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0:04 JIM: Are your goals for a comfortable retirement based on a sound, well thought out plan with your advisor, or is it based on wishful thinking? Joining us today is Dr. Greg Salsbury, author of two books, But What if I Live? The American Retirement Crisis and Retirementology, to discuss some of the issues that many Americans have failed to think about when planning their retirement. Welcome, Dr. Salsbury. 0:30 DR. SALSBURY: Good morning, how are you, Jim? 0:31 JIM: I am fantastic. It’s a beautiful day today while we’re recording this. I look at things today. It seems like people are on one side of the fence or the other. We’ve heard and been told that the recession ended in June of 2009. Do you think most investors believe that, because I think they’re all over the board? 0:48 DR. SALSBURY: I think you’re right in your observation that people are increasingly on one side or the other. I think what’s happening is we’re rapidly seeing our entire population bifurcate between the haves and the have-nots. Middle class America is sort of disappearing in many regards. The short answer to your question is no. I don’t think most people believe that. In fact, there’s some evidence to indicate that. A recent survey showed that 74% of Americans don’t believe that the recession has ended. In fact, on the same week that the Dow Jones Industrial Average hit new highs, a new CNN poll showed that 6 in 10 Americans now believe that the American dream is essentially unreachable. I think people are extremely skeptical. It’s part of why you see $14 trillion sitting on the sidelines in corporate accounts and personal savings account vehicles, because people are frankly terrified. They’re still reeling from all of the damage that they incurred in the big hit with the initial wave of the financial meltdown and it continues still. They’re seeing their buying power eroded. We have more than 90 million people in America who are now not working. We have some 47-plus million people receiving SNAP or food stamp assistance. The jobs reports, even where there’s an uptick, if you dig more carefully into the data, you see there’s some fairly disturbing trends. Something like two-thirds of the new jobs are going to people who already have jobs. In other words, these are very low paying jobs. They are not the types of jobs that Americans are used to. There’s a great deal that they’re still absorbing. It has them all very nervous. No, they’re not at all convinced. I believe the vast majority of people believe we are not only not out of the recession that we are in the worst financial straits that we’ve been in perhaps in their lifetimes, unless they are survivors of the Great Depression. 2:55 JIM: How are Americans today thinking differently about money, retirement, and what are they still doing wrong? 3:02 DR. SALSBURY: I’m hard-pressed to say they’re doing that much wrong. Many of them are, don’t get me wrong, but I don’t blame them for their fear. I don’t blame them for their thinking. The classic financial services industry response to fear is to say it’s unwarranted and to say cheer up, hang in there little buckaroo. It’s not timing the market. It’s time in the market, etc., etc. The bigger thing that’s unfolding is really the erosion of their purchasing power. Let’s take healthcare for example. One of the most insidious things about this is that it’s referred as healthcare rather than a tax increase. The Supreme Court has deemed it a tax, okay, which is how they upheld its constitutionality. The Kaiser Foundation Survey, in looking at healthcare premiums from 2003 to 2013, found that the worker contribution portion for healthcare premiums increased 89% in that timeframe. The average worker is now paying about $7000 more per year in various healthcare costs than in 2003. Think about that. Think about a family of four, let’s say, who has a household income of $100,000. That puts them in the 28% tax bracket. That means their take home is $72,000 per year. Now, with that increase in healthcare premium, their take home isn’t 72, it’s 65. That’s a massive difference but it’s not called a tax. It’s not called a tax in the vernacular but it plays like a tax. They’re feeling it. They’re seeing all kinds of those things eat away at their financial security. They’re not sure what to do about it. The result is that they’re holding on even tighter to what little savings they may have squirreled away. That doesn’t just impact the working class, if you will. It’s having an impact on the influent as well because increasingly, they’re becoming the targets for even more taxes and expected to pick up the slack for what’s not being paid by the many people who aren’t working, etc. I will have some financial advisors say to me, it sounds like most of what’s unfolding is really only impacting the under saved and perhaps, the working class but my clients tend to be the affluent, so are they really impacted. They most certainly are because who’s going to pay for the shortfalls with the rest of the population. That’s going to fall directly on the shoulders of their clients. That’s a lot of what I see unfolding. I don’t see many advisors who are able to take on that topic and really deal with their affluent clients and talk about how one invests accordingly, given the trends of escalating taxes of one flavor or another. 5:57 JIM: Now, Greg, you’ve talked about in the past, I’ve heard you coin the term retirementology. You reference behavioral finance quite a bit. Explain what that means and what does the impact of that on retirement planning have. 6:12 DR. SALSBURY: Retirementology was the title of my second book. Retirementology came out in 2010. It is really a way to help people think differently about their money. Behavioral finance is the bane of economists. They don’t like to think of it as an actual field of study because it flies in the face of logic. People behave irrationally when it comes to money. Most economists tend not to like that. They like predictability and logic. Behavioral finance points out things like that people may drive 30 minutes to use a $2 coupon. Does that really make any sense? They may wash their own car on a Saturday morning to save the $10 that they would have spent at the carwash but they’d never dream of washing their neighbor’s car for $10. Why not? Their time’s either worth more than that or it’s not. If their time’s not worth more than that, they ought to be washing all the cars they can get. If it is worth more than that, they shouldn’t be washing their own car or their neighbor’s. When it comes it money, people behave differently and they think differently. There was a lot of damaging thinking prior to the meltdown that really hurt people. The real estate boom hurt people and they’re still feeling the impact now. For a very long stretch, people did not see the money they were spending on their homes as spending. They saw that as investing. They didn’t really worry about how much they were putting into them. Just between the years of 2002 and 2004, for example, Americans added over 718,000 backyard swimming pools. They added over 800,000 hot tubs and Jacuzzis to their homes in just that two-year span. They didn’t worry about the fact that that was more than they perhaps should have spent because the overall value of their home was increasing. They were convinced that that was a great “investment.” By the way, if they happen to have a vacation home, then they felt twice as prepared for retirement. There were many people who would in fact say, no; I’m not contributing to my IRA or my 401(k) anymore because I have a vacation home. That’s going to be my retirement. That’s already increased 100% in the last seven years, so my calculation is that by the time I’m 60, that home will be worth X. That’s going to be my retirement. 8:34 JIM: I used to struggle to try to explain to people that a home is a place to live. A second home is a place to vacation. It’s really not an investment. Even today, I talk to people about that. I said have you ever run the numbers on it because people just blindly pay their mortgage, their property taxes, and all that. When you compare that, they never look at the opportunity cost because if the money they had tied up in their home was invested in some type of income asset, a lot of times it costs a lot more to live in their personal homes. I’ve been struggling to tell people that hey, there’s nothing wrong with that. There’s a value to that. It’s a quality of life issue but if you’re going to look at it as an investment, then you got to look at it compared to the alternatives. Hey, we’re going to take a short break. When we come back, I’d like to talk to you a little bit about some of the sleeper issues that you see for soon to be retirees. Please stay tuned. [Break] 9:47 JIM: Welcome back as we continue to visit with Dr. Greg Salsbury who is an author. He’s spoken around the country about the American retirement crisis and retirementology. He’s been on before. I don’t see things changing. I think Americans have had a little bit more of a wakeup call over these last few years than they’ve had in a long time but there’s still a lot issues facing people as they face retirement. I think the definition of what retirement is and what the expectations are, are changing. They’re going through a metamorphosis right now, but what are some of the sleeper issues for soon to be retirees that you see. 10:24 DR. SALSBURY: Whether it would be considered sleeper or not, I guess, is a bit of a questions but in general, one of the biggest struggles they’re going to have is that what they thought they were going to have as a lifestyle in retirement for more Americans than not, is not going to be what they get. You’re going to see all of these adjustments to that reality. They’re not going to be going on as many trips as they had predicted. They’re not going to be perhaps, living in the house that they predicted. They won’t be enjoying the sort of lifestyle that they may have envisioned previously. I think healthcare is going to continue to soar as a major budget item for American households. I think you’re going to see Americans working longer, and in many cases because they’ll have to. Then you’re going to look at how that impacts the rest of the economy and affluent investors as well. They’re not escaping. If you’re a financial advisor, ask your clients how many of them have recently begun paying federal flood insurance on a property that they never paid flood insurance on previously, and a property that’s in an area that has never had a flood. There’s a sleeper issue. That essentially plays like a hidden tax and in many cases, that’s a couple thousand dollars per year depending upon the value of the home, maybe more than that. That is essentially a new tax that Americans are paying. I think that’s some of what’s going to unfold as we maybe move into a new way of thinking about retirement. When people would say what’s the single most important piece of advice you can give me about retirement, I was saying five years ago the answer is don’t, for a couple of reasons. I guess the good news is that the research shows that people who never fully retire tend to have greater longevity than those who stop cold turkey. That’s the silver lining, I suppose. 12:21 JIM: I’ve seen that in my own practice. People have to change the expectation. When retirement was invented, basically with social security coming up in the 1930s with an age 65 full retirement benefit when people weren’t even living that long, retirement was really, when it was first designed was a safety net for people that outlived their life expectancy. Now, people have come to expect that they can just not work for the last 30 to 40 years of their lives. It’s just not realistic for most people. The thing is back in the old days when you were farmers, miners, and all that and you didn’t have all the modern technology, your body and mind wore out. Now, with modern medicine and not having these hard jobs that were life threatening in a lot of cases, it is realistic that we can continue to be productive for many years beyond this normal so-called retirement age. I think people really have to be realistic about that. I think one of the other shadow things that isn’t mentioned very often and I’ve referred to it as the stealth tax, this printing of money, the government tells us we only have a 3% inflation rate. When you say the average American is paying 89% more for their healthcare premiums, that’s another kind of stealth tax. Although the Supreme Court said it’s a tax, but people aren’t thinking about that when they go to the grocery store and they got to spend a lot more on the dozen eggs and the gallon of milk. Those are going to face issues and if you’re on a fixed income and your costs are going up over a 30-year period, you’re going to be in trouble. Those are a lot of issues that people really have to look. You’ve talked also about the shadow taxes. Let’s talk a little bit more about some of the other shadow taxes that you might see. 14:04 DR. SALSBURY: There’re dozens of them, Jim. Most people conveniently forget that about $0.46 out of every gallon of gasoline they buy is tax. There’s a gas-guzzler tax, which is applied to SUVs and other large vehicles that the dealer has to pay. In some cases, that’s as much as $7700 on the purchase price. There’s a 7.5% tax on every domestic airline ticket you buy and a $3 tax for every flight segment. There are hotel taxes and rental car taxes. When was the last time people looked at the taxes on a rental car bill and looked at all of the different flavors? In some cases, this can amount to as much as 40% of the entire cost of the rental. Almost half of the cost of beer and liquor comes from excise taxes. One that a lot of people don’t know about is insurance premiums. The States charge insurance companies a tax on the insurance premiums they receive from their customers. Of course, they turn that around and pass it on to the consumer. This brings in what’s estimated to be over $9 billion per year in taxes. It goes on and on. There are many of these. Going back to something you said, Jim, about people expecting to live as long as they are in retirement and just being okay. I think it goes back to this idea of remembering the pensions that so many of their parents had in many cases, and just assuming that they’re going have something like that as well, when it doesn’t exist. One of my favorite research findings for my book was that some 59% of baby boomers expect to receive a pension check when they turn age 65 but only 41% of them can identify one to which they’re entitled. 15:44 JIM: That’s a scary statistic. Then you’ve got the social security diabolical. I mean, they don’t have the money to pay the promises that are there. It’s interesting because I ask clients all the time, did you read your social security statement. Oh, yes, I get $1800 when I’m 65 years old or 66, or whatever their normal retirement age is. I said no, did you read the statement and what it all says in there, because they put in bold print based on the current trends they cannot fulfill the obligation that’s on there. Unless there’s a change in the law, they may not be able to provide that benefit. We’ve seen with the bipartisanship, when it comes to social security, they just posture politically and nothing gets done. Meanwhile, it’s just kicking the can down the road. 16:30 DR. SALSBURY: Absolutely. 16:31 JIM: You look at the generation. They had pensions. They had social security they could count on. They didn’t have all these stealth taxes that you talked about so they were able to put some money away for savings. Then today’s generation, they don’t have the savings. They don’t have the social security. They don’t have the pension. It’s going to be a problem if they don’t start prioritizing their savings. 16:50 DR. SALSBURY: Here’s something I ask clients often times. Are you under the impression that there is a social security trust fund account in which sits money? Most people are. They think there’s this Fort Knox type entity somewhere in which sits funds that are marked social security, like bullion or something. I try to explain, no. It’s merely a ledger book entry. It’s a budget item. In fact, the money that the Treasury Department collects in the name of social security, you’ll see it as a tax on your paycheck stub, but that goes into the general revenue account. They also have this misnomer that it’s guaranteed. I think that’s part of what you were referring to in referring to the bold statement that they think it’s constitutionally guaranteed or something. Congress can change that at any time and they have already. They’ve already upped the age. They can change it again. They can lower the benefits. They can raise the age. They can do both. 17:47 JIM: That’s where Americans really have to face the harsh reality of what’s going on and make some serious decisions. It’s so important today in working with your financial advisor to make sure that you are looking at these things realistically and you’ve planned for all these issues that we talked about today. If you haven’t, the sooner you make the adjustments, the easier it is to get it done. Too often people wait until they’re a couple months away from retirement and say okay, now I need to plan for my retirement. It’s a little bit late at that point. Dr. Salsbury, I really appreciate you coming on again. By the way, you’ve got some great resources. You’ve authored a couple books. Can you just share with our listeners how can they access some of that information. 18:33 DR. SALSBURY: Sure, my books are available at and My first book was entitled But What if I Live?; The American Retirement Crisis. That is probably what launched this whole conversation for me. I was called chicken little when I was talking about a retirement crisis in 2006 because everything was still rosy then. Then after the crash, my followup book was Retirementology; Rethinking the American Dream in a New Economy. Both of those are on Barnes and Noble and Amazon. 19:03 JIM: Those are great resources. Thanks again for joining us and I look forward to having you back again sometime soon. 19:09 DR. SALSBURY: Thanks, Jim. I appreciate it. 19:11 JIM: Thanks for joining us this week and tune in again next week as we explore another phase of the Real Wealth process. Remember, if anything you heard in today’s show you’d like to get more information about, contact us. Also, if you feel that any of this information will be helpful to a friend or family member, just forward this link to them. 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