Is too much debt sabotaging your retirement goals?

Transcript:

David Scranton: Now that’s exactly what debt can feel like, dragging around a super heavyweight that makes it hard to achieve your goals, and you know that’s always true but it’s especially true if you’re talking about retirement goals. Let’s face it, too much debt is never a good thing but it can be especially damaging in the years leading up to and during retirement. The question becomes, could that be a danger to your own retirement goals? And if so, what can you do about it? It’s time once again to tune out the hype and focus on the facts, facts that matter to you, the income generation.

Hello, I’m David Scranton. It should seem obvious that one of the most important priorities we should have as we approach retirement is to eliminate debt. Yet, carrying too much debt into retirement and accumulating more debt during retirement are major problems for many Americans today, and that’s truer or now than in past years for a variety of reasons. All of which we’ll address on today’s show. We’ll also discuss some practical ways for reducing or eliminating debt in preparation for your retirement and preventing debt from becoming a problem once you’re retired. Helping us today will be our guest Samuel and Kirstie O’banner, founders of Fresh Start Financial Education as well as author and advisor Greg Sullivan.

But, first, let’s talk about why pre and post-retirement debts are problems faced today by so many Americans.

These days many people have a so-called bucket list that they carry into retirement and try to chip away at.  And you know that’s nice, but many Americans today also have a bucket of debts that they also carry into retirement and are forced to try to chip away at, that not so nice. According to an analysis by University of Michigan Retirement Research Center conducted by Magnify Money, a growing number of Americans are carrying heavy debt burdens into their fifty’s and beyond. Authors of the study say they found a number of debt trends that threaten to undermine the retirement goals of many of today’s older Americans for one thing; both a percentage of older Americans carrying debt and the amount of debt they’re carrying are both increasing. According to the study, twenty years ago, roughly 37% of Americans age 46-to 61 carry debt. By comparison today, about 42% of Americans the same age carry debt. That’s not the scariest part, the scariest part is that a much, much higher debt to income ratio. Now other studies have shown the problems also increasing even for older Americans. The number of families in which the head of the household was 75 or older carrying debt, rose to 60% from 2007 to 2016 and that percentage continues to rise according to a recent report by the Employee Benefit Research Institute in Washington D.C. According to the same study, the share of homeowners age 65 and over still carry mortgage debt nearly doubled between 1995 and 2016 rising from 22% all the way to a whopping 41%. But, you know the trend isn’t entirely explained by higher mortgage costs. In fact, according to a breakdown of Magnify Money’s analysis published in Forbes, nearly a third of older Americans 32% carry non-mortgage debt each month. Of that, a significant portion is credit card debt. Carrying a large amount of credit card debt into retirement, we all know can be especially problematic.  Why? Because typically credit card interest rates far outpace most investment returns. The average credit card interest rate today even today, yes is over 16% and that’s compared to the 4-6% average return rates most retirees can reasonably expect to earn from their investment portfolios depending upon their allocation or the risk level. That probably explains why according to an analysis by Next Avenue, the average net worth of older Americans without credit card debt was $120,000 compared to just $68,000 amongst those with credit card debt. For some people, new challenges in the modern age have created new sources of debt for example, in the past few decades, technology and other changes in the workforce that forced many Americans to go back to school later in life and to rack up new student loan debts in the process. So, according to the Government Accountability Office, the number of Social Security recipients age 65 and over who have had their benefits reduced because their student loans which had defaulted, increased by more than 500% between 2002 and 2015 and again that’s because garnishing Social Security benefits is one of several extreme measures the I.R.S. can take if you default on federal student loans.

Now you probably already know that it can garnish employer wages and take away your state and federal tax rebates to put it toward unpaid loans, but it can also withhold up to 15% of your Social Security payments. Experts say there are a number of other reasons behind the scenes in burdensome debt among older Americans. One is easy access to money in the years leading up to the financial crisis. Between 2002 and 2007, the average American could walk into a bank and get a loan for just about anything or any amount and this led to overextension, not just on mortgages, but also on car loans and loans of all types. When the Great Recession subsequently struck those whose retirement accounts were hit hardest by the stock market crash, had to start receiving and many were forced to start making only minimum payments on their loans as a result more debt has followed them further into their retirement years. Another issue is a significant rise in the cost of living. Back in the early 1990’s, there were no cell phone or internet bills to pay and gas was much cheaper back then. Today, there are more necessities and they all cost more, and let’s not forget that until very recently wage growth was large largely stagnant. In fact, another lingering that came in after the financial crisis was the stagnant wages growth. In recent years many Americans have had to increase their debt load just to keep their heads above water. So the bottom line is this, debt nearing during retirement has become a significant problem for more and more Americans in recent years. We’ll talk about some of the specific ways that debt can sidetrack or even completely derail your retirement goals. We’ll do that a little bit later in the show, and then we’ll share some tips for getting a handle on your debt before that happens.

Now it’s time to welcome our first guest Samuel and Kirstie O’banner. Similarly, Kirstie came to us several years ago through one of our income specialists and advisors; Michael Eastham of Fellowship Financial Group in Altamonte Springs Michael’s actually been on the Income Generation many times. In this case, we booked Michael and the O’banners on Drew Wilson show on FOX Business News. At that time, they were getting married, but actually had a plan to get out of debt. Today not only are they debt free, but they’re actually the founders of Fresh Start Financial Education. Samuel and Kirstie, welcome to the show.

Samuel O’banner: Pleasure to be here, David

Kristie O’banner: Thanks for having us.

David Scranton:  Thank you. In fact, you probably noticed on the introduction to the show, we actually have Michael right in the introduction; he’s part of the role that comes in every single week. I know you know that because you’re a regular viewer of the show and all.

David Scranton: So, I’m going to put you on the spot.

Samuel O’banner: Alright.

David Scranton: A little bit here and we’re going to play a little Newlywed Game with you.

Samuel O’banner : Okay.

Kirstie O’banner: Uh oh.

David Scranton: And I’m going to be Bob Eubanks. Okay, now I know you two are very young obviously so I have to ask the question even though Bob Eubanks says.

Kirstie O’banner: I do.

David Scranton: You do, oh good, all right. Perfect, I love it and for that’s what I was hoping I’d get for an answer. So tell me, how long have you been married?

Kirstie O’banner: Next month will be four years.

Samuel O’banner: Four years, yes.

David Scranton: Four years congratulations.

Kirstie O’banner: Thank you.

Samuel O’banner: Thank you very much.

David Scranton: So when you came into the relationship with debt, who had the debt?

Kirstie O’banner: It was me.

David Scranton: It was you?

Kirstie O’banner: It was me.

David Scranton: Was it shoe collection? Let me see there, Is it shoes? Is that what it is?

Kirstie O’banner: No, it was a car, student loans, all kinds of other stuff.

David Scranton: All kinds of other stuff, okay. So how far into the relationship, Sam, did you figure out that this debt existed?

Samuel O’banner: Within the first month of us dating actually because I was teaching a financial class helping people in our community eliminate debt.

David Scranton: Nice.

Samuel O’banner: And I would meet with Kirstie on our date nights and it just opened for good conversation. How did your Tuesday night go?  Well, this is what we discussed in class and just kind of gradually made our way into that conversation because.

David Scranton: So you were subtle about bringing into a new relationship which is good.

Samuel O’banner: Yes.

David Scranton:  How did you accept?

Kirstie O’banner: I thought it was awesome. It’s funny because I had actually gone through a similar course to the one that he was teaching prior to meeting him, didn’t quite grasp it, but I was already familiar with the concept so I thought it was interesting to meet him and he was so enthusiastic about it. I thought okay this will be helpful in really getting on track this time.

David Scranton: So did you feel, and I just have to ask this, but did you feel at all embarrassed about having the debt early on in this relationship by any chance?

Kirstie O’banner: I did initially, but he was so gracious about it. He never made me feel inadequate or he never made me feel bad about it. He embraced it and he shared his own story where he had struggled with the same thing before getting hold of the principles, so he was really gracious about it so he made it easy.

David Scranton: He made it easy, very approachable and that’s important because I find that a lot of the reasons why people struggle with debt is simply because they are afraid to admit it, they bury their head in the sands or embarrassed by it, and you really shouldn’t be. The first step is admitting there’s a problem.

Kirstie O’banner: Right.

Samuel O’banner: Right.

David Scranton: Right, that’s always a first step so okay so now you had open conversations about this in terms of how those conversations were how this debt was going to get fixed and eliminated over time.  So you put a plan together.

 

Kirstie O’banner: We did.

David Scranton: And that plan consisted of you paying off the debt over how long of a period?

Samuel O’banner: Fifteen months. Our first 15 months of marriage, we paid off $50,531.83 give or take.

David Scranton: $50,000?

Samuel O’banner: $50,000.

Kirstie O’banner: But who’s counting.

David Scranton: You paid off $50,000 in fifteen months.

Samuel O’banner: Yes sir.

David Scranton:  Wow, look at that that is a really good for you, that’s awesome.

Samuel O’banner: Thank you.

David Scranton: So you pay that off.

Samuel O’banner: Yes sir.

David Scranton: And then what has that enabled you to do since then with the money, now that you have that yoke off your back. What have you done?

Samuel O’banner: Several things; help others.

Kirstie O’banner: Absolutely.

Samuel O’banner: It has freed us up to be generous in a greater capacity. We recently closed on our first home, and it’s just created an avenue for us to, what else?

Kirstie O’banner: All kinds of things; travel.

Samuel O’banner: Travel.

Kirstie O’banner: Like he said be generous.

Samuel O’banner:  It’s just not that bondage of having that debt.

David Scranton: That’s a good; you guys are a great story. We have to take commercial break right now.

Samuel O’banner: Sure.

David Scranton: We’ll be right back so just stay put, don’t move.

Samuel O’banner: Sure.

David Scranton: And you stay with us also, we’ll be right back with more on the income generation right after the commercial break. As we’ve seen, debt is a significant problem for many older Americans today, more so than in past decades. It’s just one more of the many challenges unique to our generation and just one more reason, I believe, retirement strategy that addresses these unique challenges is absolutely essential. New problems are rarely ever solved using old approaches. It’s also one more reason I believe it’s important for investors over fifty to start working with a qualified advisor who specializes in retirement planning as soon as possible. So if, paying down or preferably paying off your debt, if it’s so critical heading into retirement then the sooner you start that process, the better. It’s crucial for a number of reasons which we’ll discuss now. First as I pointed out on previous shows, very often after a person does what I call a top down financial analysis, they’ll discover they’ll be able to enjoy their same lifestyle after retirement for less money that cost them today why? Because, for most people, a number of their expenses go away after retirement, now,  if you have specific retirement goals such as travelling that may bring your income needs back up just a bit in either case, whatever portion of your retirement income is going to pay down lingering debts, it’s obviously going to diminish your ability to maintain your lifestyle and to pursue those goals, and if you try to avoid that by simply making minimum payments, you only will  be paying more interest and digging a deeper and deeper debt hole as I’m sure you’re all well aware. Even worse, many types of mortgages and other debts have interest rates that are just upwards automatically after some time. That means even those minimum payments might just increase possibly forcing you to siphon money away from other goals in reducing your lifestyle just to keep digging that very same hole. So, if you should fall behind that could lead to late fees and other penalties pulling even more money away from your retirement goals. Let’s face it, lingering debts can also make it much harder for retirees to manage the considerable and yes frequently unexpected medical expenses that are common for older Americans. According to a Federal Reserve Board report, 36% of all financially hardships experienced by Americans are the result of an unexpected health expense. I’ve discussed on previous shows how health care and medical costs increase at a much faster rate than the average rate of inflation. A fact that causes many retirees to underestimate how much they’ll need to cover these medical costs over today, what could be more than 30 years of retirement, and of course, one of the biggest but unfortunately most common consequences of carrying significant debt within ten years or so retirement or through retirement, is just not being able to fully retire.

Many Americans are forced not just to alter their retirement goals because of debt whether it’s delaying retirement or to work part time during retirement, but for some it could actually be an indefinite delay if they failed to create a viable workable plan for eliminating debt or at least making it more manageable within their overall retirement strategy.  So with that in mind, I again want to stress the importance of starting this process sooner rather than later if you think that debt might even possibly be or might even possibly become a hindrance to your retirement goals.  A qualified advisor specialize in working with clients in or near retirement can help you lay out a plan for paying down as much debt as possible while you’re still working, thereby paving the way for retirement strategy that protects your principal while generating the income you need to achieve your goals. Now, if you’re already retired, it may seem like it’s too late to do anything about debt, but there are options available that could help you reduce your burden and get you closer to leading the kind of retirement you want. That is retirement many cases hopefully free of the shadow of unmanageable debt, and we’ll talk more about that coming up in just a moment.

Well it’s time again to welcome back Samuel and Kirstie O’banner. So, so you were talking about some of the things that you’re able to do.

Samuel O’banner: Yes sir.

David Scranton: Which I love. So, part of it is you said you know I want to do good things for people.

Samuel O’banner: Absolutely.

David Scranton: And you’ve been able to do some, so just give me an example maybe one nice thing that you’re able to do now that you were able to free up some of that cash flow.

Samuel O’banner: Sure, just I’ll give an example, there’s been many but, go ahead you had something in mind.

Kirstie O’banner: Most recently, we had a family member that we had found out had taken out a loan that was really putting a burden on her and we were able to take care of that, pay it off for her and that was really special to be able to do things like that.

David Scranton: That’s awesome.

Kirstie O’banner: That matters.

David Scranton: That’s going to make you feel good, right?

Kirstie O’banner: Oh yes.

Samuel O’banner: It makes you feel good to be able to be in a position to help for sure.

David Scranton: But sometimes it’s not just about the dollars and cent.

Samuel O’banner: Yes.

David Scranton: We always talk about that on the show because it’s a show about money of course but it’s about feeling good, it’s about being happy and if you can help family, I mean, you know what else can do with your money if you can’t help family right, bottom line.

Kirstie O’banner: Absolutely.

Samuel O’banner: Right.

David Scranton: Now you bought your house.

Samuel O’banner: Yes sir.

David Scranton:  I assume you were able to put more money down on the house because of this.

Kirstie O’banner: Yes.

David Scranton: So, let me ask again, this is the newlywed game.

Samuel O’banner: Yes sure.

David Scranton: So I can ask all these types of question get away with it right.

Kirstie O’banner: Hmm, mm.

David Scranton: So did you put down 5%, 10% 20%. Where were you able to go?

Samuel O’banner: Great question. So we did it, what we call the fresh start way so our business is Fresh Start Financial Education and to answer your question, we suggest families to put down twenty percent or more towards their home.

David Scranton: That’s great, I love it. I always say that really truly that’s how it used to be, where people would put down 20% and we got so far away from that now its part of what would cause the financial crisis.

Kirstie O’banner: Right.

Samuel O’banner:  Absolutely.

David Scranton: And by the way, just you know Sam you didn’t have to do the shameless pitch for fresh start.

Samuel O’banner: I was going to ask you about that later.

David Scranton: All right, so you did that, you did some travel.

Samuel O’banner: Yes.

David Scranton: Where is the coolest place you’ve been traveling to since you paid off the debt?

Samuel O’banner: Well when I met Kirstie, I had never been on a cruise before.

David Scranton: Okay.

Samuel O’banner: So to me, we went on a cruise, a seven day cruise and it’s just to be away from the cell phones and just kind of disconnect and we went to four different.

Kirstie O’banner: Different

Samuel O’banner: Four different Stud, four different, yea.

Kirstie O’banner: It was nice.

David Scranton: That’s awesome.

Samuel O’banner: That was a lot of fun for me, yea.

Kirstie O’banner: Hmm, mm.

David Scranton: That’s great, good for you.

Samuel O’banner: Yeah.

David Scranton: Well, I’m glad to hear that. How did you make this play in over fifteen months?

Samuel O’banner: Yes.

David Scranton: Not just walk too far in the weave just give us a feel for what you did boots on the ground to get focused on this, stuff that some our viewers might be able to listen and actually take away and implement when they go home.

Samuel O’banner: Great question. I think the primary thing that we did was we budgeted prior to the pay period, prior to the direct deposit. Kirstie and I would sit down and we budget together, and so we just assigned every dollar to different budget categories, and having that control over your money together unified, not just me doing it and trying to do on my own. When you’re married, there’s a great unity, you can make great attraction when you’re on the same page so I think for me that was primary.

Kirstie O’banner: And then also minimizing our expenses so looking at every area where we were spending and figuring out where we could, how we could cut back and spend less.

Samuel O’banner: Absolutely.

Kirstie O’banner: To use that difference to go towards the debt.

Samuel O’banner: Yes.

David Scranton: Yes, it helps when you’re a couple and you’re in it together.

Samuel O’banner: Absolutely.

David Scranton: One person, it’s like getting help. If two people smoke and one wants to stop smoking.

Kirstie O’banner: Hmm, mm

David Scranton: It’s harder when the other one doesn’t.

Kirstie O’banner: Right.

Samuel O’banner: Yea.

David Scranton: That’s great. So you’re focused on together, you got the debt under control.

Samuel O’banner: Yes sir.

David Scranton: Were you able to pay it off in a in a level fashion? Was it really three thousand dollars a month for fifteen months or something like that or?

 

Samuel O’banner: It was thousands of dollars per month. I mean we literally lived off half of one income. I mean it was a sacrifice David but we had the end in mind. It was a great sacrifice. We had it so friends know a lot of times when we were asked to go to restaurants or various places.

David Scranton: So for fifteen months.

Samuel O’banner:  Yes sir.

David Scranton: Hardly had dinner out.

Samuel O’banner: Yes sir.

David Scranton: Forget about shopping at Whole Foods and having, you go right to Publix.

Samuel O’banner: You know it’s just what you have to do.

Kirstie O’banner: Right.

David Scranton: You cut every single corner but now that fifteen months sacrifice mean that for the rest of your life.

Samuel O’banner: Yes sir.

David Scranton: You’ll be able to enjoy much more financial freedom.

Samuel and Kirstie O’banner: Absolutely.

David Scranton: That’s awesome.

Samuel O’banner: Absolutely.

David Scranton: That’s awesome. So tell us about fresh start. When did the idea about fresh start come up? I know what motivated you to start it but when the idea come up?

Samuel O’banner: Sure:

David Scranton: And how did you implement it?

Samuel O’banner: Sure.

David Scranton: Talk to us about that.

Samuel O’banner: Well, it was almost, we shared publicly online on Facebook our debt free story the day, the morning of when we paid off a student loan which was the last and final debt. We took a quick picture and when I took the picture, and we took the picture it went viral literally.

Samuel O’banner: Oh yea and we saw we got hundreds and hundreds of messages from.

Kirstie O’banner: Thousands.

Samuel O’banner: Thousands, yea you’re right. People we didn’t know that wanted to know how did you do it?  How can we do it? So we realized it was a greater need and Fresh start was.

David Scranton: You never realized yea.

Kirstie O’banner: Hmm, mm.

Samuel O’banner: Yes.

David Scranton: Wow.

Samuel O’banner:  The company we birthed, Fresh Start Financial Education from that need and we’ve been on and helping people ever since.

David Scranton: That’s a great. We’re up for the break.  We’re going to have you back we’re going to ask you more about Fresh Start.

Samuel O’banner: Sure.

David Scranton: And I want to ask you specifically about some of the techniques that you recommend when it comes to paying off debt and getting people in a better financial situation so we have more segments together, looking forward to it and you stay with us too. We’ll be right back after the commercial break with many more words of wisdom from my new friends Samuel and Kirstie. We’ll be right back.

 

Randi Kohn: Hello, I’m Randi Kohn and this is your news Max Finance update. Let’s take a look at some of the stories that move the markets this week Obamacare insurers and New York and Washington state are now asking for double digit rate hikes next year. The insurance providers in those two states say repealing the individual mandate and uncertain changes to the health care system are the two biggest factors. Companies in New York are asking for an average of 24% rate hike and Washington insures are requesting for a little more than and 19% hike. Mexico says it’s imposing a 20% tariff on U.S. pork imports.  Officials tell Reuters that they don’t expect the move to affect pork prices in Mexico because there are many alternatives to U.S. suppliers. This comes after the Trump administration imposed steel and Aluminum tariffs on steel and Aluminum from Mexico, Canada and the E.U. And Starbucks announces that executive chairman Howard Schultz will step down June 26, Schultz stepped down as C.E.O. last year and will leave the coffee chain he’s been in for nearly forty years. The announcement is fueling speculation that the sixty four year old might run for president in 2020 and as always for much more on these stories visit Newsmax com/finance. Now let’s get back to the income generation with David Scranton.

 

David Scranton: So exactly what are some things that you can start doing right away to get a better handle on debt.  If you feel you’re carrying too much debt as retirement approaches. Well, the first step sounds obvious but that’s simply to make a priority out of paying down debt.  Let’s face it, many Americans have already been doing this in recent years which is one of the reasons the economy has struggled so long and been so difficult for it to recover. Consumers simply haven’t been spending. They’ve been trying to save and pay down debts, but for some of the reasons we’ve already discussed stagnant wages, increasing cost of living, health care expenses etc., it remains a struggle, but if you must prioritize on one thing one thing; saving or paying down debt within ten to fifteen years of retirement, please make it paying down debt.  In particular, make it a priority of paying off any high-interest credit cards before further funding your retirement accounts unless of course, it’s a 4o1K contribution that your employer is matching because that is just basically free money. Second, if you’ve been lax about having and sticking to a budget, get strict, get focused, make sure especially to set tight dollar limits on things like entertainment, food, clothing and gifts you may want to give, but don’t really need to. Too often, those are the kinds of things that cause credit card debt to just balloon out of control. Even when you’re young that’s a bad situation but when you’re nearing retirement, it’s that much worse, and speaking of getting strict, here’s another smart, but sometimes difficult move you should make. Stop financially supporting your adult children. According to a recent Pew Research Center poll, nearly 61 of American parents had provided financial support to an adult child in the last twelve months. If your grown children need financial help, let them be the ones to take on the debt. They have much more time to earn money to pay it down. Your retirement income should go toward your goals of maintaining a lifestyle you want, not paying off their debts or ideally not paying off any debts. Another step that could help is to downsize.  Most retirees do this anyway but consider doing it as such a way that one of your goals is to end up with a significant savings or windfall that can help you pay off your debts in a lump sum. And this may go without saying, but I’ll say it anyway, be especially careful about taking on any more debt and that includes agreeing to request a co-signing student loans or other types of loans Please keep in mind you have less time and probably fewer resources to pay back loans if the principal primary borrower fall short Now of course as you know a common strategy for the elimination of non-mortgage debt is to get a reverse mortgage. I’ve discussed reverse mortgages on previous shows and the bottom line is this, in my experience, they should be used only, only as a last resort. Debt consolidation is another strategy that can potentially help reduce your debt load, but the payment plans typically come with strict stipulations so it’s important to be sure you’ll be able to meet those stipulations, and of course some of these strategies require professional help to implement. In any case, as I’ve stressed a couple of times now I believe your odds of reducing your debt burden as you near retirement are greatly increased if, you list the help of an adviser that specializes in retirement income as soon as possible. And now it’s time to welcome back for one final block Samuel and Kirstie O’banner. So let’s talk about that what types of strategies do you find work the best for people?

Samuel O’banner: Unity first and foremost, being together minimizing expenses.

Kirstie O’banner:  Hmm, mm,

Samuel O’banner: Kirstie is excellent at that I mean she changed where we shop for groceries, shaved our grocery bill down.

Kirstie O’banner: In half.

Samuel O’banner:  In half basically.

Kirstie O’banner: So definitely minimizing expenses.

Samuel O’banner: Minimizing expenses for sure.

Kirstie O’banner: Budgeting together.

Samuel O’banner: Budgeting together.

Kirstie O’banner: We ordered our debts from smallest to largest and just attacked each one in order and just use the momentum from paying off one to go towards the next and just kept going until we got to the last one.

David Scranton: I bet some of those things that you did at that time

Samuel O’banner: Hmm, mm.

David Scranton: Created habits after fifteen months.

Samuel O’banner: Oh absolutely.

David Scranton: Even now you can afford to spend more money being debt free.

Samuel O’banner: Absolutely.

David Scranton: I bet some of those habits still stick and are making you even more financially sound.

Samuel O’banner: Yes.

David Scranton: Since you paid off the debt correct?

Kirstie O’banner: Right.

Samuel O’banner: Yes, that’s what we tell people. This is not just until you eliminate debt, this is a lifestyle.

Kirstie O’banner: Right.

Samuel O’banner: So this is not just for short period of time. This is for the rest of your lives.  We still have those budget meetings. We have those periods every two weeks, and so this is a lifestyle we still minimize expenses. We call various companies to try to say “hey our bills too high help us out”.

David Scranton: Great, I love it. So what’s funny as you know, my book is entitled “Return on Principles”.

Samuel O’banner: Yes sir.

David Scranton: So I’m a big fan of you focusing on principles when it comes to your investing and not deviating from your own principles. And what happened is, this sounds like it got you back to some of your basic principles maybe principles that your parents taught you. But, then you got a little bit away from it maybe as you got older, and now you’re back to it. So what are the most important principles for people to adhere to get, again get the right mindset so that when they pay off the debt, they don’t go back to it ,just like when you’re on a diet ,if some people going on a diet,  they gain the weight back.

Samuel O’banner: Right.

David Scranton: But it’s got to be a change of lifestyle so tell me about what the 2 or 3  most important principles are to get people debt free and to keep them debt free.

Samuel O’banner: Right.

David Scranton: That they should be able to adopt hopefully.

Samuel O’banner: Great question David. Our faith has been a huge part of this whole process. There’s a scripture that Proverbs 22: 7 says that the borrower is slave to the lender, and so that right there number one is.

David Scranton: Absolutely.

Samuel O’banner: We didn’t want to be slaves to anybody. We want to be free financially and in every way so that to me is number one.

Kirstie O’banner: Right.

Samuel O’banner: Driving factor, motivating factor.

David Scranton: Hmm, mm.

Kirstie: Right, and just deciding that going into debt and borrowing is not the only way to make purchases especially large purchases. We both had car payments and things like that back in our borrowing and debt days.

David Scranton: Absolutely

Kirstie O’banner: Because we didn’t know that you can, we didn’t really think about the fact that you could purchase a car without financing it in and making payments and  those things.

Samuel O’banner: Yea.

Kirstie O’banner: So just making a decision to not borrow and to eliminate debt if you have acquired it as quickly as possible.

David Scranton: On previous show a while ago I talked about a client of mine from the Middle East that I had acquired maybe up almost thirty years ago. He’s a great gentleman; his name is I-raj.  I-raj said he didn’t have any debt and then all of a sudden, he’s talking later portion of our interview about car payments and I said wait a minute.  He said you have any debt. He goes well you see, and part is because his culture doesn’t believe in debt.

Samuel O’banner: Sure.

David Scranton:  So he says what I do is I figured out a long time ago that if I’m going to have a car payment my entire life, I’d rather save the money in advance for the next car than pay it off in arrears. He figured out back then with higher interest rates that he could actually get a car that’s about a third more expensive for the same dollars by saving in advance then paying it off in arrears and paying interest which is earning interest instead of paying it.

Kirstie O’banner: Right.

David Scranton: Again, that made a great lifestyle habit.

In fifteen seconds or less, final words of wisdom for our income generation viewers about debt.

Samuel O’banner: I would say definitely have an end goal in mind and you don’t have to be in bondage to debt any longer, and Kirstie and I are definitely here to help.  You can visit us www.freshstartfinancialeducation.com.

David Scranton: You just made myself pitch easier I didn’t even have to give that information, I love it.

Samuel O’banner: I didn’t.

David Scranton:  Thank you so much for being with us.

Kirstie O’banner:  Thank you.

Samuel O’banner: Sure.

David Scranton: It’s been absolutely wonderful. I hope people learned a lot from you; you had a lot of great things to say. And you stay with us too we have a lot more here on the income generation. We’ll be right back after the break. As you’re probably aware many huge businesses that have become enormously successful get started by borrowing money. In other words by incurring debt but you’d probably also agree you would be completely crazy to borrow money to gamble it at the casino. In a way that comparison highlights the difference between real investing and what most people think of as investing when they have their money in the stock market. In other words, just like the difference between the owner of a football team counting on his team winning the next game and a fan betting that the team will win on Fan Duel. Both the owner and the fan guess, they both have vested interest in the team winning, but that’s where the similarity ends. Why? Because the owner of the team has some influence over its performance, some level of control. The fan betting on the game has no control, he’s only betting, and that’s pretty much the same difference as when investor like Warren Buffett who buys majority shares in a company and every day investors who are minority shareholders. Warren Buffet has a seat on the board in a measure of control over how that company performs. However, as a minority stockholder, most of the rest of us have simply no control at all. Now, sure you may have studied the company and feel confident about its future just as that football fan has studied the teams and the players and feels confident that he’s bet on the right one. But, at the end of the day with no control, it is just a bet, a gamble and nothing else. Now, I share that because when I discuss strategies for dealing with retirement debt earlier in the show, you may have noticed I did not recommend borrowing money to go to the casino. The fact is borrowing money for something that’s a potential investment like a football team or starting your own business might, might just make sense, but borrowing money for something you know is going to depreciate like a car or is temporary like a meal makes literally no sense at all. In fact that might in some ways, be worse than boring money to go the casino.  In the casino at least you have a chance of winning but, again, that’s still definitely not the action you want to take as you try to get a handle on your debt rather you want to develop a financial strategy for managing debt and then moving forward secure principle and enough income to meet your retirement goals, and to grow your portfolio organically and that’s why income based approach to retirement planning makes so much more sense if you’re dealing with debt and even if you’re not in today’s uncertain economic climate. It makes sense, why? Because it’s a strategy and not a gamble which, again, is the last thing you want to do if you’re trying to get a handle on your   debts and you want them to stop in retirement. Now it’s time to welcome our next guest Greg SullivanGreg is principal, president and C.E.O. of the Virginia based advisory firm Sullivan, Bruyette, Spero & Blayney. He co-founded the firm in 1991, has over thirty five years of investment management and financial planning experience.  He’s the author of a new book entitled “Retirement failed, the nine reasons people flunk post work life and how to ace your own”. Greg welcome to the show.

Greg Sullivan: Thank you very much, pleasure to be here.

David Scranton: I’ve written a couple books myself as you know and it takes a lot of work to do so tell me what motivated you to write this book?

Greg Sullivan: You know that I just I had a lot of experience and I felt it was a great way to help create a better conversation with our clients. And, as you’re going through these challenges, people are making decisions or running into life events and I thought that sometimes the best way to do it is for someone to have something to go home and read, connect with and then we can get back together and have a deeper conversation about the issue. So, it’s really more about creating create better awareness and better communication on issues that impact people in their retirement.

David Scranton: Now you point out that it’s not, in most cases, poor portfolio performance that causes people’s retirement problems but its poor emotional decisions. Can you talk about that for a moment?

Greg Sullivan: Yes so if you manage your portfolio in the manner we talk about in the book which is a just a brief part of the book conversation. General performance is really not our issue, but you have things like buying second homes, not letting your kids grow up and getting out of the nest, life events that can come about such as divorce or a death or disability in the family that really impacts what your financial wherewithal was. Unpredictability’s that come along that maybe you just weren’t preparing for. Many of those things you could have been preparing for. Often time’s people are just ignoring them.

David Scranton: Hmm, mm, burying your head in the sand you know.

Greg Sullivan: Right.

David Scranton: In the thirty seconds we have left in this block, tell us about burying the head in the sand. What effects have you seen that seems to be almost the biggest, It’s kind of an emotional decision.

Greg Sullivan: It really is and probably one of the biggest ones and one of the chapters I love the best was about children and people just kind of assume and they kind of just say “hey my kids need me. I love them “and therefore they just take care of him and they would lose the perspective that it is great for the children to move on their own.

David Scranton: And that’s one of those tough emotional decisions that you’re talking about. In fact as you heard earlier on the show, I actually warn people about that saying stop helping your kids. If your kids have problems, let them take on the debt; they have longer to pay it off. So, we are going to take a quick commercial break. Greg will be right back with more from Greg Sullivan. You stay with us too; we’ll be right back after the break.

Welcome back we’re talking again with Greg Sullivan the author of “Retirement Fail, the nine reasons people flunk post work life and how to ace your own.”  So Greg obviously we’re doing a show today on debt with people focused on people at or near retirement, and we know it’s a bigger problem than ever before. What’s your experience?  Do you find, like I do, is it more of an earlier age problem?  Is it more of a later age, pre-retirement problem? Where you see most of the mistakes happening?

Greg Sullivan: Well, a lot of debt happens certainly earlier on right when people are accumulating assets and as people are getting closer and closer to retirement they start to be paying off debt. It is actually one of the places that people can get tripped up right. They’re not paying it off quickly enough or.

David: There isn’t too long.

Greg Sullivan: They have a surprised event, they have accumulated this debt when a surprise event happens with a disability or a loss of a job, or a death in the family, or a child that needs additional help and then they can’t get themselves out and that’s where debt becomes a problem that deals with retirement.

David Scranton: Well, the nine reasons that people flunk retirement success, one of them is bad emotional decisions. What’s another one?

Greg Sullivan: Well, you have dealing with crazy things even the fact that you’re an entrepreneur or you’ve retired or you’re about to retire but you take on an entrepreneurial bend. Take a good example, you have a child who decides “Oh,I want to start this clothing store or this fashion item or a copy shop” and they come to you as mom and dad and say “hey can you help me get this thing started”, and then you go and  help them and let’s say it gets to be successful. The next thing you know you’re helping them buy a home, and then you take on the debt with the home and everything looks like it’s going great until you have a great recession.

David Scranton: Hmm, mm.

 Greg Sullivan: And a great recession comes and it starts to go downhill.

David Scranton: So I could say in some ways that’s taking too much risk with some things later on in life.

Greg Sullivan: Exactly.

David Scranton: Financial decisions. Give me one more before we wrap up today.

Greg Sullivan: Yeah, well divorce right, so divorce becomes a surprise. You know the fastest growing segments of people getting divorced are people over age fifty.  So, people in their 50’s and 60’s and s70’s they are now getting divorced where maybe in a  generation before we weren’t seeing it as much. Now, we have a faster growth in divorce going on and that income and pool of assets now has to be divided by two households. It becomes really stressful on the family.

Dave Scranton: Oh tough part about that is what are you going to do?  Nobody plans to get divorced.  I think your answer is really to save twice as much right?  You save twice as much just in case.

Greg Sullivan: Well, yea.

David Scranton: And if you’re retired and still together well then hallelujah, you have twice as much money.

Greg Sullivan: Well, it’s a savings issue but it’s also a transparency and honesty issue and an awareness issue of saying “hey, let’s are aware that you know maybe sometimes these relationships may not work out”.

David Scranton: Of course, great thank you for being on the show. It has been my pleasure.

You stay with us we’ll be right back with more on the income generation. I like to take this opportunity to thank all of our guests for joining us for another episode of the income generation. I’d also like to thank you our new and returning viewers. You know it’s funny as a culture; we seem to have this love- hate relationship with debt. From the time we get that first credit card offer as a teenager.  We are sent a lot of mixed messages about positive and negative aspects of carrying debt.  Some debt we’re told is good even necessary to establish a credit rating. Some debt as we mentioned earlier like a mortgage or a business loan, might make sense because it’s an investment that ideally will appreciate in value as we’re paying it off thereby creating equity. Most business would never get off the ground without debt, and the entire lending industry has become a necessary cornerstone of our economy. But, in light of all that, debt is more socially acceptable than it has been in past generations. Even our government seems hardly concerned at all about the massive debt that it carries, but at the end of the day, the reality is this, debt can do real damage and it often does. As we learned on today’s show, more Americans near and at retirement age and ever before are struggling with debt, and for some of them may pose a real threat to their retirement goals. But, that doesn’t have to be the case for those willing to take action and it doesn’t mean heading for the casino either. It means reaching out as soon as possible to qualified financial advisors who specializes in an actual strategic approach to retirement planning based upon protection and income. Thanks for watching.

If you’re close to retirement and you really, really, really want to know how to protect and  maximize your money, it’s absolutely essential that you stay informed and up to date and right here is where you can do it on the income generation. I am David Scranton and thanks again we’ll see you next week. If you are not using someone who is well trained in fixed income and you’re born before 1966, it may just be time for you to break up with that advisor and move on. I would suggest someone who will care for you through these important years of your life. If you need help finding someone call or write us. I’d also like to remind you of the special report entitled “The Income Generation”. This is available free to you our loyal viewers online. If you haven’t downloaded your report, pick it up after the show. If you’re near or in retirement, head over to the income generation.com and download your special report which is specifically for the needs of the income generation, again those that born before 1966.  I’m David Scranton and you’ve been watching the Income Generation. We’ll see you all next Sunday.