Retirement Red Zone

December 2021

Contributors: Colby McFadden, Justin Singletary, and Patrick Morehead

The Cerberus of the Red Zone

The Cerberus of the Red Zone 

Taming the three-headed beast of Inflation, Health Care Costs, and Your Longevity

Do you want to see something really scary?

Remember the Twilight Zone marathons?  

For this contributor, there are many fond memories of feeling intrigued, scared, and bewildered after binge-watching the Twilight Zone marathon while enjoying vacation during the winter holidays.

Ahh, the smell of turkey, cranberry, and pumpkin accented with the background sound of:

 “You're traveling through another dimension,

a dimension not only of sight and sound but of mind;

a journey into a wondrous land whose boundaries are that of imagination.

That's the signpost up ahead-- your next stop . . . the Twilight Zone! 

Dada dada dada 

Like the Twilight Zone, sometimes we find ourselves at a crossroads in life that requires a new view or approach that also has the ability to expand our boundaries.  At Quiver, we call these junction points in life the “Red Zone”.  

A Red Zone is a  time frame when life changes require us to reassess how we are managing the risks of our investments in order to achieve longer-term goals with less fear and trepidation.  Examples of these Red Zones can be retirement approaching in less than 5 years or a change in health that may require you to use some of your savings to supplement your income so you can cover rising healthcare costs.

Consider this somewhat ridiculous question as a segway to our main point of this missive.  Which is scariest to you?

Crossing paths with a three-headed snarling dog beast with the tail of a serpent on your way to the bathroom in the middle of the night or hitting a crossroads in life where health care, inflation, and your financial well-being have a conflict with each other?

A ridiculous question but not a crazy question when we recognize that according to the Employee Benefit Research Institute, a couple retiring in 2020 with drug expenses at the 90th percentile throughout retirement who wants a 90% chance of having enough money for healthcare expenses in retirement should earmark at least $325,000 by age 65, and that is just for Pharmaceutical costs, imagine when you add in the cost of care.  YIKES “I think I’ll take the snarling beast for $100 Alex.”

After working with thousands of individuals in various Red Zones over the years, we have seen firsthand how the stress and anxiety related to rising living costs, especially when they are healthcare-related, can threaten our financial and mental well-being.  And, for some individuals the uncertainty and anxiety they feel as a result of these situations is equivalent to the heart-pounding fear a child may feel when they believe there is a three-headed beast in their closet at night.   

We offer the story of our long-time client “JP” who was a great guy and unfortunately is no longer with us.  JP’s story really encapsulates the steps you can take to make sure your money lasts as long as you need it to when you are faced with rising costs from health care and inflation.

JP was an accomplished musician, composer, and producer of classical music.  Like many accomplished artists JP focused his life on his art and having fun which kept him single and family-free.  In 2003, we were introduced to JP through his tax preparer when we were asked to evaluate JP’s investment portfolio for its effectiveness against inflation and JP’s future health care costs.  JP was 65 years young and entering his own Red Zone with retirement around the corner.  Unfortunately for JP his personal Red Zone was littered with extra complications that were raising a lot of questions for JP as well as creating high levels of fear and anxiety about his financial future.

JP had been diagnosed with a degenerative neurological disorder that he often described as his personal Cerberus to tame.  JP had a flair for Greek mythology that was evident by his vast collection of Greek-inspired sculptures strewn throughout his home.  His prize possession being a bronze and jade sculpture of Cerberus sleeping peacefully next to Opheleus’s lyre.  According to Greek mythology, one of the two weaknesses the Cerberus had was the music from Opheleus’s lyre.  Something JP took to heart and would use for his own mental well-being later in life as you will see. 

Without long-term care insurance, it was pretty obvious that JP was going to need to self-fund his future health care needs, and selling those Greek sculptures wasn’t an option.  

Lacking family and with little in the form of a support group, JP had many concerns and questions about his future.  Questions like,  “with increasing health care costs, how long will my money last?” and “how do I make my money last when I need to pay for caregiving?”  These questions would rush through JP’s head sometimes acting like a three-headed beast creating fear and anxiety that would often wake JP up at 3 am.

We should also mention that this story starts in 2003 when some financial markets like the NASDAQ had just endured a 70% decline after the dot-com bubble had popped and even the good stocks like Microsoft and Amazon lost more than 50% of their value in a very short period of time.  All these life events and demands were converging on JP at once.  Retirement, a change in health, and recent losses in his investment portfolio just after a time of market euphoria, JP’s situation was the epitome of a Red Zone. 

JP had been working with an Ameriprise (American Express) advisor the previous years and like most advisors and investors during the dotcom era, they found themselves caught up in the euphoria at the wrong time and over invested in the “new paradigm” stocks of the future.  When the bubble burst, JP and his advisor experienced a twilight zone of their own and came to realize that in some markets diversification isn’t enough.

There we were in 2003, sitting with JP at his kitchen table in the LA hills contemplating what to do next with a damaged portfolio from poor risk management, a sketchy future outlook for health, and a lot of questions and anxiety.  Sounds dire, right?

Here is where the story takes a turn for the better.  Remember we mentioned JP’s affection for Greek Mythology and the sculpture of Cerberus?  Believe it or not, that was the starting point of a new dimension for JP and his portfolio.

Recognizing that the stress of uncertainty was creating such levels of anxiety for JP we first had to focus on getting his nerves settled.  So we sat with JP and helped him pick a couple of pieces of music that seemed to settle his mind and allow him to quiet the relentless chatter he was hearing in his head.  The idea was similar to Opheleus’s lyre, anytime the beast of worry were to raise it’s head and snarl, JP was to listen to one of these pieces of music, close his eyes and visualize the outcome of his worries as being a wild success as opposed to a dumpster fire of failure. 

Once we were able to provide JP with this first tool to help settle his nerves we were then able to focus on next steps in creating a plan that would allow JP to feel like he had more certainty and confidence about his future.

Over the subsequent months, we worked with JP, his tax preparer, and his health care providers to model out various scenarios over the next 15-20 year timeframe to show JP how long his money would last based on different levels of expenses his health challenges may present.  We covered everything from best-case scenarios to worse-case scenarios and we learned everything that was available to us about degenerative neurological disorders, their treatments, and possible cures.  We also dove deep into the costs of long-term care, in-home nurses vs. assisted care facilities, anything that could influence the outcome of the plan we were creating for JP.

Guess what?  It worked. 

JP lived for 15 more years and his healthcare-related costs eventually reached $10,000 a month and over that time frame JP spent close to $700,000 in healthcare-related expenses.  If those numbers don't send you into a twilight zone you may want to check your pulse and make sure you can fog a mirror.

Take a wild guess how much money JP had back in 2003? In 2003, JP had just over $400,000 in liquid investments (as a side note in 2000 JP had just over 1.1 million in liquid assets until the dotcom bubble burst, so that should be a good example of why risk management during phases of euphoria are important) and about $750,000 in Real Estate related assets.  A total net worth of approximately $1.1 million.  When JP passed in 2018 his estate had a remaining liquid balance of $600,000 and real estate of $550,000, still a net worth of 1.1 million after spending over 700,000 on healthcare-related expenses.  JP made it to the end living a great life with great care and having money left over.

How did this happen?  How can someone spend nearly 70% of their money on care and still end up with more liquid assets than they started with, even during a time frame that included a thing called The Great Recession?

By following the same path JP did and using these four simple steps we share with you in hopes they will help you if you ever find yourself in a Red Zone similar to JP’s.

  • Maximize every benefit available to you.  This means making sure you apply for Medicare and Social Security at the most optimum times to reap the greatest benefits.  This includes making sure you get any Veterans benefits that you may be eligible for if you or your spouse served anytime in the military. If you would like some tips or “life hacks” to help you with this click here.
  • Eliminate any unneeded expenses and sell assets that aren't producing income.  For example, with JP he owned a condo as a second home that only produced expenses, by selling this asset JP was able to reduce expenses and turn the proceeds from the sale into investments that helped produce income towards his rising expenses. 
  • Don’t just diversify your investable money, optimize it.  The most common mistake investors make in risk management is thinking diversification will protect them in bad markets.  The problem with this is in bad or “bear” markets if your diversification isn’t aware of how the assets are correlated you can find that all your diversified assets move lower at the same time.  Optimizing focuses on the fine balance of diversification and correlation so your portfolio can potentially benefit from market upside while also having hedges that can help keep the portfolio right-sided during bear markets. 
  • Be proactive and engaged.  This is the most important.  JP succeeded because he acted fast, he was proactive, and made changes before his health got worse even though he didn't want to.  JP was engaged and met with us every three months to review and update progress as well as communicate with us on anything that may be changing in his health and expenses.  

While these four steps may seem sensible and expected, you would be surprised how our psychological programs can cause us to procrastinate by not asking for help and avoiding the inevitable of making difficult decisions.  We share this story wishing you may have these takeaways.

  • Take the first step sooner than later. This may include asking for help from experts that have experience in similar circumstances, which will increase your chances of success.  The human brain can only focus on so many things at once, so if you can get the mind focused on accomplishing a plan, it will prevent those scary emotions from entering.  And, in the event they do, you can tame them like Opheleus did with his lyre and the Cerberus with a new rendition of the song: “Don’t worry about a thing…. because every little thing is going to be alright, I’ve got a plan”.
  • Buy and Hold investing is for the young.  Blindly buying and holding investments in a portfolio is for the young that have long timeframes of 20 years or longer.  When you approach a Red Zone in life, a new approach is needed that should be focused on managing risk and optimizing a portfolio.  If JP had not experienced such large declines in his portfolio during the dot-com crash, the process would have been a lot easier for him.  It’s important to realize that equity markets of today are in a similar position as 1999, so if you know you may need some of your savings for supplementing your income  in the next few years it would behove you to contact us today so we can show you the important difference between portfolio diversification and portfolio optimization.  Click here to start a conversation.
  • Not all financial professionals are the same.  By riding side-by-side with our clients through their Red Zones we have been able to amass a wealth of knowledge that extends well beyond which stock to buy or how to invest during inflationary times.  Please keep that in mind the next time you, a friend or a loved one have a question about a life matter that could use a fresh perspective, like…... where is the best place to hawk a bunch of Greek sculptures?

Well, we have run out of time because this contributor needs to take his dog beast to the Vet for a gimpy leg after playing too much ball at the beach, yes it’s a tough life.  

Until next time, Happy Holidays!

*Live Virtual Event*

2021 Yearly Wrap-Up


Wednesday, December 15th at 3:00 PM PST OR Friday, December 17th at 11:00 AM PST

This is normally for current clients ONLY but we are extending an invitation for you to join us so you can get an inside look at our yearly wrap-up!

We're going to cover:

  • Market Trends
  • Inflation
  • Folio Models
  • Interest Rates
  • What to expect from the markets in 2022

Save My Spot! 

Meet Our Contributers

Colby McFadden Founder, Quiver Financial

Justin Singletary Director of Retirement Services, Quiver Financial

Patrick Morehead Director of Alternative Investments, Quiver Financial

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