidate ahead of time, chances
are you'll actually have to sell it at a loss.

(11:30):
That's exactly what happened to pension funds across the pond
when the guilt market almost collapped in twenty twenty two.
They were forced to sell their portfolio at far below
face value, and this was triggered by rising yields. We'll
come back to that in a moment. For over one
hundred years, we've seen a long term debt cycle play
out in the United States of America that takes about
forty years for each phase of the cycle to complete.

(11:53):
The last complete phase of the cycle lasted from nineteen
eighty through twenty twenty, which saw a period of time
in which bond yields continued to drop while inflation also
continued to drop. The phase before that lasted another forty years,
from about nineteen forty through nineteen eighty, when the opposite happened,
with inflation and interest rates both moving higher. So we

(12:13):
see this trend where inflation and interest rates will move
lower and then higher, and then lower and then higher,
and each of these phases lasts at least a couple
of decades. There's nothing magical about forty years. It could
be more, could be less, but these are long term cycles.
One of the main drivers of this is the debt
to GDP ratio. We can see in about nineteen forty five,

(12:36):
the US debt to GDP ratio peaked at around one
hundred and twenty percent, and then the United States government
started to deleverage from there. It was an inflationary deleveraging,
and for the next couple of decades the debt to
GDP ratio decreased, which was the same period of time
in which interest rates and inflation were moving higher. The
debt to GDP ratio bottomed at around thirty percent in

(12:58):
nineteen eighty and then spent the next forty years moving
higher until it peaked around one hundred and twenty percent
again at the same time as the next phase of
the cycle bottomed in twenty twenty, which means we are
moving into a new phase of this long term debt
cycle in which inflation and interest rates both move higher
for a long period of time. As the United States

(13:19):
government deleverages through inflation, they have too much debt to
pay the debt off directly, and so they have to
print money to cover their expenses. This means inflation and
interest rates move higher for everybody else, but at least
for the government, it makes their funding easier because they're
printing money to spend. You get a deleveraging through inflation
for the government with a rising inflation and interest rate cycle.

(13:41):
For the rest of us, this means that long term
fixed income investments are going to be terrible for investors
for a while. Long term fixed rate debt is not
the place you want to be when interest rates and
inflation are moving up. Number One, the value of your
bonds will go down as the interest rates of new
bonds go higher. Number Two, the interest rate you're getting

(14:02):
paid will not keep up with the rate of inflation,
which means you are losing purchasing power. In a rising
interest rate environment, the only debt you want to have
is short term debt, and in a falling interest rate environment,
the only debt you want to have is long term debt. Now,
I know the demographics on my channel, and most of
you are not at the age yet where it's too
late to start saving for retirement, which is good because

(14:24):
most of you are still in that demographics where you
have enough time to prepare, but you've also had enough
experience under your belt where you're in a high income
earning mode now. So here's the plan exactly what you're
going to do so you can make sure for certain
that you will have enough someday to not only take
care of yourself, but to also take care of others.
The first thing you're going to do is you're going

(14:45):
to figure out what is the amount of money you
need to live on every single year. Consider a couple
things first, before I come up with the number of
you know, one hundred thousand, consider that number one in
ten or twenty years, thirty years from now, prices will
be higher, so you're probably gonna have to overestimate a
little bit. So if you're thinking one hundred thousand dollars,
maybe bump that up to one hundred and fifty thousand dollars. Also,

(15:05):
consider that when you stop working, most people actually end
up spending more money in retirement because you have more
free time, more leisure time. You're going to visit family,
you're traveling, you're doing things, and also your medical expenses
go up. So for those reasons for this number, your
annual retirement number, you should probably overestimate a tad bus
step number two, you're going to divide that number by

(15:26):
four percent. So if you need one hundred fifty thousand
dollars a year to retire, you're going to divide that
by point zero four and you're going to come up
with three point seventy five million dollars. The reason why
we're dividing by four percent is because that's a good
rule of thumb for how much money you can take
out of your nest egg without it affecting the overall
balance for the long term. Theoretically, you can draw four

(15:48):
percent out of it forever without ever depleting your nest egg. Essentially,
you're taking a little bit less than the annual growth rate. Okay,
so if you need one hundred fifty thousand dollars every year,
that that means you need roughly three point seventy five
million dollars in order to retire. So how do we
plan on what we need to do to actually get there?
If you're not there yet, you're going to go to
a compounding interest calculator. You can find these online. This

(16:12):
one is money chimp dot com, but you can use
any of them. First, you're going to plug in the
amount of money that you currently have. So we'll start
off with a hypothetical one hundred and fifty thousand, and
then you're going to have to play around with the numbers. Here,
we're going to assume an eight percent growth rate and
say that you have twenty five years left to let
your money compound. For you, if you put in one
thousand dollars a month into your total investment portfolio, that's

(16:35):
twelve thousand dollars a year. That will net you one
point nine million dollars in twenty five years. Now that's
not enough. It's good, but as we've seen, if you
want to be able to pull one hundred and fifty
grand a year at the safe four percent, you're gonna
need about three point seven million. So how do we
get this number to three point seven million? Well, we
either have to just wait longer, change the number of
years that we're going to let it grow. We don't

(16:56):
want to mess with the expected growth rate because then
we are banking on something to happen that historically is
less common, and so we have to change the annual addition.
So what if we do two thousand dollars every month,
which would be twenty four thousand dollars a year. We're
closer at two point nine million dollars. That's up this
to thirty six thousand dollars a year, which is three
grand a month. And finally we got there three point

(17:19):
eight million dollars. Now, if you're sitting there thinking, well,
that just made me even more depressed, because there's no
way I can come up with an extra three grand
every month just to be able to invest for the future.
Oh worry, I've got you there too. In my final
year as a stockbroker, I was making about two hundred
fifty thousand dollars a year, and I had a plan
to stick with that job and take my extra money

(17:39):
and invest it in order to be able to become
completely financially free and retire someday. And I did not
like how long that plan is going to take. To
be honest, it's because I was miserable and I hated
that job, and I couldn't see myself sitting in that
job for another year, let alone another fifteen to twenty years.
At the time, I had a few skills I had

(18:00):
learned from being a stockbroker. Number One, I knew how
to invest. Number two, I knew how the financial system worked.
Number three, I knew how to communicate with people, and
number four, I knew how to sell. I thought those
skills packaged up were enough to start a successful business,
and so I quit my job as a stockbroker and
I started Harecy Financial. That was June of twenty nineteen.
I quickly learned that those skills by themselves were not

(18:21):
enough to make any money, and I spent the next
six months making zero dollars. And it took me a
total of a year and a half before I made
enough money to even cover all of my bills. And
I was only able to start making money because I
had to pair those original four skills with additional skills.
In my case, it was videography, video editing, graphic design,

(18:42):
and marketing. Those eight skills, packaged up together were the
skill stack that I needed in order to start making
way more money than I had ever made in the past.
Which is your step one. You need a skill stack
that can make you money outside of your job. Your
job may have given you some skills that you need.
What you're likely to find is when you employ those

(19:04):
to start a side hustle or to quit your job
and start something else that you can make a lot
more money. You're going to realize there are some other
skills that you need to learn to stack on top
of that so that you can explode your income pretty
much universally, some of those skills are going to be marketing, communication, sales,
and media. And it's almost a certainty that you are
going to have to start a side hustle or a

(19:27):
business that you'll be able to quit your job and
go all in on if you want to make enough
money to be able to invest enough to produce a
large nest egg for yourself in the future. The reason
why we have a retirement crisis today is because most
people ignored the fact that they were making just enough
to survive and we're not putting enough away for the future,
which means if you want to get a result that
is different than what most people have gotten, you have

(19:48):
to do something different than what most people have done.
So learn your money making skills stack, which is going
to be some skills from your trade, and you pair
that with sales, marketing, communication, media, hiring content that's going
to scale your income from your side hustle. You can
either take all that income and invest it, or you
can go all in on your side hustle and make
that your main hustle and scale that income even more.

(20:10):
And then once you have sufficient income to do the
three grand a month or five grand a month or
ten grand a month, whatever it is that you need
to get to where you want to go, then you're
going to invest it, and you need to invest it properly.
In my opinion, the sixty forty portfolio is dead. Modern
portfolio theory is not the way to go. That is
data that has been pulled from the last phase of

(20:31):
the debt cycle, and what worked in the last phase
is different than what works in the next phase, which
will be more similar to the phase that lasted from
the forties through the eighties. A much older, more time
tested portfolio approach is about a third in stocks for
that capital appreciation, about a third in real estate for
that cash flow and the tax benefits, and then about
a third in reserves, which is not just cash, it's

(20:52):
you know, savings instruments like gold, bitcoin, t bills, money
market funds, some cash so that you have some dry
powder to buy assets when they're on sale and to
last through the tough times. Making sure your portfolio is uncorrelated, hedged,
and you're making small asymmetric bets and most of all,
you are investing a large amount of income consistently for
a long period of time. You're going to be able

(21:12):
to produce enough to not only take care of yourself,
but to take care of others who you are responsible for.
And in my opinion, this is the end goal. This
is the reason why we do what we do. It
is to give and to take care of others. The
antidote to greed is not to despise wealth. It is generosit.
A person who said money cannot buy happiness just hasn't
given away enough yet. And by the way, if you

(21:33):
want more of everything that we just discussed and you
want exact detailed steps, training material and how to do
and how to understand literally everything we've discussed in this video,
I have all that plus a lot more in Heresy
Financial University. It's a membership program, coaching program where you
go through and you learn how to do all this stuff.
We've got group coaching calls where you have access to

(21:53):
ask me questions literally every single month. We've got a
community where you can discuss strategies and investments with other
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thanks so much for watching, Have a great day.