You save and save for retirement, expecting to be able to spend what you saved. But have you heard the other half of the story? It's not what you've been told. Watch this video as Emily Prendiville walks a client through the other half of the story to see what happens to your hard earned savings.
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Transcription of The Other Half of the Story
Pam [00:00:00] So Emily, you said that we're only told half the stor. I want to know what's the other half of the story? Tell me if you would.
Emily [00:00:12] I love that question because most of us don't realize we've only been taught half the story and it applies to many financial concepts. The analogy that comes to my mind right away when you ask that question is the one about Mt. Everest.
Emily [00:00:30] So let's say you decided that you wanted to hike Mt. Everest.
Emily [00:00:40] You're at base camp and next to you, there are two guides. You're told that you have the option of bringing one of these two guides with you and they have very different skill sets. The first guide has had great success bringing people safely to the top of the mountain. The second guide has had great success bringing people safely home. Which one guide would you want with you on that journey and why?
Pam [00:01:26] Well, frankly getting to the top is wonderful and I'm sure the view is amazing but I don't think I can get back down on my own so I'm actually going to go with the guide who gets you back down safely. Ultimately, that's where my home is.
Emily [00:01:42] Exactly. And so, while you want someone to bring you back down the mountain safely,
Emily [00:01:50] The entire financial industry is all focused on the accumulation of money. They're all focused on going up the mountain, because has anyone ever had a conversation with you about how to spend your money most tax efficiently, coming down the mountain?
Pam [00:02:06] Wow OK.
Emily [00:02:08] It's never a conversation. People just accumulate, focused on more, more, more. Climb to the top. The bigger, the better. And yet, when it comes to Mount Everest, 75% of the deaths occur coming off the mountain. Some of those people never even made it to the top, but they still wanted to get back safely.
I believe that following traditional planning, 75% of the mistakes will occur as people are coming down that mountain. The rules of the game are very, very different when you stop building your dollars, setting money aside, to actually taking those dollars and spending them. I always want to share the true story and the rules of the game so that people can make a decision that's best for them because they're better informed.
Pam [00:03:01] That sounds amazing. So keep going with the story. I want to know more.
Emily [00:03:07] Thank you. I mean one of the lessons that I've learned is where your money is is more important than what it earns.
Emily [00:03:14] So let's take these two hikers.
Emily [00:03:21] And they're working to accumulate wealth for retirement.
Emily [00:03:26] Now the first hiker gets to the top of the mountain and has accumulated a million dollars.
Pam [00:03:34] That's the number we're all told that we need.
Emily [00:03:37] Yes, in traditional terms, before people realize what that means they're going to spend, it sounds like a great number to reach. It sounds like it would be a number that would put you in a situation where you could absolutely enjoy the kind of retirement that you want. Now, Hiker 2, whether it's been hardship in that person's life or not experiencing the same rate of return, simply not setting as much money aside, gets to the top of the mountain and has accumulated a half a million dollars.
Emily [00:04:09] If this were the whole story and I said "Gee, Pam would rather be like Hiker 1 or Hiker?” I think it's pretty obvious, right?
Pam [00:04:18] Go Hiker 1!
Emily [00:04:20] Now let me finish the story and then ask you which hiker you'd rather be. So Hiker 1, with the million dollars, because of where that money sits,
Emily [00:04:32] will receive $30,000 a year in retirement. 100% Taxable.
Emily [00:04:43] Hiker 2 has half as much money but let's see what happens when we go to spend it.
Emily [00:04:51] Thirty thousand dollars a year to spend in retirement.
Emily [00:04:54] Tax exempt.
Emily [00:05:00] So, Pam, now that I've shared the whole story with you, would you rather be like Hiker 1 or Hiker 2?
Pam [00:05:06] Wow I'm shocked. But I would want to be Hiker 2.
Emily [00:05:13] Isn't that fascinating? It's the direct opposite of what we've been taught. We are all taught to focus on climbing up that mountain.
Pam [00:05:20] That's just amazing. That means that I would have more money to spend in retirement. That's just that's exactly what everybody wants. Right?
Emily [00:05:29] Absolutely!