Financial Horror Stories, Vol. 5: The All-Monster Edition

Robert Brokamp’s Hidden Gems Investing feed replays his appearance on David Gardner’s Rule Breaker Investing podcast for the fifth annual Halloween financial-horror episode. Gardner recalls that earlier installments focused on true stories of famous people whose financial mistakes came back to haunt them; this year, Brokamp has created seven fictional monsters representing real dangers that could affect ordinary investors. Gardner asks whether listeners should fear known risks or dangers they do not realize are present. Brokamp says the latter are probably more dangerous because financially sophisticated listeners may already have prepared for obvious problems while still underestimating subtler ones. The episode frames retirement and investing as ways to become financially independent—not necessarily to stop working, but to work because one wants to. Brokamp says he would like more time for adventures with his wife, while Gardner says he has long claimed he never wants to retire. They agree that “retirement” means different things and that work can provide intellectual stimulation, purpose, physical activity, and social value. Gardner also recalls that people who plan to play golf all day can become bored after six months, reinforcing the need to think about purpose rather than simply an end date.

Brokamp begins with retirement-readiness data. A Vanguard report says only 41% of Gen Xers and 42% of Millennials are on track to retire while maintaining their current lifestyle. Morningstar estimates that 46% of Americans would have a fully funded retirement if they retired at 62, rising to 55% if they worked until 65. Federal Reserve data show that the median retirement-account balance for all American households is $106,000; among households ages 55–64, the median is $239,000, which Brokamp says might produce only about $10,000–$12,000 per year in retirement income. Brokamp calls retirement a complicated math problem involving portfolio size, savings, returns, inflation, spending, and Social Security timing. He recommends using a serious retirement calculator rather than relying on free tools that may be inadequate, specifically naming Boldin, Maxifi, and Projection Lab, which cost roughly $100–$200 per year. He discloses that Motley Fool Ventures has invested in Boldin. If someone is behind, Brokamp recommends maximizing IRAs and 401(k)s, increasing the savings rate whenever receiving a raise, and investing irregular cash such as bonuses, tax refunds, reimbursements, or inheritances. The practical lesson is to calculate whether the desired retirement is affordable and then close the gap systematically.

Brokamp warns that retirement projections depend on uncertain assumptions, and small changes compound into large differences over decades. People are particularly bad at predicting their retirement date: Transamerica found that 58% of retirees stopped working earlier than planned, while the Society of Actuaries found 59%. Some retire early because their investments performed well, but others are pushed out by their own or a spouse’s health problems or by job loss. An Urban Institute study found that slightly more than half of workers in their early 50s lose a job, and only one in ten later find work paying as much as before. Brokamp therefore suggests assuming a portfolio return of no more than 8%—he personally uses 6%—and modeling retirement three years earlier than expected. Gardner and Brokamp also note that target-date funds are using higher stock allocations because retirees may live another 20 or 30 years. The tax monster concerns asset location: choosing which investments belong in taxable, traditional tax-deferred, or Roth accounts. Brokamp says taxable accounts generally suit low-yielding stocks held for years, tax-efficient funds, municipal bonds, and U.S. savings bonds or I bonds. Traditional accounts are better for tax-inefficient but lower-growth holdings such as corporate bonds and blue-chip dividend stocks. Roth accounts, whose qualified withdrawals are tax-free, should hold investments with the highest growth potential. As an example of a bad setup, he cites holding a real estate investment trust in a taxable account, where its generally nonqualified dividends are taxed as ordinary income, while holding slow-growing cash or bonds in a Roth. He recommends checking Morningstar’s tax-cost ratio; funds losing more than 1% annually to taxes belong in tax-advantaged accounts, while index funds losing perhaps 0.3%–0.5% may be suitable for taxable accounts.

Traditional retirement accounts are not only taxable when withdrawn; they eventually require withdrawals called required minimum distributions, or RMDs. Brokamp says RMDs begin at age 73, or age 75 for people born in 1960 or later. He met a Fool member whose RMDs were five times larger than the salary he earned while working, and the member regretted not accumulating more Roth assets. Roth accounts are tax-free when qualified and are not subject to RMDs. Brokamp compares RMDs to zombies because the problem grows from a few threats into a crowd. The first-year withdrawal may be about 3.7% of the account, but the percentage rises to about 5% at age 80 and more than 6% at 85. Portfolio growth combined with rising withdrawal percentages can cause the dollar amount to increase by 40%–90%, raising taxes, adjusted gross income, the cost of Medicare, and the likelihood of losing deductions and credits. He recommends projecting future RMDs with calculators or tools such as Boldin, Maxifi, and Projection Lab; converting or contributing more to Roth accounts; keeping cash and bonds in traditional accounts to limit their growth; using qualified charitable distributions after age 70½ to send IRA money directly to charity and offset RMDs; tapping the older spouse’s accounts first; and using traditional accounts as a bridge if delaying Social Security until age 70.

Brokamp turns to cognitive decline, explaining that an “engram” is the physical or chemical trace left by a memory. He cites a 2021 Journal of the American Medical Association study of Medicare beneficiaries that found people later diagnosed with dementia began missing bill payments six or seven years before clinical diagnosis. Their risk of having a subprime credit score rose about two and a half years before diagnosis. Brokamp says financial damage can include bad investment decisions, unpaid taxes, susceptibility to scams, estate-planning errors, and allowing fraudulent “helpers” into one’s life. Gardner asks whether people can receive regular tests of mental acuity like medical blood tests. Brokamp says such tests exist, noting that they have appeared in discussions of presidential fitness, and that his 87-year-old mother takes them. He recommends updating estate plans not just for inheritance but also for incapacity: durable powers of attorney, trusts, and health-care directives can let someone trusted step in. Families can establish additional oversight through read-only access to bank and brokerage accounts, aggregation services such as Quicken, Monarch Money, or Empower, or a fee-only fiduciary financial planner. Gardner adds that technology can shift from helpful to dangerous as people age, so trusted younger relatives should have visibility before a crisis. Brokamp says people should accept—or preferably initiate—the conversation about handing over financial responsibility.

Brokamp makes procrastination the sixth monster and acknowledges that it is personal: he calls himself a “congenital procrastinator” with attention-deficit issues, though he is much better than he was 20 years ago. He and Gardner credit David Allen’s Getting Things Done system with helping them become more organized and productive. Brokamp says his own delays have cost him through investments he made too late, reimbursements he failed to claim promptly, and bills paid after their due dates. He cites a TIAA-CREF Institute study of people age 50 and older, which found that procrastinators were 9.3 percentage points less likely to have a will or trust, reported lower retirement satisfaction, and described themselves as being in worse health. Another study, “Procrastination, Present-Based Preferences and Financial Behaviors,” found that people who waited until the last day to choose a health plan were also less likely to enroll in a retirement plan, took longer to do so, and contributed less. Brokamp’s practical rules are to maintain an external collection system rather than relying on memory, do any task that takes under two minutes immediately, and tackle the highest-value financial action first. Drawing on Eat That Frog, he says the “money-making frog” might be increasing a 401(k) contribution, obtaining life insurance, or creating an estate plan.

The final monster is the possibility of being so cautious that a person dies with far more money than necessary. Brokamp says some retirees work longer, spend less, and postpone experiences even though their finances would support more enjoyment. He cites an Atlantic article by Jean Chatzky discussing the “retirement consumption gap”: middle-income retirees could be spending about 8% more per year, while wealthy retirees may be spending as much as 53% less than they could, even after accounting for long-term care and leaving a legacy. “Bucket lists everywhere are suffering,” Chatzky writes, according to Brokamp. Brokamp does not reverse the first episode’s warning to save enough. He says people must first run the numbers and make sacrifices if they are behind, especially because many are forced into retirement rather than choosing it. But once the plan is secure, they should ask what experiences, causes, and relationships matter and consider moving them earlier. Some meaningful actions cost little or nothing, such as volunteering or arranging a video call with an old friend. Gardner connects this to Walter Green’s “Say It Now” message: express gratitude and act on important plans before an imagined future becomes unavailable. They close by restating all seven lessons, emphasizing that the point of financial horror is not fear itself but recognizing a danger early enough to do something about it.