Don’t Be This Guy! Face the Hard Truth

Don't Be This Guy

I was traveling for business last week and charging my phone in one of Delta’s charging stations.  The terminal was fairly empty and a man was sitting next to me using the same charging station.  He was an older gentleman in his late 60s, wore a nice dark suite, and had a friendly, kind of grandpa like demeanor.  He was talking to a relative on the phone.  He hung up and apologized for the conversation.  I told him that it was no problem.  He said he was talking to his son who was looking for a job.

After talking about his son for a few minutes, He asked me, “What did you think about Bernake’s decision?”  I replied, that I had not been paying attention.  With the exception of catching about 5 minutes of Bloomberg while getting dressed in the morning, I try to ignore the financial news.  It is one of the ways I avoid driving myself nuts with all the Chicken Littles out there.  He told me that Bernake had decided to continue the Qualitative Easing.  This means that the Fed is not yet ready to let the market try to correct itself.

The conversation then led into politics.  I avoid political conversations with anyone except my wife – only because we are both on the same page.  The gentleman started to complain about Obama’s policies and how they have hurt him.  I expected him to start railing against Obamacare, but he surprised me and went on about Obama’s role in the GE bankruptcy.

I found out the man I was talking to was a former GMC executive.  He came to work for GMC after an acquisition of his former company.  As an executive, his compensation was a nice mixture of salary, stock and a generous pension.

In 2009, GMC filed for bankruptcy and was backed by the U.S. Government.   After the reorganization, the company traded in its old stock for a new Initial Public Offering.  This resulted in their old stock being worthless.  On top of that, they converted their pension into an annuity (an insurance product that pays you a fixed amount over a certain period of time).  This enabled them to shed their pension responsibilities that were weighing down the company.

In one of his last assignments with the company, he moved to where he lives now and bought a 5 bedroom house for he and his wife.  (He hoped for many visits from grandchildren.)  After retiring from GMC, he became a consultant and continued to travel almost every week.  He looked tired.

The GMC bankruptcy hit him hard.  He never diversified his GMC stock and the bankruptcy made his stock worthless.  He received a letter from GMC notifying him that his pension was going be be turned into an annuity and he could take the annuity that would pay him 100% of the amount until he died and then pay his wife 65% until she died.  His children would receive nothing.  His other option was to take a lump sum payment.  The retiree health care plan was no longer available and he would have to rely on Medicare for insurance.  Once he received this letter, he had 6 weeks to decide if he wanted the annuity or the lump sum payment.  He had never talked to a financial adviser before, so he had to start looking for one.

Later in in the conversation, he told me that he was 69 and they had too much house.  His wife had a recent injury and they were only living in the downstairs of the house.  The four bedrooms upstairs were not being used.  I asked him if we was going to sell his house and downsize.  He said, “No, I like the neighborhood and my neighbors. I think I am going to do a reverse mortgage instead.”  I’m betting he was underwater in his house.  While a reverse mortgage is right for some people, it is usually a last resort option.

I never want to find myself in this situation.  That is why I am so diligent in planning for the future and managing my risks – and you should too.

Here are 3 hard truths to help ensure you never end up like this guy:

  1.  Buck up Buttercup, you make your own bed – You are the product of your decisions during your life.  The older you get, the easier or more complicated things can get based on your past decisions.  Being greedy now and keeping up with the Jones will make you pay the price later.  Like Dave Ramsey says, “Live like no one else, so later…you can live like no one else.”  You can blame your company, you can blame the President, the Democrats or the Republicans.  In the end though, look around.  There are many people faced with the same decisions you were and took the path less taken and ended up better off than you.
  2. Your pension won’t be there for you and neither will Social Security – I work for a large bank and we have a pension.  I have 34 years max until Social Security.  I don’t plan on either of these sources of income in retirement.  I am saving for my retirement on my own using my 401k account.  My number is set, 4 million needed for retirement, and I am on track to meet it.
  3. Your eyes are bigger than your stomach – When it comes to housing, we always buy too much.  My wife and I have a 3 bedroom house and one of the bedrooms are not used.  Growing up, I had a 3 bedroom house with six kids.  My two brothers and I had three bunk beds stacked high in a 10×10 room.  It was fun.  We made it then with less and we can make it now.

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