Has your personal finance plan become so complex, you can’t even understand it? Simplifying your plan and reclaiming what’s yours is easier than you think. In his new book, Keep It Simple, Make It Big, Michael Lynch uses nearly 20 years of practical experience to help you create, protect, and enjoy financial success. You’ll learn how to recognize and overcome common financial mistakes from paying too much in taxes and falling victim to inflation to blowing your investments and failing to protect what you cannot afford to lose.

Michael’s systems put you in the driver seat to enjoy a lifetime of tax-efficient income, protect your family, and retire on your own terms. His book aims to help you cut through the BS and put you back in charge.

Drew Applebaum: Hey listeners, my name is Drew Applebaum and I’m excited to be here today with Michael Lynch, author of Keep It Simple, Make It Big: Money Management for a Meaningful Life. Mike, thanks for joining us, welcome to the Author Hour podcast.

Michael Lynch: Well, it’s great to be here Drew, it really is.

Drew Applebaum: Why don’t you kick us off by giving us a rundown of your professional background.

Michael Lynch: All right, well I guess I started my professional career as a construction laborer but that was before I went to college, so out of college, I worked at a free-market think tank and that’s where I started to develop writing skills. Then from there, I worked in Washington DC for five years as a Washington correspondent for LA Magazine and had a lot of fun.

I really liked doing personal finance, so I did that on the side, this was pre-blog believe it or not, and I did personal finance comments for an early sort of web publication. Then, I made some family moves and I said look, this is what I really want to do, and so I made a big career change to become a financial planner. That was 19 years ago, and I’ve been doing financial planning ever since.

Drew Applebaum: Now, was there any inspiration behind the book, did you have an aha moment, and why was now the time to write it?

Michael Lynch: Well, that’s a good question. I actually did outline the book about 10 years ago and I do a lot of consumer education. I teach soup-to-nuts financial planning for big corporations. Madison Square Garden is a client, ESPN has been a client, big hospital systems in the northeast. We take people through about eight hours of high-level learning, so I wrote this book to facilitate that.

It was actually developed as a PowerPoint presentation for us. It’s very visual and very bullet point oriented. Because I’m licensed to do securities with SEC and FINRA, the company has to approve everything, it’s like our world is 1984. So, anything a guy like me writes has to be approved by lawyers, believe it or not. They said if they approve it, we own it. I said, well you’re not owning my intellectual property, so I put it on a shelf.

Lo and behold, the world changed a little bit, different back offices and I pulled it off the shelf two years ago and I said, you know what? This is good, let me turn it into a book and so that’s what I did. I went back, updated all the numbers, and gave it a lot of narrative, and turned it into a book. Since I wrote it 10 years ago, plenty of stuff had changed. So, we updated that, and we learned a lot.

I think the real impetus though is what I’m passionate about and what I got in this business to do 19 years ago and really have done, the same way in the same place since, which is to provide high quality, objective financial advice to middle-class Americans. The kind of advice that really, the elite gets and pays a lot of money for. Can we make this a service that’s really affordable for people, especially as they’re starting out their lives in their 20s and their 30s? That’s it, that’s the genesis of the book and it’s been a good ride.

A Checkbook and a Smile 

Drew Applebaum: Who would you say this book is for?

Michael Lynch: You know, anybody who has a checkbook and a smile. I think that’s kind of it. There’s nothing new under the sun, believe it or not, they’re just really isn’t. What we want to do is we want to revisit the basics and the basics really are the basics. Rather, you’re starting out in your 20s or 30s or preparing for retirement in your 50s and perhaps 60s.

I think who this is for is somebody who wants to spend two or three hours–I have clients that read it, read it soup-to-nuts, top to the bottom, who have enjoyed it. I said, “How long did it take?” My client, the first one who read it said it took three hours. It’s for people to want to spend three hours to get a good education on some basics in financial planning so you can set big goals, you can put plans in place to fund those goals, and then you can make sure that if bad things happen, you and your family are never ever poor. It’s like I used to say when I did a radio show, I’ve never had to experience being poor, but I’m told it sucks and I don’t want that for you.

Drew Applebaum: What financial questions does this book aim to answer?

Michael Lynch: One of the big questions that everybody has, and this is probably the biggest question that has answers is, “How do you take lump sums of money and turn them into income? How much do you need to retire?” It’s a great conflict or it’s a great sort of new paradox. Financial planning is filled with a lot of paradoxes.

One, for example, is retirement accounts, you love retirement accounts when you’re working but you hate them when you’re retired. So, we can talk about that. But the other paradox is we consider worth to be what we own. If said Drew, “What are you worth?” You’re going to click through your head, I have this bank account, I have this 401(k), I have this IRA. I don’t really care what the number is, but it’s going to be some number represented as a pile of assets. But we don’t really live on our assets, we live on our income. The question becomes, how do we turn those assets to income, and what is real wealth?

Here’s another way to look at it. If somebody like Andy Grove, who is an immigrant and helped found Intel, if he walked through customs at JFK with $15,000, he would have to declare it. They would make a big deal out of it–he would have to fill out a gazillion different forms. Who knows what would happen, right?

If he walks through the customs with the idea for the microchip in his head and he was asked, well what do you have, anything of value to declare, what does he say? I have nothing of value, right?

It’s kind of the same thing with income. The idea in the old days, if you were to hear the novels and stuff like that, they would talk about wealth as income wealth. She was wealthy, she came with a dowry of 10G’s a month in today’s vernacular you might say, right?

Well, that actually considered what the cash flows were. Today, we consider wealth to be piles of money. The big question becomes how do we turn those piles of money that we have accumulated, our 401(k)s, our IRA’s, our Roth IRA’s, and how do we turn them into income so that that income can sustain us for an indeterminate retirement time? Because we don’t know how long we’re going to live, we don’t know what inflation is going to be.

We really need to get to that. I think as a practical matter, we are not trained to think like that, and it is not intuitive for most people about how we turn our assets into income.

Drew Applebaum: I love that you just said dowry and G’s in the same sentence.

Michael Lynch: You like that, yeah, would that be eclectic. I mean, the book holds Yogi bear and Aristotle, you know what I’m saying? You gotta keep it real, got to keep it real.


Drew Applebaum: Continuing on what you just mentioned, why don’t people have retirement on their radar?

Michael Lynch: I think they kind of do but it’s how to quantify it. I learned as a young person that the further into the future you look, the more successful you were. The longer you look, the more choices you make today to protect yourself in the future, whether that’s health, not smoking, exercising, or saving money for retirement.

I actually don’t think there’s a retirement crisis. I think Americans actually do pretty well for retirement and I think our system is pretty cool because there’s a lot of different points to do it. That said, it is a self-serve system. If you want to take advantage of it, you can retire young and you can retire rich or wealthy. But you have to put in the work.

On average, I think people are very good at funding their 401(k)s. I just don’t think they have an idea of how much they need to have at what point in their life to really be financially independent. That’s what I see in my practice, people come in, more often than not, thinking they can’t retire, and I tell them, you could have been retired five years ago, you have enough, you have enough.

Drew Applebaum: Right, could you talk to us about the range of possibilities from one person to another?

Michael Lynch: In terms of services offered, in terms of how much they could be retiring with, it seems like there’s a broad spectrum of steps they can go through and roads to go down.

Drew Applebaum: Okay, what is the first thing that people need to do?

Michael Lynch: One of the things I like most about the book is I like asking the question. Don’t ask why, ask why not. I think people spend far too much time worrying about what they’re supposed to do, worrying about what other people think about them, worrying about either having regret and risk, and they spend far too little time thinking about what they actually want to do.

The first one I really encourage the readers to do is set your goals and ask why not. Don’t let anybody push you around. Personally, I don’t want to retire, I love my work, I love it. I’m going to work forever but I’m going to pile a bunch of money so that if I have to retire, I can retire.

Also, I want a second career. I mentioned I worked construction, and when I worked in construction, I had a truck license and I love driving trucks. I love trucks, I love backhoes, I love tractors, I love all that stuff. What am I doing right now? I’m going to be a financial advisor in a year who writes a book and gets his truck license.

Why? Because I want to drive trucks. Will I ever do it, I don’t know, but if somebody says hey, you need to drive a truck, I’m going to be able to go and drive that truck. I want to be able to afford to do it and to pay for my own truck. The point is that I want people to think about what they want their life to look like.

I just retired a woman, she is fantastic. I asked her how old she was, and she said I’m 81-and-a half. 81 and-a-half, I loved it. Now, I have other clients, and they want to be out at 45, so they have very different savings and spending patterns.

There is a large range of how we want to live our lives. This idea that you have to get to retirement, which is really financial independence. At what point is work optional and retirement possible? At what point do you have enough that you don’t need to turn your human capital into financial capital? That your financial capital can support you until your human capital goes ka plunk.

While you are working, it’s your income that drives everything. You make your income, you pay your taxes, and then you fund your retirement plan 10% plus a match. If you listen to me, do 20% and then you have the rest of this money and you build your house and your lifestyle around that, and your vacations. In the end, there’s some left that goes in the bank, if not, it’s fine.

When you are retired, it’s your expenses that drive everything. Two people that look very much the same–live in the same neighborhood, have the same jobs, could have very different expenses. Therefore, very different retirement possibilities.

Because once you’re retired, your expenses need to be met by passive income sources. Most of us or pretty much all of us in America have Social Security, we basically have a government pension, so there’s some pension coming in, but that’s usually not enough.

Now we have our pile of money, that pile of money is going to generate the rest of the income and so it’s really the expenses that matter. If we think about what I talked about earlier, how much assets do you need to generate income, there are different opinions on this. I work in a 4 to 6% range, which means you have a million dollars that generates 40,000 income to 60,000 income–anywhere from 3,500 a month to perhaps $5,000 a month in income in addition to your Social Security. That’s one way I look at that.

Roadblocks to Success

Drew Applebaum: Now, early in the book, you talk about potential roadblocks that can impede financial success. Can you tell us about a few of those?

Michael Lynch: One of the big ones is taxes and that’s the number one, that’s the one that people really focus in on. In some ways it’s not what you earn, it’s what you keep. We’re an advanced economy and the taxes are what make a large part of that society.

It is not that taxes are bad, it’s that, we want to minimize taxes because they’re like any other expense. One of the things you want to look at is how much money you have is not what’s in the account, it’s what you can take out and spend. For example, you’re a proud man, you should be proud because you have a million dollars in your 401(k). You pull it out in front of me and you puff yourself up, you know thinking I have $1 million. You look at me, I look at you and you ask, “Why do you have that puzzled look on your face Mike?” I say, “Well, you just said you had a $1 million.” And you say, “I do.” I say, “Wait I don’t see it,” and you point at the account and you say, “It is a $1 million.” I say, “Drew, take it out, spend it and see how much you have.”

You say, “Well what do you mean?” I say, “Well, if you have taken it all at once you are going to lose 40%, so you really have 600,000. If you take it slowly, you might lose 20%. So, you have 800,000.” The amount of money that you have is the amount you are going to spend not the amount of money that is in the account.

I am not sure of your age. I am an old guy at 50 years old, so when I came out the rule was max out your retirement plan before you did any other kind of investing.

Not today, not right at all because while you’re young, you probably want really feed accounts like Roth IRA’s and even investment accounts that are going to be tax-free or very tax favorable when you use them. When you get to your peak earning years, you are swinging the big wood. Your human capital has been expanded, and you have all kinds of experience. You’re in your 40s and 50s–that is your peak earning years for most people. That is when you want to stuff up the pre-taxed accounts because that is when the tax break is most valuable to you.

Then when you take it out, you want to make sure that you take out a layered cake, so you don’t overpay for civilization. I mean often rental homes have taxes and they’re surprised to pay for civilization. You don’t want to overpay for it. Somebody else said it makes him patriotic to pay taxes, but it could be patriotic for half the price. So, that’s how I look at it.

Drew Applebaum: Are there any changes coming up on the horizon that we should be looking out for, any legislative changes, any changes in Social Security coming up in the future?

Michael Lynch: A lot of changes, changes, changes. This year, massive change and it is one of the reasons why I believe in getting educated and or working with a great adviser that can help guide you. If we think about in December, we had what was called the secure act. Now personally, it wasn’t my favorite, but it changed IRA rules in a big way. If one pushed the distribution age back to 72 from 70.5, which is mildly helpful for high asset-high income retirees.

What it did do is it changed how people inherent IRA’s. They can no longer stretch an IRA out of their life expectancy if they inherit it from a non-spouse. They have to take the money out in 10 years. It is a big game-changer because always before Roth IRA’s could come out slowly. So, we encouraged clients to do Roth conversions and get a lot of money there, you will be able to pass intergenerational wealth. Not anymore. Now it has to come out over 10 years. So, that was a big change.

The second thing that happened, we had this thing called COVID-19, you’re familiar with that Drew?

Drew Applebaum: Heard of it.

Michael Lynch: Yeah, you heard of it. We heard of it. Yeah, absolutely. Then we had the CARES Act. A lot of things came into the CARES Act. We have distributions and retirement accounts that didn’t have to come out. So, we were able to leave that in, but more importantly, you had some trapdoors come in on 401(k) if you were COVID exposed or infected. You have to look up at the IRS what the list is and you have to be able to certify one of these things.

That affected your life. You could take 100,000 out of your 401(k) and it was taxed over three years and then you can put it back. It is like an interest-free loan for your retirement plan. So, that opened up a lot of possibilities for clients. It has been very helpful with real estate, I will just say that.

Now, if you looked down the road, I think the general trend is going to be higher taxes if we look at what the government spends versus what the government collects in taxes.

You want to close that gap. They don’t seem to be very good at spending the least and that’s because every dollar they spend is meaningful to somebody. So, it is not easy to cut that, it is far easier to raise revenues once they can quite borrow. That would be higher taxes.

The other one is Social Security and it is just an absolutely fantastic program. It is going to go out of balance at some point in the next 20 years. Out of balance means that it will no longer collect enough money to pay the benefits, and at that point, there could be a little bit of a reckoning. By reckoning, I mean more taxes and fewer benefits for some people.

What I learned from COVID is we call it financial planning but what we are really doing is planning for resiliency. I didn’t realize this was a Yiddish saying but when I looked it up and put it in the book it said it is a Yiddish saying.

So, the old Yiddish saying, “Man plans, God laughs.” Yes, but we want to plan for resilience. We want to have piles of money, we want to know how that money is going to be taxed, and how we can use it. So that when we do get hit with something like COVID, we have the ability to keep our family and ourselves okay financially.

Nothing New Under the Sun

Drew Applebaum: Are there investment strategies that many people overlook or simply don’t know about that you can suggest making sure that they are ready for retirement?

Michael Lynch: That is an awesome question. So, keep it simple, make it big. One of the big, big things that I believe is that there is nothing new under the sun. Most new investment strategies–I am actually talking to a client about this today with these SPAC, Special Purpose Acquisition Companies. Most new things under the sun are old stuff repackaged and packaged perhaps dangerously with high fees.

I think what we want to do is the opposite of looking for new investment strategies. I think we want to rely on the old ones and understand them and then understand that. I am a big believer that all people need three things in their financial life. They need safety and principle–they need some money that is never going to go down–you have a dollar that is going to be a dollar when you need to go get that dollar. That is our cash reserve when we are accumulating.

Then once we are on our investments for income and retirement, we have to have an income reserve. We need a reliable income. I don’t know about you Drew but I prefer not to make a lot of money one day and nothing the next. A steady paycheck is a nice thing to have and people are used to that. So, we need a reliable income.

The third thing that we need is a growth of income over time because if we look back 20 years on what something costs and think about what it costs today, in a person’s retirement they are going to need to double their income. If they don’t double their income, they are going to have a lower standard of living. We don’t talk about being on a fixed income with a smile on our faces. We think of a fixed income with a frown–why is that?

If your income is fixed high enough, you’d be a happy thing, right? So, what I think we have is every asset pulls against each other, those things that protect principle do not get reliable income and they do not grow.

This a real story. A woman came into my office, and she had half a million dollars. She was an immigrant and worked in a factory her whole life. She had half a million dollars, she never made a mistake–those life mistakes that get you financially, but they’re rewarded otherwise.

Drew Applebaum: Sure.

Michael Lynch: She had a $2,000 Social Security check and she was getting prior to the great recession 2,000 a month, 24,000 a year, off of her half a million dollars. Due to government policy and a general belief that interest rates need to be low, her income by the time she’s 70 was 2,000 a year. It dropped and it has never come back.

People that thought it was safe to never touch the principle and just live off the interest got killed when they found there was no more interest.

Things that protect the principle do not generate reliable income, rule number one. If stocks ever fluctuated as much as interest rates fluctuated, nobody would ever own them. Nobody would ever own them. Second, those things that give us reliable income, Social Security, annuities, annuities being income annuities like corporate pensions and private ones you can get, they tend not to grow much over time. Social Security does have a cost of living increase.

So, it is very powerful that way but you are not going to get over inflation growth out of it, but you might get under inflation growth depending on the index inside too. Also, it is not liquid, you can’t get anything in advance. You have to wait for the next month.

Those things to grow your portfolio, equities, stock, mutual funds, balanced mutual funds, we talk a lot about those in the book, and those things grow over time. They actually grow income over time at a greater pace than inflation.

Historically absolutely, but they shrink, they do not provide stability of income. Given dividend cuts, they might not provide a reliable income. So, the right trick, the art of financial planning is getting the right mix of stable principle, growth of assets and income, and reliable income for the client.

Last night, I was doing a webinar for clients and I was talking about my income systems, which is going to be my next book. It is the income, stupid, you know where that’s from, it is economy stupid.

I had somebody on the call who’s all fixed because she can’t handle any fluctuation. I know, I have to do different strategies for her. So other people might be so aggressive, and their assets are such, they might have some money in the bank, and it would be almost all equity.

The basic idea outside those extremes is working with those things–the safety of principle, asset income reserves, investment accounts, and then things that generate income. The final thing I’ll say on this and this is why your listeners have to get the book–read it, and then get an adviser. If you do it yourself, like it’s your hobby, that is how I got into this. So, you can definitely do it yourself if you want, but if you don’t love it, get somebody like me to help you do it because it is an art as much as it is a science.

I was dealing with a client, and he is a surgeon. I was doing college financing and I was recommending very traditional financing with 529 plans. That is like recommending a car to drive down the street. It is the vehicle that is designed for that but there are other ways to do college financing and advisers love to come behind other advisers to say, “This guy is ripping you off. You should be doing my thing,” so you have to inoculate clients against that a little bit.

Since he’s a medical professional, I say, “Look, here is why. Here is why we are doing it, here are why things are going to work for you. Here are other ways to do this and they are this, this and this,” and he said to me, he said it is the same way I feel. I said, “Wait, wait, wait,” this guy is a world-famous orthopedic surgeon for kids and I said, “So you mean to tell me that my kid is on a slab in front of you with a broken bone and there are five of you surgeons here and you’re all going to do the surgery differently?”

He said, “Absolutely,” I said, “Great. Even science isn’t science.”

So, there is a lot of art to it but that is the way I look at it, that is the way I communicate it, and I think once people get that, it gives them a lot of confidence. Because now they know they can use their money for whatever goal they want–be it college, retirement, second home, they know what they have and what they can use it for.

Drew Applebaum: Michael there is so much more in the book, you go into final estate planning and even how to choose the right nursing home, but I just wanted to congratulate you on writing a book like this, and especially one which will help empower so many people. It is no small feat to finish this so congratulations.

Michael Lynch: Well, it is nice for you to say that Drew, I appreciate it. You know, it feels good when it came. I have published a lot of my life. I have never done a book, it was a good process but time-consuming, and there were times of frustration. I almost said, “You know what? This thing doesn’t have enough oomph to it,” so I was very happy when it came. Yellow is my favorite color, it is all over the book. I am pleased with the product. So, I appreciate you saying that.

Drew Applebaum: Well, it is a great read and this has been a pleasure. I am so excited for people to check out this book. Everyone the book is called, Keep it Simple, Make it Big, and you can find it on Amazon. Where else can people find you?

Michael Lynch: A couple of places, my website at michaelwlynch.com. So, everything is spelled traditionally, Michael W. Lynch. It is my financial planning page and if you go to Mike’s insights that is my writing. I am like most financial professionals, I actually do my own writing.

The second one is you can go to the media insights page. I do a bunch of YouTube videos there and we can have some fun with those too.

Drew Applebaum: Awesome, Michael, thank you so much for coming on the show today.

Michael Lynch: All right, thank you, Drew, you have a good one.