Why did the chicken cross the road?

February 28, 2013

In November of 2009, I wrote a blog post titled: Why “the experts” confuse the average investor (here is the link). This topic popped into my mind the other day as I was talking with my 10-year old daughter. She asked me the classic question: “Daddy, why did the chicken cross the road?” Of course I knew that a rip-roaring joke was about to be laid out on the table…at least that’s how I had to portray it with her. Sure enough, she had a great answer and I busted out laughing. This got me thinking about my previously mentioned blog post because the answers to the question posed by my daughter are endless and they simply depend on who’s answering the question.

I thought, what if we asked this simple question about the chicken to various people, maybe even historical people? Would their answers have been the same or would they be different? So, here we go, “Why did the chicken cross the road?”

Their answers*

Dr. Seuss: Did the chicken cross the road? Did he cross it with a toad? Yes! The chicken crossed the road, but why it crossed it, I’ve not been told!

Ernest Hemingway: To die. In the rain.

Buddha: If you ask this question, you deny your own chicken nature.

Martin Luther King, Jr.: I envision a world where all chickens will be free to cross roads without having their motives called into question.

Colonel Sanders: I missed one?

Attorney: Chickens are invited to cross the road to join a class action lawsuit against all non-chickens.

Bill Clinton: I did not cross the road with THAT chicken. What do you mean by chicken? Could you define ‘chicken’ please?

George Bush Sr.: Read my lips, no new chickens will cross the road.

Retired truck driver: To prove to the armadillo that it could be done.

Albert Einstein: Did the chicken really cross the road, or did the road move beneath the chicken?

This is all in fun of course but the theme here is very similar to the variety of instructions given to people about solidifying their financial future. Having a clear understanding and a concise plan can be almost impossible because financial professionals virtually always disagree with each other and they never provide the same answer. Most people have heard the following conversation over and over again whenever they speak with a new financial expert: “How much money do you have? Where is it? Oh my gosh, why did they put you there!? You need to come over here because we’ll do so much better.”

Climbing Mount Everest

So, who can you trust? Who really has your best interests at heart? This is often the hardest hurdle to get past. This reminds me of climbing expeditions up Mount Everest. What is the most important phase of the climb? This single phase is responsible for over 75% of all deaths that occur during the quest to summit Everest. It’s the descent. The plan DOWN is the MOST important part of the entire expedition.

Financially it’s no different. The “climb” to the summit can be viewed as the accumulation phase as you work towards your retirement. The descent is the distribution phase of your assets to ensure you have enough money to live on for as long as you’ve planned to live. What does traditional planning focus on the most: i) simply getting to the summit or ii) getting to the summit with a very specific plan on how to get down? ING put out a series of TV commercials (here’s one of them) asking you if you “know your number”. That “number” is the amount you need to retire or more specifically the number you need TO GET TO THE TOP OF THE MOUNTAIN! But ING, what is the plan once that number is reached? Our focus should be even more intent on that phase of life than any other.

105% increase in 10 years!

Truly, if you hired a guide for your climb up the mountain and you asked him for his plan to get you down the mountain, how would you feel if he said this: “I don’t know, but once we get there we’ll figure it out.” Remember, 75% of those who die, die on the way down. Look around, how are people doing? We have an aging population, a declining workforce, an inability to save, a national debt that’s beyond comprehension and a government whose only answer is to print more money. According to whitehouse.gov (Table S5 Proposed Budget by Category) if we wiped out the entire Federal Government and the entire Military (all discretionary spending for 2012) then we’d still be short by $8,000,000,000 due to the various entitlement programs (we did a video on this very topic). Let that sink in, the ENTIRE federal government and the ENTIRE military and we’d still be short. Now, if you do this exact calculation for 2013 then we’d have a surplus of $360 billion (again, only if we got rid of the federal government and the military – obviously never going to happen) but look at the “total receipts” (all taxes collected)…they’re predicted to go up by 17.5%! If you look at the total receipts predicted in just 10 years, 2022, it’s a 105% increase from 2012. Are you ready for that? What’s your plan to deal with this issue? How are going to get down the mountain? If you’re only being told that you’ll be in a lower tax bracket in the future then you better get a new climbing guide.

Reduce future taxable income

There’s an endless amount of Congressional Budget Office reports and Government Accountability Office reports informing you that your taxes are going up plus the dollar will continue to weaken (the hidden tax). How will all of this affect you once you decide to “come off the mountain top”? Please understand, there are strategies and solutions to help mitigate some of these issues but you must be prioritizing strategies that will reduce your taxable income in the future! You will most assuredly face fewer deductions, fewer benefits, higher taxes and a weak dollar; therefore, reducing your taxable income in the future will be the biggest and most important aspect of your plan to efficiently climb down the mountain and make it out alive. The only factor that determines success is the reaction of the government. Shouldn’t we be studying them and NOT the financial products? All other discussions are only focused on making it to the summit. Our clients come to know what it means to have a plan for distribution and how their plan will ensure that they will NEVER be poor. Our job isn’t to help you strike it rich. Our job is to secure that you not only summit the mountain but that you make it down safely regardless of the conditions or challenges you face.

So, I ask you, why did the chicken cross the road? My answer, because she knew she could make it.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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*some of these answers came from http://grandfather-economic-report.com/

Taxes (Defining Moment #2) Part I

September 27, 2010

I’ve spent some time over the last few posts about, what we call, Defining Moment #1.  This post dicusses Defining Moment #2 but lets first start with a quote from the former Comptroller General of the United States, David Walker:

“We are heading for a future where we will have to double federal taxes or cut federal spending by 60%”.

The rapidly changing demographics of our country are going to impact everyone’s lives in our nation. Simply believing we are a great nation will not continue to make us one.  To compete and survive we will have to change and that change may not come easy.

Alan Greenspan said “As a nation we have already made promises to coming generations of retirees that we will be unable to fulfill.” Keep in mind, he said this in 2004…well before the last two years of continued spending.

That’s why Defining Moment #2 is critical to understand, it states that “this may be the lowest tax bracket you will ever be in.”

As you are reading this post, the U.S. Federal Government continues to spend more than it takes in from tax revenues. The debt in our nation is growing over one million dollars an hour. And it keeps going up. What does that mean to every person in the United States? Well, in order to pay for this government burden every citizen in the country would have to pay about $174,000 or for every household $664,000 (as of September 2010).

The purpose of telling you this is not to scare you but rather to make you aware that all the conditions are in place for everyone’s taxes to increase.  We know this isn’t new information for you but you can’t just take this for granted. You must understand the importance of planning for not only the demographic changes but the serious problem our government has created for itself and exactly what it means to you.

Traditional thinking professionals may be willing to avoid this problem that is out there right now until it becomes a crisis for you.  For example, are you still being told to defer your taxes now by contributing to a qualified plan that will be most assuredly taxed at a higher rate later?  Times are changing and if you’re being told to just wait it out and see what happens, it is simply going to be too late to react to the problem.

Future taxes that you pay will be the largest transfers of your money that you will ever make. The size and amount of future taxes has not yet been determined but we do know that government debt will be a large determining factor.

You must not only understand this Defining Moment that this may be the lowest tax bracket you will ever be in but you also need to act upon that knowledge.

What if you in fact could be insulated against future tax increases and use your money tax free when you need it?  Would it make sense for you to do a little homework for yourself?  Truly, how much is that worth to you?

If you don’t have a plan to counter this defining moment then please understand, the government does.

We’ll continue to do our part in providing you as much free information and analysis as you need.  But, you need to step up to the plate and ask some questions.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Velocity of Money Part 4

September 24, 2010

We just discussed how this first Defining Moment, that your money will never be worth more than it is today, motivates banks and why they live by it, but how does it impact your mortgage?

If you own a home and have a mortgage on it you are probably the proud recipient of a lot of junk mail. Much of this mail is from financial institutions who want to inform you that making additional payments on your mortgage is a good thing. For whom it is a good thing is not clear to most but for those who understand this Defining Moment it’s very clear.

We touched on this a little bit before but let’s take it a little deeper.  Let’s start with this question: would you like to make more house payments now with dollars that will never be worth more than they are today? Or, make more payments later when the buying power of that money is far less?

Let’s look at some math.  If your mortgage payment is $1,000 per month, do you want to make more payments now when your money has the buying power of $1,000 or make more payments later when the buying power of that money is $412 thirty years from now? (Which is the buying power of $1,000 with a 3% inflation rate for 30 years).

What you need to understand is that the value of your home is going to go up or down no matter what your monthly payment is as well as no matter what your mortgage balance is at the time.

To prove that point, if there are two identical homes side by side and one is paid for but the other is mortgaged, at any point, the houses are worth the same.  Neither the payment nor the mortgage have any effect on the value of the property.

But by making additional payments or paying cash up front for the house, you have used the most expensive buying power dollars you could to do this. At the same time by using today’s money to make additional payments you have made the banks and mortgage companies very happy. Remember they are in a win-win situation. So what do you do?

We’d highly recommend you read our Mortgage blogs when they’re posted…so that means you’d have to subscribe. There is one thing I know that WE can do for you right now.

We can prove, again not with concept or fancy theory but good ‘ol 8th grade math, that paying extra and sending more of your most value dollars to the bank ahead of schedule actually hurts you financially.

Big paradigm shift, we get it.  Call us crazy but we also can prove that a 30 year mortgage can actually pay off FASTER than a 15 year mortgage using the exact same budget for both…even with a higher interest rate on the 30 year. Read that again. This can be proven with math and no investments are needed to accomplish this fact.  It’s true and can be backed up with simple math.

So, we’ll do our part for free by showing you. You just have to challenge us and be willing to learn something new.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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