The homeless guy just wanted $20. He offered to cut my client’s lawn, but he had made the same offer a few months before, and the lawn was never mowed.  So my client turned him down. The homeless man did not take it lightly. He started pounding my client with his fists, knocked him down, and kicked him repeatedly in the head. In the scuffle, my client sustained damage to his brain.

But I am getting ahead of myself. This is how the story should begin.

I was a fairly new stockbroker back in 1987 (that is what they called us before we became “Financial Advisors”). I opened an account for a retired postman who had his pension and had also saved $216,000. The client decided to split his $216,000 between me and a broker at another major firm. In the months that followed, each time we spoke, I would suggest that he consolidate the monies with me. I am pretty certain the other broker was suggesting he be given the total as well. Eventually, I quit suggesting consolidation.

Ten years later, my client called and said that since his account now topped $1 million and he wanted to come buy me lunch. During that lunch, he said that he wanted to transfer the other account to me. I asked how it had done. He told me the other advisor had laid out a well-conceived financial plan with graphs and pie charts and statistical analysis. The account was invested across a broad spectrum of assets and well diversified. However, while his account with me had grown from $108,000 to $1 million, the other account had only grown from $108,000 to $140,000 over the ten or so years since he had split the lump sum.

My first reaction was to joke that he should keep the account with the other financial advisor so he would have a measure of how well I was doing. But obviously that was not in his best interest, and he moved the account to me.

It was within a year of our lunch that he beaten and suffered extreme brain damage. Because he had the financial resources, the client was able to afford treatment in a facility that specialized in brain damage care. Had he not had the finances, he would have probably become a ward of the state and moved to a family home.

For me it is a case study that demonstrates well the need for a larger-than-necessary nest egg that provides a margin of safety. Had he put all of his money with the other stockbroker, he would very probably would not have been able to afford such a high quality of care at the end of his life.

Thankfully, very few people will ever experience that type of traumatic experience. However the potential for financial devastation is not negligible. Consider that statistically 40% of Americans will have cancer.1 Of those, one in four will probably exhaust their life savings in two years or less.2 That works out to 1 in 10 Americans running out of money due to cancer. The number one reason for bankruptcies in the US is medical debt.

But it doesn’t have to be a catastrophic event like cancer or assault. There is a new study out from Goldman/Prudential that predicts that 1 out of 5 people will run out of money even if they only take a fixed 3.5% withdrawal from their nest egg.3 These are people with well thought out financial plans and sizeable nest eggs which seemed like they would last their lifetime. Yet they risk running out of money before they reach the end of life.

At AFC, we believe that people need to have their money working harder for them. One of my recent newsletters pointed out that the big financial Registered Investment Advisory firms were yielding just 3.7% return in 2020 at a time when the S&P 500TR was up over 18% and AFC clients were up an atypical 77%. (77% is the highest return of my career. Check the AFC website for our 16 years performance for clients. We have to say that past performance is no guarantee of future performance.)

Now is the time to plan for the future – to remove the fear that you will outlive your money. Even the Goldman/Prudential study, whose approach used annuities to make up the lack of monies, predicts 1 out of 6 elders will run out of money within their expected lifespan. And half of you will live beyond that expected lifespan.

At AFC, we have a passion for creating and maintaining wealth for our clients. That is our mission, and this case study is one illustration why that is so important.

1. “Cancer Statistics.” National Cancer Institute, September 25, 2020. https://www.cancer.gov/about-cancer/understanding/statistics#:~:text=Approximately%2039.5%25%20of%20men%20and,will%20die%20of%20the%20disease.

2. Gilligan AM, Alberts DS, Roe DJ, Skrepnek GH. Death or Debt? National Estimates of Financial Toxicity in Persons with Newly-Diagnosed Cancer. Am J Med. 2018 Oct;131(10):1187-1199.e5. doi: 10.1016/j.amjmed.2018.05.020. Epub 2018 Jun 13. PMID: 29906429.

3. “Withdrawal Rate.” Goldman Sachs Asset Management. Goldman Sachs, July 1, 2021. https://www.gsam.com/content/gsam/us/en/institutions/market-insights/gsam-connect/2021/Withdrawal_Rate.html.