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Is it Enough? 5 Steps to Retiring with 2 Million Dollars! 12.08.2021

Having a million very well may not cut it.

''Everybody has a plan until they get punched in the face.''

The stack above represents 100 packets, each containing 100 $100 bills.

This begs the question – Is retiring with 2 million dollars a reasonable goal? A 2020 survey from Schwab Retirement Plan Services found that the average worker expects to need roughly $1.9 million to retire comfortably.

Days versus Decades. Decide which to focus on...

So is $2 million the magic number?

There certainly are a myriad of moving parts involved in answering the question of whether retiring with 2 million dollars is enough, and a number of subjective and objective variables that need unpacking. The recent text thread between our President, Joseph Eschleman, and his wife, Megan, sums this concept up in a simple but perfect way:

Stick to your investment strategy - Do not turn temporary declines into permanent losses.

How pragmatic is it to consider retiring with 2 million dollars tucked away in your nest egg? Is retiring with two million dollars even enough money to truly be comfortable, especially considering today’s rampant inflation? Does retiring with 2 million dollars require that you work until you are 75 or 80 years old? And what do the nebulous and subjective concepts of “comfortable” and “retirement” even mean?

While they are tremendously important ideas (or perhaps abstractions) to define when answering the question of whether retiring with 2 million dollars is “doable” (and is enough money), we will reserve opining on what “comfortable” and “retirement” means to the intimate conversations we have with each of our current and prospective clients. Needless to say, different people define these two terms very differently. Instead, let us explore five specific steps that will put accumulating 2 million dollars within reach for you, while leaving yourself enough time in retirement to actually enjoy and spend some of it! And no, playing and winning the lottery is not one of the steps…

Step 1 – Don’t Wait, Start Investing NOW!

The fastest path to retiring with 2 million dollars, in our opinion? Drop everything, stop reading this newsletter (!), establish a plan to begin investing, and immediately begin to pay yourself first. Right now! As you can see below, the sooner you start, the more time your assets have to compound and grow:

And if you already are proactively saving and investing, stop reading this newsletter (!), drop everything, and make an incremental increase to the dollar amount, or percentage, or both, that you consistently add to your nest egg. When it comes to retiring with 2 million dollars, time is money, and the sooner you start to invest, and the more consistently you do so, the easier it will be to hit this very achievable goal.

Step 2 – Properly Diversify Your Investment Portfolio, and Be Wary of Individual Stocks!

The idea of diversification is basic yet essential to most investors. Unless you are truly willing to lose everything, do not put all of your eggs into only one or two baskets. Protecting against the risk of “significant shrinkage” of your retirement nest egg is critical; it is important (we argue essential) to allocate your resources and investments over a broad spectrum of asset classes and sectors:

Being diversified does not assure a profit nor guarantee against a loss, but it does help to insulate your retirement nest egg against major market declines. Retiring with 2 million dollars is a lofty goal, and the importance of managing your downside should be as much of a priority as consistently growing your portfolio. Adding additional types of assets to a portfolio will help it last longer, and help you avoid major pitfalls in your journey towards a financially-independent retirement.

Additionally, we believe it is important to exercise extreme caution when considering investing in individual stocks. While it can be fun and “sexy” to own specific companies, investing is not meant to be fun nor sexy. Do not confuse speculation with investing.

Chase individual stocks at your own risk. Individual equity ownership oftentimes becomes a short-term bet – even an outright gamble – which is the antitheses to a longer-term strategy geared to helping you retire with $2 million. While all investing involves risk, this risk materially increases when focusing on or owning just a few stocks. The statistics bear this out:

Source: Morningstar, 12/31/2020

History is replete with examples of blue-chip companies that have crumbled miserably, and correctly picking a long-lasting, top-performing stock is usually a product of blind luck rather than skill. Don’t be overconfident in either your acumen to evaluate the investment merits of a single company or stock, your ability to consistently predict the future, nor your ability to consistently guess correctly which individual equities might outperform.

A little boring? Perhaps. But being boring and disciplined in how you grow, protect, and diversify your nest egg, is an excellent way to improve your odds of successfully retiring with 2 million dollars.

Step 3 – Take Advantage of FREE MONEY

We believe that there is no EASIER way to compound your wealth and improve your odds of retiring with 2 million dollars than by fully understanding, and then maximizing all employer matching program opportunities within your company sponsored retirement plan:

If your employer offers a match, be sure to find out the following:

  • Is there a waiting period until you are eligible for it? Common waiting periods are six months, twelve months, or sometimes no waiting period
  • What is the actual formula your employer uses to compute their match? Put differently, what percentage of your own contributions will your employer match? $0.50 on the dollar? Dollar for dollar? Up to what maximum of your contributions?
  • How much do you have to contribute to qualify for the match? Oftentimes, you have to contribute a minimum amount of your pay into your company-sponsored retirement plan in order to receive the maximum match, which hopefully is not a problem in your pursuit of retiring with 2 million dollars…!
  • When do the company matching contributions vest? Put differently, how long do you have to wait, or work for your employer, before the company’s matching contributions are 100% yours to keep?

Another form of FREE MONEY that employers may offer is a profit sharing plan, in which employers give workers a portion of the company’s profits in the form of pre-tax cash contributions to an employee retirement account.

Regardless of what the rules are, or in what form the FREE MONEY is packaged, if your employer makes available matching contributions and/or profit sharing, taking full advantage of it makes retiring with 2 million dollars that much easier.

Step 4 – Don’t Panic When the Market Declines

A market decline of 10% or more is also known as a correction. And they happen regularly. How regularly? On average, once a year!

If you are able to develop and cultivate a mindset that allows you to anticipate, perhaps even expect, a market correction (decline) to happen, you will be much less inclined to hurt yourself by getting scared, hitting the panic button and selling low to “stop the bleeding.” Don’t kid yourself, this happens, regularly, even to investors who posture as “disciplined,” “objective,” and “unemotional.”

Want to improve your probability of retiring with 2 million dollars? Be smarter than your neighbor, know that declines happen, and that there will be years when you have less money on December 31 than you did on January 1. It is never fun, and can even be be outright painful, to experience a year-over-year decline in the value of your overall net worth, but enduring these periods is absolutely necessary. Fortunately, history has continually proven and strongly suggests that the odds are in your favor, especially if you have a little bit of time to patiently wait for the recovery to occur:

Who summarized this concept best? We are torn. Please click HERE and vote for your favorite!

I.     The legendary investor Peter Lynch:

II.     The legendary investor Shelby Davis:

III.     The legendary investor Warren Buffett:

Step 5 – Trust in America, and Own Real Estate

Stocks, bonds, and mutual funds are wonderful investment vehicles, and are excellent tools to build wealth. However, like any investment vehicle, they have their drawbacks – namely, they can be volatile, tax inefficient, intangible, and expensive to leverage. Contemporaneously, real estate is a wonderful investment vehicle to build and accumulate wealth, for reasons similar to stock/bond/mutual fund ownership, and also for a number of reasons that are quite different.

Real estate values, like the stock market, predictably increase over time. This long-term growth is representative of the value continually created by the advancements in our standard of living and in our economic productivity, both here in America and globally.

The growth in the value of stocks, bonds, and real estate is directly correlated to the continued growth of our gross domestic product, or GDP.

Put differently, and we would argue much more eloquently, by Warren Buffett:

“The American miracle, the American magic has always prevailed, and

it will do so again. Nothing can basically stop America.

Don’t let the negativity of today’s 24/7 news cycle (in which bad news sells!), sway your opinion – we live in an amazing place, in an amazing point in time. Please click below for an excellent 1-minute video of Warren supporting his opinion, shot on May 2, 2020, just months after the coronavirus shock began:

Let’s look closer at two main reasons to own real estate:

1. Income tax benefits

When insidious income taxes are avoided or deferred, retiring with 2 million dollars becomes much easier, as compounding the growth of your overall investment portfolio occurs much more quickly when Uncle Sam is not taking a big bite out of your nest egg. Consider:

Income tax breaks and deductions. There are a myriad of tax breaks and deductions potentially available to real estate investors that are not available to those who invest in stocks, bonds, and mutual funds. Deductions of the expenses associated with owning real estate (property taxes, property insurance, mortgage interest, property management fees, maintenance and repair costs, advertising, legal and accounting fees) are oftentimes tax deductible, as is depreciation.

Section 1031 tax-free exchanges. A 1031 exchange allows an investor to do a tax-free swap, or exchange, of one investment property for another one, while deferring the payment of capital gains taxes on the transactions. Unfortunately, “1031s” are not allowable nor applicable to the sale of traditional stocks, bonds, nor mutual funds.

Capital gains tax exemption on the sale of a primary residence. If you are single, you will pay no capital gains tax on the first $250,000 of profit on the sale of your primary residence; married couples are entitled to a full $500,000 exemption. And while this $250K/$500K exemption is allowable only once every two years, it is a very powerful way to have more of your money compoundwithout paying Uncle Sam, as you pursue the goal of retiring with 2 million dollars. Additionally, many people consider moving and downsizing their primary residence as they enter into retirement, which can potentially unlock significant equity that can then be added to your retirement nest egg.

2. Leverage

While all-cash transactions have recently become more popular in today’s red-hot and competitive real estate market, the most common way to buy real estate continues to be by borrowing money to do so. This is also known as leverage. While it can be a double-edged sword (problems can quickly arise if property values decline, too much money is borrowed, or the interest paid on borrowed funds is too high), leverage provides a wonderful opportunity to own MORE of an asset for less money, expanding your potential to see your nest egg grow.

The simplest example of leverage is the down payment “obligation” when purchasing a primary residence. You typically only have to put down, 20% of the cash to buy and own100% of the asset! And while the borrowing and down payment terms may not be quite as favorable, the same leverage opportunity holds true when buying and owning investment real estate. In today’s ultra-low interest rate environment, larger amounts of money can be borrowed more cheaply (read: at lower interest rates), affording investors additional leverage when building and growing their overall net worth. This can be quite helpful in accomplishing the goal of retiring with 2 million dollars!

Bonus Step – AFTER You Have Retired with 2 Million Dollars – Pick the Right Place to Retire

Clearly, maximizing your lifestyle post-retirement requires attention to the cost of living. Stretching a dollar is always important, and retiring with 2 million dollars “buys” you options, specifically, on where you choose to live.

Click the thumbnail below for the ThinkAdvisor.com slideshow that focuses on the 8 Best U.S. Cities for Retirement Over the Past 5 Years:

It is important to note that accumulating enough money is only Act One when determining whether retiring on $2 million is feasible. Figuring out how to properly, and sustainably, withdraw money (AKA decumulate) from your nest egg is Act Two, and is just as, if not more important to get right. A way-too-simplified back-of-the-envelope computation might look like this:

  • $2,000,000 nest egg x 3.5% annual withdrawal rate = $70,000/year
  • $70,000/year – 25% in assumed federal and state income taxes = $52,500/year net retirement income, or $4,375/month

Information is intended to be general in nature, for simplistic illustrative purposes only, and is not intended to serve as Investment

advice, since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances.

However, there are a myriad of additional variables and considerations that factor into this “retirement calculus.” What about pensions? Inflation? Social Security? Income from part-time work? Variability in market growth and investment returns? Appropriateness and sustainability of a 3.5% annual withdrawal rate? Increases in health care and insurance expenses as you age? Legacy and philanthropic planning and objectives? The list of important and yet very subjective considerations goes on and on. When developing a customized retirement income plan, the nuance in working through and deciphering each consideration cannot be understated.

Is retiring with 2 million dollars doable? Is $2 million enough to be happy and comfortable? As our President communicated to his wife, “it depends ,” and without a much deeper analysis of the variables mentioned above, it can be very difficult to accurately answer. However, what we can say with confidence is that if you have, or have nearly, accumulated $2 million for retirement, you have an excellent head start, and have probably secured yourself many attractive options. In our opinion, wealth is not defined by a set amount of dollars, but by the freedom it affords you. And having options and choices on how to live your life is the essence of what freedom, and retirement, truly is.

What’s Happening at TPW?

When the cat’s away, the mice will play!

A happy Towerpoint Wealth family (minus President, Joseph Eschleman) enjoyed a pre-Thanksgiving lunch (complete with oysters) together at Camden Spit & Larder in downtown Sacramento!

Our President spent his Thanksgiving week in Surf City, USA (AKA Huntington Beach, CA), where he enjoyed a successful day of deep sea fishing. That’s a California scorpionfish on Joseph’s line – don’t touch those dorsal spines, they are very poisonous!

While our entire TPW family was out of the office on the Friday after Thanksgiving, we were all still working (with some help from the little ones!) in our respective WFH offices!

Chart / Infograph of the Week

Inflation is no longer being called “transitory” and is now here more permanently, according to Federal Reserve chairman, Jerome Powell.

Thanks to Visual Capitalist for the infographic below. Understanding that it has been virtually impossible to avoid, please reply to this email and let us know what recent purchase you’ve made where you have specifically noticed today’s inflationary pressures.

Quote of the Week

In the spirit of the Thanksgiving holiday, we enjoyed American Trappist monk, writer, theologian, mystic, poet, social activist, and scholar Thomas Merton’s quote below…

Cartoon of the Week

A snarky and insightful cartoon from Real Life Adventures, roasts not only how buying high and selling low is an all-too-common problem, but also how novice investors lose money and disciplined investors make money during a market panic.

Ah, the folly of the investing world…

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

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– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

We love social media, and are always actively growing our social media community!

Follow us on any of these platforms you use, and then message us with your favorite charity, and we will happily donate $10 to it!

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No No, I Really AM a Long-Term Investor! 10.15.2021

“I’m definitely a long-term investor.”

“I don’t get worried about the negative news headlines.”

“Declines happen – I get it.”

We have heard these lines uttered by the most well-intentioned and intelligent investors time and time again. Sometimes, they hold true to their word. Sometimes, the polar opposite. Saying you are a long-term investor is easy; behaving like a long-term investor is much more difficult, as this is clearly easier said than done. 

Put differently, as the great boxer Mike Tyson said: 

Mike Tyson

When things are relatively “normal,” investing seems easy. However, when things get (pick your favorite adjective): crazy, volatile, unbelievable, explosive, unpredictable, turbulent, harrowing, and/or unsettling, it becomes much more difficult to tolerate, endure, and absorb a major body blow to your “nest egg” (read: a consequential drop in value). Watching your money SHRINK can be a very emotional and traumatizing experience. And while there is no perfect recipe for becoming a successful long-term investor, at Towerpoint Wealth we believe it all starts with three basic ingredients: 

  1. Consistent objectivity
  2. Measured behavior
  3. Disciplined thinking and execution

In addition to the inherently emotional nature of money, there are a myriad of uncontrollable variables populating the external environment we live in: The movements of the stock market. The vicissitudes of the US and global economy. The fickle nature of the political winds. Increases and declines in interest rates, income taxes, and inflation. Just a few examples from a very lengthy list of items that are out of our control. And while it is human nature for us to think (even to outright believe) that we have some control over many of these things, the truth is, if we want to truly be a successful long-term investor, we must recognize and accept the things we do not control.

At Towerpoint Wealth, we believe that the most successful long-term investors and wealth-creators have a somewhat-unique capability, a skill, that allows them to maintain appropriate perspective, to exhibit a high degree of humility, and to be laser-focused on the bigger picture. Fortunately, this is a skill that can be coached, cultivated, and learned, and is something that we have a relatively high degree of control over.

Long-Term Investor

Investment Strategy

Let’s make this more tangible – below are seven key principles that, at Towerpoint Wealth, we believe are necessary to be a successful long-term investor:

  1. Be humble, be aware of, and accept, things that are out of your control
  2. Keep your emotions in check, and be acutely self-aware of the fear and greed that we may feel when considering our finances and investments, especially in periods of extremes
  3. Plan to live a long life, which we do have some control over!
  4. Einstein was right: The power of compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays
  5. Volatility should be expected, embraced, and taken advantage of, not feared nor averted
  6. Unless you have the unique ability to consistently AND accurately predict the futurestay properly invested and diversified, regardless of what you believe may happen in the market and in the economy
  7. Have a plan and a strategy, and be disciplined in sticking to it, regardless of the things you have no control over
Investment Strategy

In opining about what we believe it takes to be a successful long-term investor, we would be remiss if we did not directly integrate Warren Buffett’s (aka the “Oracle of Omaha”) wisdom on this subject into this newsletter. Please click below to watch an excellent YouTube video, featuring a 2016 CNBC interview of Warren, where he outlines his FIVE best tips for successful long-term investors:

Do you have a plan to properly manage and coordinate all of your financial affairs and a strategy to grow and protect your wealth and investment portfolio, even during turbulent times?

If so, are you being disciplined in consistently following it? If you have concerns, or simply would like to discuss how you can apply the long-term investment principles discussed above, we welcome having a conversation with you. Click HERE to message us, as we regularly have no-strings-attached conversations about these issues, and are happy to be an objective resource for you as you begin to consider your personal and financial circumstances further.

What’s Happening at TPW?

Nathan P. Billigmeier Director of Research and Analytics

Our Director of Research and Analytics, Nathan Billigmeier, took last Friday off to spend time in Wheatland, CA at Bishop’s Pumpkin Farm with his two boys, Ethan and Grayson, specifically helping Grayson celebrate his 2nd birthday!

Philly cheesesteak

Our President, Joseph Eschleman, devouring a Philly cheesesteak (the only way a cheesesteak should be ordered, a “wiz, wit”) before jumping on a flight back to Sacramento earlier this month. Fuhgeddaboudit if you think you will find a better cheesesteak than Pat’s!

Graph of the Week

Yikes – inflation is at a 13 year high!

If you have any exposure to bonds in your portfolio, we strongly feel that it is time to take a hard look at:

How you are allocated within bonds

Your exposure to interest rate fluctuations (specifically, to rates going UP) due to inflation

Whether the risk you are taking is appropriate for your set of unique personal and financial circumstances

At Towerpoint Wealth, we have been successfully modeling what the value of a client’s portfolio would look like if interest rates INCREASE by ½, 1, or even 1 ½% over the next year or two. Message us by clicking HERE if you would like this custom analysis done for you.

Inflation Hits 2021

Cartoon of the Week

Issues with global supply chains will impact the holiday season…

Cartoon long term investor

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

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– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

We love social media, and are always actively growing our social media community!

Long Term Investing Tips

Twenty Tips for No-Nonsense Investing

Read Story

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Hope for Immunity in Our Community? 03.12.2021

A year ago yesterday, on March 11, 2020, the WHO officially declared COVID-19 to be a global pandemic. Later that night, the NBA pulled the plug on two scheduled games (including the Pelicans/Kings game here in Sacramento), and then immediately suspended its season after Rudy Gobert and Donovan Mitchell both tested positive for the disease:

NBA Immunity

The battle against coronavirus has unquestionably been a difficult, painful, arduous, and seemingly constant one over the past 12 months, with the underlying question constantly on everyone’s mind: “When will we reopen and get back to normal?” And while we are by no means at the finish line yet, at Towerpoint Wealth we believe we are much closer to the end of the pandemic than we are to the beginning of it.

Why the hope? We will let the visuals support a number of key reasons for our optimism:

Huge declines in COVID-19 cases, deaths, and hospitalizations

Widespread vaccine distribution

Extreme fiscal stimulus

Measured re-opening of the economy

Pending herd immunity

At Towerpoint Wealth, we believe it is also time to look forward, without letting our guard down, with expanding optimism and appreciation for what the future holds. Understanding we will always remain pragmatic, and avoid cockeyed optimism, we do believe that the marathon is almost at its conclusion.

What’s Happening at TPW?

Our lovely Director of Operations, Lori Heppner, along with her Bella. 🙂

Our Partner, Wealth Advisor, Jonathan LaTurner, spent a few days last month in Tulum, Mexico, doing some wedding venue due diligence with his bride-to-be, Katie McDonald. Yes, we’re all very jealous of you two, walking Tulum Beach and both looking great!

TPW Service Highlight – Charitable Giving

It used to be (and still can be) as simple as writing a check and mailing it off to your favorite charity. However, simply giving cash may not be the best, nor the most beneficial or impactful, way to be philanthropic. Fortunately, today’s donors have a myriad of gifting strategies that can increase the economic benefits of their gifts, both for the charity, as well as for you.

From charitable remainder trusts, charitable lead trusts, and private foundations, to donor advised and pooled income funds, and from IRA qualified charitable distributions (QCDs) to charitable gift annuities, there are many options for those who are inclined towards philanthropy. Determining which charitable strategy is best for your personal circumstances can be challenging, and as experts in this field, we stand ready to help you better understand the advantages and disadvantages of each as we develop the most appropriate gifting strategy for you. Click HERE to talk more with us about your philanthropic intent and charitable gifting plan.

Issuance of Amended 2020 Form 1099s – Don’t File Too Early!

Have you received your 2020 Form 1099s in the mail or via email? Have you already received amendments to your original 1099s? Scroll down to read a newly-published report authored by our Director of Tax and Financial Planning, Steve Pitchford, to find out why we recommend NOT actually filing your tax return until early April!

The Frustrations of Form 1099 | It's Tax Time

Chart of the Week

It’s not unusual to see -2%, -5%, and even -10% pullbacks in the stock market. Frankly, we should *expect* them to happen, remain objective and not worry about them when they do, and have a plan and the flexibility to make tactical portfolio adjustments to take advantage of them when they occur.

Trending Today

In addition to shots and stocks, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle