A good example is 1993, a crazy year for investors. Stocks lost three percent while the conservative crew in bonds lost 30 percent. I know, I know, you weren't in the market at all. You had your money safe and secure in the bank. Wonderful. Let's take a look at the action you went through via my "instant financial replay." Hold onto your hat, here we go.
Life is good for you in Anytown, USA. Trees along the street, flowers blooming, birds singing, and patients just flowing into your office with big subluxations and insurance policies to match. Ah yes, life is good. You get that dollar from your patient and you feel good. Real good. Not so fast. You have one little item to deal with first. It's called rent, salaries, telephone, utilities, advertising, etc.
That's right, the ugly "O" word (Overhead) has just stepped forward to take at least 50 cents away from that wonderful dollar that your appreciative patient just gave you. It's a word that reminds us of "chicken little" and her sad tale of woe. Yes, overhead can and will take its toll, and that toll is around 50 percent if you are lucky.
But who cares? The trees are still there and the flowers are still blooming and you are happy. Right? You have 50 cents and you will take it to your friendly banker and he will say hello and wish you well. Life is good.
Excuse me, but aren't you forgetting one small item? I hate to rain on your parade (the trees and flowers enjoy it), but a relative would like to talk to you about that 50 cents. That relative is Uncle Sam and he wants his share and a share for your state. Forty percent should do just fine, and that leaves you with three shiny dimes -- 30 cents.
But who cares? You skip off down the block enjoying the trees and flowers on the way to grandma's house, I mean the bank. Mr. Banker greets you at the door and welcomes you (almost like the story about the spider and the fly), and offers you coffee, tea, or a calendar. You give him your precious 30 cents and ask that he guard it carefully and make sure it is safe and secure, and ask that he pay you enough interest so that you can continue to go broke safely.
Wait a minute. What's going on here? Why did the soft music stop playing? Why are the trees dying and the flowers are wilting? Oh no, now the birds are flying away too. The merry go round has turned into a spin that will send you crashing to the ground. What went wrong? What happened to "Father Knows Best" and "Leave It to Beaver"? Now all I see is "Beavis and Butthead." What went wrong?
You went wrong. Under this sad tale, if you could live and work long enough, you would go broke safely. Take another good look at the math and forget about the trees and flowers for a second. You get that dollar and your overhead takes at least 50 cents, leaving you with just 50 cents. Taxes will take up to 20 cents and now you have just 30 cents to put to work for you and to live on. Your bank pays you interest that is less than the inflation rate and it's taxable. Let's assume that you get three percent on that 30 cents which is nine cents. Now all of your Uncles back and take 40 percent of that, leaving you with a whopping five point four cents. Now what?
Let's go back and replay part of this story and change the action slightly. We will rewind to the point where you are left with 50 cents after you pay your overhead. We will now set up a retirement plan and put 15 percent or around eight cents into the plan before taxes. Now that eight cents will grow in an environment where you get to keep all of the interest you earn and it is not currently taxed.
Your 42 cents is still taxable at 40 percent, leaving you with 25 cents. Meanwhile you eight cents is growing and flourishing. If you are lucky enough to earn on that money, you get to keep all of it. You can now live and be happy in Anytown, USA.
Where are you? Where will you be when it's time to retire? Why not take the steps now to avoid going broke safely and allow me to "direct your feet to the sunny side of the street". Life can be good. Care to join me? What's that I hear? Ah, the birds are coming back.
Stanley Greenfield, RHU
Click here for previous articles by Stanley Greenfield, RHU.