PODCAST EPISODE 268 – The Average 401(k) Fell by 20%+ in 2022



      • 00:00 – Episode begins
      • 00:05 – Paul welcomes listeners.
      • 01:40 – Article Breakdown: “The Average 401(k) Fell By an Obscene Amount in 2022”.
      • 09:20 – Article Breakdown: Worried About Retirement Savings? 5 Reasons You’re Not as Ill-Prepared as You Think”.
      • 20:55 – Article Breakdown: “The High Price Retirees Pay for Collecting Social Security Too Early”.
      • 32:50 – Closing thoughts.
      • 33:42 – Episode ends, thank you for listening.


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Article Breakdown: The Average 401(k) Fell By an Obscene Amount in 2022

Article Breakdown: Worried About Retirement Savings? 5 Reasons You’re Not as Ill-Prepared as You Think

Article Breakdown: The High Price Retirees Pay for Collecting Social Security Too Early

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Full Episode Transcription



Hello, and welcome to your business, your wealth. My name is Paul Adams, I’m your co host, and I’m joined by the host with the most tolerance for me. Jeff Miller, my business partner and CFO of sound financial group is with us today. Poor Mr. Corey Shepherd is still out taking care of that new baby, and staying busy with it. So I’m excited that we have Jeff on and you guys listened last week, Jeff had to be on his headset because I did not send him one of these nice microphones, which he now has. So Jeff, let him take a listen to those pipes on that. Good, Mike.


How much of a difference is that nice Mike make? We’ll let you decide.


Indeed, indeed. So today, we’re excited because we’re getting a chance to share with you some articles that we’ve been watching in the news that I think continue to demonstrate that what they want when they do these articles is they want more than anything else, to put us in the position that we feel a certain way. And that might lead us to different actions or not, but at a minimum leads us to clicking on their article reading through it, and giving them that juice for their advertisers, etc. Remember, people in the financial media are not here as advisors to you. They are here to get the clicks to get the attention long enough to deliver you the product to their advertisers. Who are the financial institutions. So with that, Jeff Lutz in our first one of these, which is going to be how much the average 401k fell across 2022. Now well,


got to say one thing right off the top. So we know from looking at this article that the average 401k fell by an obscene amount, Paul, an obscene amount. I don’t know what obscene is to you, or to me, or to our neighbor down the street. I suspect we all have a different definition of what obscene is. So right there, that jumps out at me as here we go.


And it reminds me of this, we’ll go back. We replay this every now and then I think this woman makes an amazing point. Let’s give it a listen. tell you all the time. Think for Yourself critical thinking. If you read an article and they’re trying to make you feel some way. You’re probably not being given facts, or you’re not being given the complete facts. So you’re exactly right, Jeff, I love that that it says right there. obscene amount. Find out later in the article what the author thinks that means. But it’s an obscene amount. What am I favorites in this is they how they did the calculation. So right here in the second paragraph, here’s what it says for investors. The year has also been roiled by both market anxiety and changes to retirement savings in its preview to his 22nd annual how America safe study investment advising giant Vanguard found that its average 401k balance was 112,572 at the end of 2022. A 20% drop from the previous year. So they’re measuring year end a year end. Now, Jeff, what’s the first thing jumps out to you that might be wrong with the way they calculated that


will have to be I don’t know that they’ve accounted for any inflows throughout the year after


people added 401 K balances. Yeah, so people need money. And they’re just saying the overall balances were down 20%. Meaning that let’s say that person added $5,000 between their money and employer match for the year on 112,000. That’s closer to a 25% drop. But they don’t talk about that in the article. Yep, I think that’s a it’s a good catch. And they’re saying significant downturn in both equity and bond markets. And people find their mood going up and down. They’re talking about all that. Instead, most choose to stay put, or even save more now, right there. That was the best decision you could make in your 401 K and 2020. As long as you had a diversified basket of investments, not selling and adding more money was the strategy to be with it going down an obscene amount.


That’s right. Because that’s recovered a relatively an obscene amount just year to date 2023, which we may talk about later.


Well, and this is something I thought was curious in the prior paragraph. In 2022, the number of people outside target date done target date funds, or other professionally managed funds, trading actually went down, meaning that people traded less last year. Now, that would be better investor behavior than day trading. And then it gets into given the uncertainty economy. It is remarkable that 94% of participants did not make an exchange throughout the entire year. Now, it is remarkable, but that is what we’re supposed to do.


Correct. Particularly with these long term, this is the longest term place for our money. Right? Right. So on in any given month, let alone year, we should not be trying to outsmart the market, timing the market, the best thing we can do for our financial future and our future self is to hold strategy. That’s it. And if you thought a little dry powder, when the market makes an obscene pullback, like in 2022, is maybe put a little bit more in if your cash flow can handle that.


Exactly right. In fact, some of what reading this article, I think they could have retitled it to the average 401k investor behave better in the last year than in decades before, could just as easily be the name of this article. And so let’s get down here and see what else they give us. How often do you check your 401 K? While withdrawals due to hardship did increase more than 95 97% of those below retirement age? did Mike dot make any early withdrawals to deal with problems? While the average account balance decreased by 20% and 2022, primarily driven by negative market performance, participant behavior mostly remain positive. Now,


the tone of the tone of that paragraph is 180 degrees opposite from I have to scroll back up and read the read the head Oh, yeah. The average 401k fell by an obscene amount in 2022.


And then there’s a sort of the end of that article.

The subtitle but according to analysts at Vanguard most are weathering the rocky times nicely. Now, other than the beginning, where they said they’re down 20% There’s really nothing else in here that has to do with it dropping by an obscene amount. It’s actually more about the participants good behavior. But if it said, most people with a 401k behaved well in 2022, you clicking on that article? Of course, probably not. No, cuz it’s not interesting. It’s not exciting. If it bleeds, it leads. So we need it to be shocking and somehow feel like a threat. That’s how we get you to click on the article. Alright, so 401, k’s are down. If you were using an academically allocated globally diversified strategy, by the way, if your 401k was down 20% This last year, it’s probably because you were overweighted to us large cap growth stocks. And there could be a better allocation for you. If you’re one of those people, and you’ve been thinking about a time to have a conversation with me or Jeff or Cory. Now’s the time. Just reach out, you can find it in the description, all of our contact information, reach out to us at info at SFG wa.com. And we’d be more than happy to help you. But that is the case, for one case fell. But the real news is most everybody behaved just the way they should. Let’s hit our next one, which is another one dealing with how people make you feel or want to make you feel. Jeff, why don’t you read off the leader? This next one?


All right, so the headline here is worried about retirement savings. Here are five reasons you are not as ill prepared as you think.


Like, if you’re failing in retirement, read this article to feel better. That’d be another accurate title for this one. That’s right. So and I just have to read this first line. If you’re concerned that you’ll run out of money in retirement, you’re not alone. According to a recent survey conducted by GoBankingRates Two thirds of Americans polled feared that they’ll outlive their savings. In addition, half worry that their social security benefits will get cut during the golden years. Pause right there. Two thirds of people in this study said i don’t think i may be ready for retirement. In the financial media, his answer to that is to write an article about, you should feel that bad. Because you got that’s right thing going your way. Now, we would not say that, like, you are about to fail at this job, and we’re gonna fire you, but you got some stuff going for you. That’s how you try to get somebody pumped up that they might do their job the way they’re supposed to. Right? But we’re talking about no new action to be in. That’s right. And we’re talking about feelings, right? So fear is a feeling.


It’s not a fact. So two thirds of Americans have this fear, or walking around with a feeling that they’re not prepared. But this article is not going to give them any tools, or like you said, Paul, like a call to action or a pathway to action. That’s going to allow them to address this, we’re just going to make them feel, but we’re going to placate them.


Yeah. And they do now, because what they’re doing is they’re manipulate, you talked about the feeling. But it’s almost more pervasive. It’s like a mood. And what I loved, that I learned from Fernando Flores many years ago, if any of you’ve ever studied Fernando Flores is that a mood is an automatic, often ungrounded assessment about how the future is gonna go. So we get a feeling, and it’s a mood and it pervades all of our decisions in that space. And what they’re doing with this article is trying to improve your mood. If you’re one of those people, who has the mood, that you’re not going to be prepared for retirement. Now, nowhere in here is going to be a formula of you need to take 4% cash flow off of this kind of asset. And that’s how you can assess whether you’re okay or not. Instead, we’re gonna give you some good news that Jeff and I are going to hollow out. Okay. First is you have no debt. And they say if you can pay off your credit cards, home car and other obligations before you retire, you’ll have more money to cover your living expenses and enjoy your newfound free time. Now, Jeff, can somebody be broke as a joke in old age with no debt?


That’s absolutely, yeah. Because


I, I remember early in my career, I was working with a lot of clients that were, I would say tight on money, and very much an old school accumulation philosophy. And they would say, Well, I have no debt, and they would wear like, a suit of armor. Now, they had no retirement savings, but they had no debt. And I remember drawing out this chart where I’m like, imagine, you have no debt all these years, but you still have living expenses. When you get to old age, say 80,000 a year, you still need 2 million, or you’re broke.


Right? Right. Desco the level of debt you have and the level of assets on your balance sheet. are two separate and distinct. Yes, what calculations or components of your retirement readiness.


And if you just paid off all those debts right before retirement, almost guaranteed, you haven’t put a spending plan in place that’s going to work in retirement. Because that’s not the nature of it. Okay, next, you live a frugal lifestyle. your nest egg will stretch further if you live in an affordable area, stick to a budget find creative ways to save money. This, I think we need to blow up with was your uncle or grandpa’s old saying about don’t tell me what you make?


That’s right. Yeah, it was my grandfather.


And what do you say? Who?


Well, you know, I had a conversation with him. At one point I had gotten a promotion and or raise with the company that I was working for, and I was really excited. And he shared that excitement, but he also brought me back to reality and said, you know, Jeff, that I’m really proud of you. That’s That’s great news that you you know, you got a raise and a promotion. But don’t tell me how much you make. Tell me how much you save.


That is key. Because right here, what they’re telling you is the most important thing you could do is have a frugal lifestyle. That’s missing an important component. Because if you’re not also saving and investing that you could have a super frugal lifestyle and still have no assets set aside for you to be able to live that lifestyle. And how many people have we met just Over our career, not usually people that are existing clients, but usually new clients, where their interpretation is they live a frugal lifestyle. But then you look in the last year, what actually got saved. They just feel frugal, because they don’t have a bunch of repeating debt bills kind of ties into point one, right. But a frugal lifestyle by itself, it doesn’t include a plan in which you set aside money and invest it. You can be frugal, and still not have enough money in your old age to meet your frugal lifestyle.


This third one, I love this third one coming up, Paul. Because it’s like a double edged sword. Yeah, hit it. Okay. So if you take care of yourself, then you may be better prepared for retirement, right, because it says right here, a report showed that the average couple may need to may need over $300,000 to cover medical expenses in retirement. So if you stay healthy, you may avoid some of those costs, but you’re gonna live maybe 510 1520 years longer than the average individual. So you’re gonna need more money anyway, to fund the fact that you’re healthy, and you might live 200 years old, versus checking out at age, I don’t know, 78.2, or whatever the current national averages.


Yeah. And if you take care of yourself, you may actually be longer in a facility because you don’t die immediately you harden your body for years working on the gym and eating healthy, you may take longer to go off the cliff and need help longer. Like that’s not a way out.


Now, just to be clear, that we are not suggesting that our listeners are clients and the people that we know, and care about undertake unhealthy habits, right? We’re all Jeff is


not recommending that. There’s, I’m not there’s a few of you listeners that I’m like, maybe you need to drive your cholesterol up as quickly as possible. Just live, live hard till 70 and go on your sleep? Look, I don’t actually have a client or listener, I would say that to have a few friends. I would say that’s that’s it the next one, you have a diversified portfolio. This politely I want to say it does not have a flipping thing to do with not having enough money. Remember, the premise of the article is don’t feel so bad about feeling like you’re ill prepared for retirement. Because a diversified portfolio with not enough money is still not enough money. That’s right. Now the trap people fall into here. Is this a not enough money. And then they say so what I need to do is get a big win. And so they go all in on some stock or some ETF that invests in innovative companies, because I saw it advertised during the Superbowl, or whatever. We’re going to try to get a big win to overcome it. So in that way, I would say you should keep your diversified portfolio don’t let the siren song of high returns. Don’t make up a story that that’s going to bail you out not having enough money. And then last, do you plan to cover major expenses before retiring?


If you don’t have any money, write that that $30,000 roof is going to cost you $30,000 Whether you you know, contract for that the month before you retire, or the month after you retire. You still have to have those dollars on your balance sheet.


Yeah, it doesn’t fix anything. If you think about that, 30,000 Let’s just say 30,000 for a roof 30,000 to buy a car right before you retire. And think of give me a third thing. You’re gonna buy a tractor, maybe a tractor. I want a tractor.


Sure, sure. We’ll get Paul a tractor so he can you know, 40 acres of grass. Yeah, there you go. 100,000 fences in the car. Yeah.


That 100,000 would only spit off $4,000 A year of income. So whether you spent 100 on your stuff, paying it off, or you spent the 100 in lifetime income. Here’s thing either way, it’s not enough money. The only way that might work in my perspective is like the person who maybe has an exit from their business pays their house off. But that’s simply a financial decision of Would I rather have a paid off house or whatever that my capital work and has nothing to do with helping me feel better. That I’m going to run Not a money because it won’t help. All right. Now, so this


is good, Paul, this, if now I’m just looking at the very end of that article. Yeah. And it says if you’re still still worried one of the one of the suggestions or options is delaying Social Security withdrawals to get a larger monthly benefit.


Which is our next


in our last article perfectly.


Oh, so good. So good luck work part time. Oh, still worried, contribute more money. That should have been point one. In fact, the whole article should have been worried about being able to retire, okay, you should be 95% of Americans should be panicking. That would have been a great article title and maybe move people to some appropriate action. So Jeff spoke a little bit to our last article today, which is the high price retirees pay for collecting Social Security too early. Now, here, we’ve talked about this a few times. But I want to make my point absolutely clear, right. Before we get in this article. There is not an article yet that we’ve seen that does anything but fail at the calculation of how your next 20 years are gonna go. Whether you take Social Security early, or later. Now we are going to once again prove that math, we’re going to use an actual Social Security statement redacted from a client. And we’re going to prove that through but they are. I don’t want to say they’re lying, Jeff. But what you’re getting is not the full truth.


It’s an incomplete analysis. I guess, right? Yeah. So there’s, there’s one thing that jumped jumped out to both of us when we were flipping? Let’s go right to it. So let’s see where they talk about their considerations in how they in how they made this assessment. The one thing that was missing, that stood out like a sore thumb to me was the fact that there was not any accounting for the opportunity cost of the money that you might receive early.


And what they took into account, they said here, that if a retiree claims Social Security at age 70, instead of 62, the monthly benefit could be 76%, higher adjusted for inflation.


Now, right, but what about those eight years, the eight years that that Social Security recipient had received those benefits early, although at a lower a lower monthly amount. And they have the discretion if they had the discretionary cash flow to actually put that social security payment to work, starting at age 62, or age 65.


Indeed, well, that what I love here is they said, to arrive at their findings, the researchers use three datasets Federal Reserve’s 2019 survey of consumer finances, the US Census Bureau’s annual American Community Survey, between 2020 20 and the current population survey conducted by the Bureau of census for the Bureau of Labor Statistics, the first data set was used to observe the finances of 6000 households. The second two data sets were used to model different retirement dates. You know, it’s not in there anywhere is that opportunity cost Jeff just talked about. And if you dig into this article, of course, you can go to the description of this video or this podcast, follow it to our web page, all of our data and all these articles are there. But it says right here, it’s no secret that waiting to collect social security pays off in the long run. Why don’t more people do it? Now, they go on to say like, well, people have financial challenges, they need the cash flow now, etc. We’re going to show you why the people with enough means to pay a firm like ours, to give them the advice. Take Social Security early. Okay, so I’m going to, I think successfully show my laptop screen. But first, we’re going to look at this little security statement. So this is somebody’s actual Social Security statement from late last year. And here’s what they’re gonna get. If they took it right now, which they’re 66 and seven months, they get $3,300 a month. If they wait until age 70 They get $4,342 a month. So that’s a pretty big increase. Right? It’s, I don’t know 30% almost, in this case. And what we’re going to do is an analysis of if you took it at 66, versus taking it at age 70, even with the lower amount of money, what does that mean? Okay. So here’s on the left hand side, our calculation of what happens in the 41 months when somebody is 66, and seven months old, all the way to age 77. So that’s 36, plus five months, so 41 months. And if the money started coming in, and you could invest it, we’re just going to use the six and a half percent lost opportunity cost rate, which means that just over the 41 months, at a six and a half percent rate of return, you would have $152,000 already accumulated in a side account from taking Social Security early. Now, on the right hand side, we’re going to start getting monthly payments at age 70, which means there’s zero value in this strategy once you arrive at 70. Only past age 70. And pause there am I explaining everything okay, Jeff?


Yeah. Okay. So far, so good. Yep.


So now we’re just going to move out 10 years from age 70. So that’s 161 months, 120 months, plus the 41 months that we got started early. And that accumulates to $1.3 million. Again, we’re just looking at the cost of money, that if we don’t have $1, we lose at a certain rate, or we gain it back at a certain rate. So we have one point 3,000,001st 10 years or retirement first 10 years for the person on the right hand side that waited until age 70. See they only have 120 months, but there’s their bigger monthly amount 4300. And it only accumulates to 735,000. About half 10 years in so now we’re at age 80. Okay, so let’s extend it out to age. Let’s go to age 85. So we’re going to add 60 more months, right? Five more years. Yep. So I can just do that right here. I’m going to make this n equals like xl plus 60.


Paul, I just wanted to mention that I’m seeing my video feed in the bottom of that calculator.


Oh, because I got it covered up with your video. Thank you. There we go. Yeah, good call. Alright, now, we have this corrected. Where, let me go back to our prior number. Because I want you guys see it looks like it was calculating some a little funny. So I want to go back to 161 months. So we have 850 to 10 years in instead of 735 there was a little error in this calculator just fixed. But now let’s go out the extra 60 months. So this is going to be equals I’m going to show the math, sir. But I can see it watching plus 60 months. And now that is 1.4 million. And then I make this 60 months. So that should be 181.325. Now we could extend that out to age 90. We’re at age 85. Right now. And you’d see the 100. There will be


Yeah. And there will be a break even at some point where the the deferral strategy. We’re starting to take your payments at age 70. We’ll see start to outpace taking it early. Yeah, dancing, it’s somewhere in the early in your early 90s. Think about having all that just all that additional use of the money or in cash flow up front. So if something in your life changed. You’ve already got that money growing on your balance sheet.


Or if you died at age 72. Like at least this way, you get to leave some legacy because you had extra capital that prior set of years. Exactly. Now, we will give one caveat that is not talked about often enough in these articles that can affect when you take Social Security. It’s pretty simple. It’s just going to have to do with taxation. So if you have a bunch of other income that’s going to make your Social Security more taxable that’s worth a revisit. If you’re past the full retirement age for you, then it doesn’t matter what else you make. So that’s the one thing I would have you guys cover down on with the financial professionals just making sure that the tax side that you’re still working, you have other income coming in right now doesn’t further erode. If these two are in the exact same tax situation, that’s why I’m using gross numbers. Because if we took 30% off everything for taxes, we’d be in the same spot. Same thing here is that if your other income would make the early distribution more taxable, the late distribution that’s worth calculating it. But I would still submit, you’re probably looking at over a 10 year break even once you count the lost opportunity cost. But all those articles we’ve been looking at all of them, just take the gross payments, and add them up with no opportunity cost or interest. That’s right. And this isn’t the Wall Street Journal, y’all. I hope it’s written by so I don’t know Lisa. So but it wasn’t Jaysus awake. But that is the real problem. And I would agree with this lessons, optimizing Social Security benefits is like thinking ahead. 15 moves in a chess game. But how everybody’s thinking ahead. It’s not like they’re playing chess. It’s like they’re playing checkers, or tic tac toe. by just adding it up, oh, you get more money by this age. But there is value to getting money early. And we just demonstrated 40 months early. How big does that number get if it’s five years, nearly six years earlier. And these are going to become more coherent conversations. As time goes on, as all of you get closer to utilizing social security. And as our political class tries to figure out, we got this third rail, nobody wants to cut, but it’s super expensive. And some day that’s going to sort itself out legislation. We don’t know what that’s gonna mean. But I would lean on, I’d rather take my payments early while they’re still being made. Because in 2030, for it, I think is on the statements says they’re going to be sending out more money than they’re actually taking in. So Jeff, anything else you’d want anybody leave with from this episode today? Like if you’re thinking about something this week, these three articles, this is the one I’d have you take with you?


What I would say, particularly with the one that we just covered around social security distributions, we’ve built some tools and models that we’ve used with existing clients. And we’d be happy if anybody out there has a question about the timing of their social security payments, schedule a 15 minute call with us, and we can probably cover down on that entire exercise. So quick, 15 minute conversation, we’d be happy to do that.


Yep, just let us know your listener. And I would always encourage you guys do not forget we want you to like, subscribe, make your comment below. You can say that you like what I’ve done by beard. You don’t like what I’ve done with my beard. You really like Jeff’s headphones or you don’t like your shirt, whatever you decide to put in there we’re good with but you interacting with his content makes a difference. If you listen to the podcast, do a podcast review it means the world to us. If you’re watching on YouTube, be sure to like subscribe, it increases the chance of some random person out on the internet is going to get a chance to see this and it could change their life forever. Especially somebody who’s thinking about doing social security right now and could get this advice when they most need it. With that from me, Jeff Miranda, everybody sound financial group. We hope that this has been a contribution to you being able to design and build a good life


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