Bernie Madoff, the Goose and the Broken Eggs

Bernie Madoff, the Goose and the Broken Eggs

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Bernie Madoff and the Broken Goose Eggs

Do you remember hearing about a guy by the name of Bernard Madoff a few years ago?  He was the one who “ripped off a bunch of rich people.”  For many of us, that’s about all the relevance he had to us.  Bad guy.  Rich people.  Not us.  Who cares?

Well, there’s actually a lesson or two for us in the Bernie Madoff story.

Last week I wrote about how we’re living so long these days that we all face a special challenge at the end of our lives:  how to have our money outlast our days.

I gave you an easy formula to figure out what it would cost for you to live the lifestyle you envision for those oh-so-many years.  The answer may have been a shock.

What we didn’t talk about is how you could get there.  (And, granted, some of you said you never would.  You decided maybe it was easier to throw your arms up in the air and do nothing.)

Before you do that, let me tell you what got me on the right path, after blowing it royally with my finances at 53.  As I’ve shared before, I was building my supposedly successful consulting business on more and more debt when the planes hit the towers on 9-11. When the economy faltered for a bit, it was enough to throw some of my clients into bankruptcy and pull me down with them.

As I took a serious look, for the first time, at my long-term future … and did the calculation I gave you last week … I decided I had to find some secret, some trick, to make the challenge less frightening.  And I did.

It’s called “simplifying your life.”

I down-scaled pretty dramatically.  I, who had hung out in 5-star Paris hotels for decades, moved into a miniscule home in a less chi-chi neighborhood.  I proved I could live very comfortably (and safely) on much less.  So when I multiplied that annual cost of living to calculate my targeted “retirement nut,” it was much more attainable.  I had removed the “I could never do that” factor.  It was doable.

Was that where I ultimately hoped to end up?  Not at all.  But by simplifying I was able to get to a point very quickly where I knew I’d be okay for the rest of my life.  I reached financial independence, where I could live on what I was generating without having to work.  And the relief that came with that recognition is beyond words.

I didn’t realize we all carry a stressor in our brains that creates mischief with our peace of mind once we have that first “retirement” conversation with ourselves.

And that conversation goes like this:  “I’m how old now?  I have how many years until I stop working?  How in the heck am I ever going to get from where I am today to where I can sleep soundly at night without worrying about pushing a damn shopping cart through the streets?”

So how do we accumulate that retirement nut?

Well, we have to go at it from a bunch of different fronts.  And how old you are today will determine just how aggressive you have to get about growing that “nut” … without going so radical that you aren’t enjoying your life today.

Money can come from businesses (or jobs) we work in.  It can come from businesses or opportunities we invest in that require very little labor or input on our part.  It can come as the interest and dividends we earn on money we’ve saved and invested.  The small first deposit in a savings account is the first flake in a snowball that can grow faster than we imagine.

Lastly, just as good policy, the safest thing is to put your money in different types of assets and investments, just in case an economic event hits one category worse than another.  (Think of how many people had all their retirement locked up in the equity of their homes.)  That’s what we call diversification.

So what does Bernie Madoff have to do with any of this?

We heard about all the people who had taken their savings and thrown them at Madoff so he’d invest them in his fund.  Part of their “catch-up plan” for retirement was to grow their cash as fast as possible, and Madoff was offering steady returns of around 12-13% per year.  Much higher than other funds.  They had found the goose that laid golden eggs and asked no questions.  They went against common wisdom and, year after year, pulled money from other investments to put into this “magical money-making machine.”

Say you had $750,000 saved up (including pulling the equity out of your house) and you placed it with Bernie.  At 12% interest, that would be generating $90,000 a year (or $76,500 after the standard U.S. 15% tax on dividends and capital gains).  Feels pretty safe, doesn’t it?  Over $75,000 a year for life?  (Plus any Social Security.)

Well, then imagine how you’d feel when you woke up that day and heard on the morning news that Bernie Madoff was a scoundrel and the whole thing was a $50 billion Ponzi scheme.  Your money was gone.

Two lessons:  (1)  If it sounds too good to be true, it is.  (2)  Never put all of your (retirement) eggs in one basket.

Let me know in the comment section below if this article has triggered any ideas of what you might do differently when it comes to preparing for retirement.

Bio: Sharon O’Day lost everything at age 53: her home, her business, everything. But how could that be? She’s an expert in global finance and marketing with an MBA from the Wharton School. She has worked with governments, corporations, and individuals … yes, she was the secret “weapon,” if you will, behind many individuals in high places. Yet she did! Since then, with her finances completely turned around, Sharon has gone on to interview countless women. She’s done extensive research to understand how that could have happened, especially with her strong knowledge of numbers and finance.

The surprising answers are shared in her posts, articles and an upcoming book. Today her mission is to show as many women as possible how to become financially free for the long term, through her coaching programs. She has developed a step-by-step plan to get past all the obstacles that keep women broke and scared … and from reaching the financial peace of mind they so deserve … if they’re willing to do what it takes!

  • Some great messages in this post as always Sharon! And your “Two lessons: (1) If it sounds too good to be true, it is. (2) Never put all of your (retirement) eggs in one basket. ” are to be heeded. And they’re not just relevant to money but to relationships too!

    • SharonODay

      I hadn’t thought of how they relate to relationships as well, Carolyn, but they sure do!

  • Robert Seth

    More great wisdom Sharon! Thanks!

  • Your article has prompted me to really put thought into what I want my lifestyle to be like when I reach retirement…what do I want and what do I need and what do I want to be able to enjoy. We have put so much effort into creating a home for our children to give them a home they would be drawn to and want to be bring their friends to…but now that they are teenagers I can see where downsizing is a real possibility when we retire. That really changes what our ‘nut’ would be. Lots to think about! Thanks for sharing these important things that we need to be thinking about 🙂

    • SharonODay

      Sometimes we’re so busy making today okay that we don’t stop to think that tomorrow could look a lot different–both for things we can control and things we can’t. My main goal is to get each of us to think about what OUR tomorrow could look like …

  • Your dramatic down-scaling is so interesting to read, Sharon. Especially the fact that you’re wise enough to know YOU are not defined by your neighborhood, furniture, etc.

    I wonder what percent of people come into this world knowing they don’t need a lot of things… verses how many have to strive & arrive at having a lot of things to realize they don’t need them.
    And speaking of “things” and Bernie Madoff… we still had some fleece blankets and an insulated bag with his name on it since Mike’s Hilliard Lyons corporate office days. We gave them to Goodwill, but couldn’t help wondering what people might do to them!

    • SharonODay

      It took a long time to learn the lesson of what “defined” me, Amity and I didn’t do it without help … which is why I’m so ready to help others on the same journey. I know you get it … and have long held that healthy perspective that you’re teaching to your boys as well. (Love your Bernie story, too!)

  • Claudia Looi

    Sharon, your message has been consistent throughout. You have given golden nuggets that so many of us could glean from if only ‘we listen’ and follow through. As I part with my belongings, I feel lighter and free.

    • SharonODay

      I know what marvelous strides you and your family have taken, Claudia, in preparation for living a totally different (and vibrant) existence. Brava!

  • Hughie Bagnell

    Thank you Sharon! Excellent lessons shared…downsizing and/or delayed gratification are very necessary to achieve short, medium and long term financial goals! …Thanks, Hughie 🙂

    • SharonODay

      Hughie, we sort of know these things in the back of our heads, but it usually takes something to shake us up and actually DO something about it. At least, I knew it did for me!

  • Sharon, thank you for another great article! I agree with you on ~ …the safest thing is to put your money in different types of assets and investments, just in case an economic event hits one category worse than another. Love reading your posts.

  • olga hermans

    It is an amazing thing how satisfied we can be with less especially when we know the reason why and because we have created it oursleves. We rather see ourselves go up from there than go down….so, in a way it is a very healthy thing to do…thanks Sharon!

    • SharonODay

      It’s one way to build a solid foundation to grow from, Olga, if the existing financial foundation is shaky … which it is for many people these days. The weak economy and loss of housing values have truly put a spotlight on just how many foundations ARE shaky.

  • Great post Sharon! Thank you for sharing it with us!

  • I went through a similar simplifying-my-life experience a few years ago — it has been SO FREEING. I love your posts – sharing your own experience along with positive, solid advice and suggested steps to an outcome. Thank you!

    • SharonODay

      Lisa, did it take you to a place of freedom and control you didn’t even know existed? It did for me. And gave me so much more energy to build back, from a place of strength, not weakness …

  • Wendy Cassera

    Great discussion. People need to understand how important it is get that retirement “nut”.. I recently read another article that was similar on how you don’t want to save for unemployment instead of retirement. A very similar story. Thank you for the great information!!

    • SharonODay

      You’re welcome, Wendy. For anyone who works, if you take your average salary and multiply it by the number of years you’ve worked, you’ll be shocked at how much money you’ve gone through over the years. I know I was. That was one major eye-opener! And none of it had gone towards retirement …

  • Fantastic post, Sharon, particularly the part about not putting all of your eggs in one basket! Diversifying can be such a good strategy when it comes to money! Love that you simplified your life. You are such an inspiration and have so much great advice. Loved the post! Thank you.

    • SharonODay

      This is a particularly hard time to invest effectively, Sherie, because so many of the instruments we used to be able to count on are acting irrationally. But that’s one more reason to spread things out!

  • Sharon G. Cobb

    Love this article. I am at the point in life in which I’m looking very HARD at this…sad to say I should have looked much closer a lot sooner!

    • SharonODay

      Sharon, we ALL should have looked much closer, much sooner. But it’s never too late, especially if one’s willing to really take control of things for a few years. And the feeling of peace of mind is exquisite, well worth it! 😉

  • Love your posts Sharon! I always learn something new, and you make me think every time.

    • SharonODay

      “…you make me think every time.” That’s precisely my goal, Helena! Glad it’s working 😉

  • You are a definite inspiration, Sharon!

  • Great advice as always @SharonODay:disqus

  • Thea

    Wow – such great advice (as usual) Sharon!! I am currently digging myself out of a financial hole that I got into over the past couple years due to education expenses and such. But like you — it’s taught me how to do more with less. The blessing is that I am at an age where it’s not so bad. I hope that your words of wisdom remain in the back of my mind as I become debt free. You really have an amazing gift in helping us see things in a light we haven’t seen them before. Thanks 🙂

    • SharonODay

      Thea, you do have the advantage of years. But don’t let that be a reason to slack off! The greatest joy would be for you to get to financial independence (where your passive income covers all your expenses) early, and then enjoy the peace of mind going forward as you continue building and doing what you love! And you can do it!

  • Hi Sharon,

    I love your two lessons. It is so easy to get taken with something that sounds great, until you read the fine print or realize that it is to good to be true. The recession has hit everyone in some form. I know I have had to realign my priorities, so that my money is safe and will last throughout my retirement. Thank you for a great post.

    • SharonODay

      Cathy, for a few people (but unfortunately not for enough), the recession has been an opportunity to take off the blinders and get more honest about what they’re doing (and not doing) with their money. And in some cases, all that was need was a tweak or two. As you know, by realigning your priorities (i.e., paying attention to your money) you’re able to do a few little detours to be sure you’ll be fine for the rest of your life. That’s what true peace of mind is all about!

  • Thanks for sharing your experiences Sharon. Most people would take a horrible experience like that and not wish to speak of it, but by sharing our negative experiences with others we can help them from falling into the same ruts. My husband is fond of reminding me “if it seems too good to be true, it probably is!”

    • SharonODay

      Lisa, we hear the expression “make your mess your message.” I realized that what I had learned through that experience could do two things: help people who were going through the same thing and help others not have to do the same. In either case, it’s a win-win!

  • Carele

    Thank you for sharing your experience. It is really important. Great article Sharron.

  • It’s funny what will first strike your eye when reading an article, and for me (today) it was your bio… that you lost it all at age 53! I know I’ve read that many times before, but today it leaped out. Your story is so powerful, Sharon! From posh Paris hotel living to a greatly simplified lifestyle – with happiness, to boot – you have become one of the WEALTHIEST people I know! And this fabulous wealth oozes out in your writing, for I feel our passion to help all of us become financially secure. Thank you, thank you, thank you, Sharon!

    • SharonODay

      Sue, once I recognized that “what ‘They’ thought” had become a major driver of what I had to have (or had to be), it was a piece of cake. ‘They’ weren’t going to pay my mortgage. ‘They’ weren’t going to pay my bills in retirement. Once I got rid of ‘They,’ I could identify what truly mattered to me. And that hasn’t changed one iota, even after getting myself back on firm financial footing.

  • Yippee, we’ve done one thing right! We invested in mutual funds first. Upon a trusted advisor’s advice we moved from stock mutual funds to cash mutual funds before the market took a dive thereby preserving our funds capital. Next, we moved some of that money fund into our LifeVantage stock because I am building a lucrative business with the company, owner equity so to speak. I’ve watched my investment more than triple in a year. We have equity untouched in our home and gain more each month. We are living within our means and mostly below our means and continue working towards paying off debt. NO more credit cards…thank you Sharon…no Bernie Madoff ponzi schemes for this fiery grandma.

    • SharonODay

      Reading that, Carla, brings me such joy! I remember some very different conversations at an earlier time. 😉 You’re a prime example of someone who takes responsibility for her decisions (good or bad), turns things around, does what it takes, puts her “new” self out there without letting past mistakes get in the way … and today is firmly on track to reach financial freedom. Brava!

  • Thank you for your knowledge. At 31, we are investing in our retirement and learning many lessons from people like you!

    • SharonODay

      Mandy, it’s so good to hear that you’re taking that personal responsibility this early. With all the uncertainty going forward, there’s nothing greater than knowing you’re taking care of yourselves. Good stuff!

  • Fantastic post, with many things in it to think about. We are at a place where we are having to simplify – it would have been better had we done it because we wanted to, and not because we have to. It is late to get back on track, but not too late.

    • SharonODay

      Susan, it’s never too late to get back on track. The key is identifying exactly where you want to get so you have the motivation to take the steps to get there. No one says it’s easy, but as long as we’re living these days, you’ll be so glad you did whatever you did to get there. Let me know if I can help!