Ep 47: Risks & Uncertainties in Pandemics & Retirement Planning

Ep 47: Risks & Uncertainties in Pandemics & Retirement Planning

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The Smart Take:

Interesting parallels can be seen in modeling retirement projections and the Coronavirus pandemic. Small changes to inputs — such as the rate of return or infection spread rates — can have magnified effects on outputs — such as ending wealth or total infections (and ultimately deaths), given similar exponential growth traits.

What is important to understand in both are the concepts of risk and uncertainty. Risk can be modeled. Uncertainty cannot yet must be planned for. Misunderstand either and things can quickly go wrong.

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3:45 – How Risk And Uncertainty Affect Investing

14:37 – What Is Non-Linear Modeling?

17:32 – An Example Of Non-Linear Modeling

21:33 – The Math And Science Of The Coronavirus

35:09 – Known Unknowns


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The Host:

Kevin Kroskey – AboutContact

Intro:                                   Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.

Walter Storholt:               Well, it’s time for another episode of Retire Smarter. Walter Storholt here, with Kevin Kroskey, President and Wealth Advisor at True Wealth Design in Northeast Ohio, with offices in Akron and Canfield. You can find Kevin by going online to TrueWealthDesign.com. That’s TrueWealthDesign.com.

Walter Storholt:               It is going to be a fun episode today because we are shooting from the hip. Kevin gave me no heads up of what we’re talking about today. I feel like a media member in one of the press conferences that the President does each day on coronavirus. Kevin, I have no idea what to expect.

Kevin Kroskey:                  Yeah, well, I figured after the Lysol moment last week, the bar has been set really low to shoot from the hip, so I figured, what the hey. But I actually screwed up. We’ve been recording our calls recently, on Tuesdays, and Walter was not available for a recording on Tuesday. So here we are on a Monday. And I’ve been thinking about some things, I guess as it relates to the whole COVID situation that we’ve been going through, and some parallels to retirement planning.

Kevin Kroskey:                  So, I’m going to shoot from the hip and see if I can make some good points, and get some people thinking about this. And if I don’t, well, hey, our President does it as well. So there we go.

Walter Storholt:               I like it because you’re so well-prepared, Kevin, that this is fun, actually, that this Monday recording snuck up on you a little bit, and that we can get you a little bit out of your comfort zone. That should lead us down a good road, I think. I’m sure you’ll still just be as polished and a great communicator as ever. But maybe we’ll get a little something different out of today’s episode.

Kevin Kroskey:                  Walter, I was just trying to get myself a little bit of wiggle room here and really lower the bar, and now you just went ahead and did that. Thanks a lot, buddy.

Walter Storholt:               You’re welcome, you’re welcome. I’m part of the press, right? So I’ve got to hold your feet to the fire.

Kevin Kroskey:                  Fake news. All right.

Walter Storholt:               In the scenario that we’ve drawn up, at least.

Kevin Kroskey:                  Yes. We’re not going to go down the political… I mean, I hope everybody can laugh about what happened last week in a sense. Obviously, we’re going through a very serious situation, and I’m going to state that now because I think some of the things that I say today could potentially be misconstrued. I don’t mean to minimize the seriousness of the situation that we are going through. From a health perspective, it is serious. But mathematically and statistically, I think there are some interesting parallels we can draw between what’s been going on with COVID and also what is happening in your own personal retirement planning, or some other financial aspects.

Kevin Kroskey:                  There are two big things that I’m going to shoot from the hip today. One is risk versus uncertainty, and I’ll talk about what that means. And then secondly, I’ll talk about non-linear modeling, which I’m sure I just lost about 90% of the listeners right there when I said that, but it has had some really interesting implications when you look at some of the projections that were made for the spread of COVID. And it also shows up when you’re making retirement planning projections about how much money you need, or can spend.

Kevin Kroskey:                  So, we’ll see. I’m going to try to thread the needle here and connect some dots. But we’ll start with risk and uncertainty. Risk, everybody’s heard the phrase, “Risk and return are related.” Well, what does that really mean? If we back up a little bit before that, risk is something that is generally considered quantifiable.  You know what the probability is. For example, we all buy car insurance, homeowners insurance, most of us have life insurance or had life insurance at one point in time.

Kevin Kroskey:                  Basically, these actuaries for these insurance companies, they don’t know what your individual probability is of needing to utilize your homeowner’s policy, your auto policy or if you may pass away unexpectedly. However, because of the law of large numbers, and they can have a group of people over the whole State of Ohio, or say for your home insurance, not much happens in Ohio. We don’t get a lot of tornadoes. We don’t get hurricanes there. Not really any earthquakes. It’s a beautiful state where not a lot of bad happens in that regard. So no natural disasters. So the premiums are pretty low.

Kevin Kroskey:                  I can tell you, having a home in Florida, you come down to Florida, big difference in terms of what you’re going to pay for your premiums. So these insurance companies know this. They can model it, and they can price it. They know the probability of a lot of these events. Life insurance. Car insurance. Even longevity. How long somebody’s likely to live. All that plays into it.

Kevin Kroskey:                  When you get into uncertainty, however, they’re definitely related, risk and uncertainty, but uncertainty’s really not quantifiable. You don’t know what a probability is. Nobody knew the probability of a COVID situation happening. It was more of a shock. Sometimes you’ll hear, economists oftentimes will say, “Well, it was an exogenous shock to the system.” The system, basically, think of it as like a little box, and then they’ll do this modeling and say, “All these assumptions that we make, and here’s our prediction of what the future’s going to be, and it’s nice and neat in this little box.”

Kevin Kroskey:                  Well, the way that the world works is there’s a lot of things that happen that certainly are not quantifiable. A lot of natural disasters, for example. You don’t know what the probability of a hurricane hitting Florida is. There are things that are changing. The traditional, actuarial science that works really well for life insurance and car insurance doesn’t work all that well when it gets into, say, catastrophe insurance, for example. It falls short there.

Kevin Kroskey:                  The COVID situation, obviously a huge risk. Huge shock to the system. Huge financial turmoil being caused by it. But you don’t know what the probability was that it was going to happen. What you also don’t know, I think this is very important for investors and people planning for retirement right now. You don’t know how consumers are going to their behavior moving forward. Are we going to get back to normal? Is 2022 just going to be like this never happened? Or are behaviors completely going to shift? And if so, are they going to stay shifted, or are they going to revert back over time?

Kevin Kroskey:                  Behaviors from the consumers matter a great deal because the US economy is about 70% comprised of consumer spending. Are they going and say, “Well, hey, I’ve been shut in now for six weeks, I don’t like that. I miss the socializing.” I had a client who’s also a friend send me a text message yesterday, said, “Man, I’m never saying no to any social invite I get ever again.” Perfect example, right? He’s longing just to get out there and have some social interaction.

Kevin Kroskey:                  Other people may take it differently and say, “Well, hey, that’s risky.” But everybody’s going to have a shift in some regard. This is certainly going to be one of those things that are going to change people’s behaviors, maybe forever. I don’t know. We tend to have a short memory. But you don’t know. You can’t predict how this is going to happen.

Kevin Kroskey:                  So when I see, you turn on CNBC, and you’re starting to hear these forecasts, on the one hand, you’re getting these Wall Street banks or other prognosticators that are saying, “Well, we see the SNP 500 being at this level at the end of the year.” And they’re making some assumptions about what people are willing to pay for stocks, what the earnings are going to be for these companies. It’s easy to observe what the current dividends are for the companies, even though a lot of companies are stopping dividends because they need the money.

Kevin Kroskey:                  But if you look at it the other way, and you’re getting into companies that are reporting their first-quarter earnings, all of the companies are saying, “Look, we’re not providing any guidance because we’re experiencing a lot of uncertainty. This is not quantifiable.” Which, to me, is just extraordinarily interesting. On the one hand, the company’s saying, “We don’t know what the heck’s happening.” On the other hand, you have these prognosticators who are saying, “Well, this is where we see the market at the end of the year.” And it makes no sense whatsoever.

Kevin Kroskey:                  These forecasts have never really made any sense. They’re more akin to a coin flip. This is probably the premier example of that, where you have the companies that comprise the stock market, saying, “We have no idea what’s going to happen to our business. For all this uncertainty that we’re going through, how it’s changing the world.” But then you have prognosticators that are out there that are making predictions on what the market is actually worth and what people are going to be willing to pay for it. It makes no sense whatsoever.

Kevin Kroskey:                  Back in March, at some point, we were still going to do a redux of working through this crisis, things that we did, things that we got right, things that maybe we could have done better on, but I think I’d mentioned in a prior podcast episode, for about a third of our clients we actually suggested that they increase risk in March. And the vast majority of them, probably 95% or so, followed the recommendation.

Kevin Kroskey:                  Simply put, the way that I was thinking about it was, “Look, even if I say…” If you think about the earnings of a company, and almost everybody has heard of something called the price/earnings ratio, for example. Well, you get some big, expensive, large companies in the US that have done really well. You might have a price to earnings ratio of 20. Basically, you’re buying that stock today, and for every dollar of earnings, you’re paying 20 times it.

Kevin Kroskey:                  So, when you do something like that, you’re not just buying earnings for 2020, or 2021. You’re buying earnings for the next several years, more than a decade. The way that I went through that thought experiment, even though there’s so much uncertainty, even though it was a very scary time in March, even though I had no clue what was going to happen if it was going to get worse if I just went ahead and took some simple modeling in the spreadsheet and say, “Okay, hey, here’s what this basket of companies is doing in terms of earnings. If I just go ahead and completely truncate 2020 and say it’s a zero, and maybe even 2021 is a zero, what does that really do to what’s a reasonable price? Assuming that things get back to normal in 2022.”

Kevin Kroskey:                  When I did that, it just seemed like the market had sold off more than it should have. So we sent out that email, and maybe I’ll read it verbatim in this future episode. And I probably look smart right now for doing it. It was not a timing decision. It was, “I’m happy that I sent that.” I think you’ve got to do any of these things with a lot of… Just be humble. There are some things that maybe you can tell and some other things that you think you know that you really don’t.

Kevin Kroskey:                  But right now, it’s really difficult, for the reasons that I said. I mean, the companies don’t know what they’re going to do. I can’t really tell if something is underpriced. And even when you do something like that, it’s not a short-term phenomenon that you’re looking at. You’re not saying that “Hey, stocks are going to be high at the end of the year.” It could have gotten a lot worse. It still could get a lot worse than even the lows that we hit in the third week of March. You don’t know.

Kevin Kroskey:                  So, you really have to plan through this. You have to know what risk you’re taking, and you have to be able to deal with uncertainty. We’ve talked a lot about it, particularly when you’re going through a retirement planning process, you need to know where your dollars are coming from to meet your bills for this month, and for next month. And those have to come from very safe assets.

Kevin Kroskey:                  When you’re dealing with riskier assets, and with uncertainty, that can be met with longer-term assets, this whole risk versus uncertainty is really important. There are certain things, again, that you can quantify. Other things that you can’t. But we live in a world where, from a planning standpoint, we have to be able to deal with both of those. And you really need to be able to tell the difference between the two. Because if you think you can go ahead and account for uncertainty by modeling risk, this may sound a little wonky, but you could really get in trouble in a situation like that.

Kevin Kroskey:                  So, let me take a break. Walter, I’m shooting from the hip here, so how am I doing? I didn’t ask you to go ahead and inject me with anything or study UV light rays or anything like that, but am I doing okay?

Walter Storholt:               Yeah. You didn’t make any faux pas there for me to jump all over you, as a media member here. So no, you’re doing great. I mean, I identify with a lot of what you’re talking about there, with the risk being quantifiable, but the uncertainty just being, all these prognosticators coming out on different ends of the equation. And we’ve seen this before. I feel like it’s just heightened right now due to coronavirus.

Walter Storholt:               But I think the biggest thing I was surprised with, I was surprised that the market did stop dropping where it did. I thought it was going to keep going further and further because it just seemed like everybody was worked into such a tizzy, so there was so much uncertainty, and so much fear out there. I was surprised to see it bottom out where it did, at least for the moment. We don’t know what’ll happen in the future, but it’s just so interesting.

Kevin Kroskey:                  I was surprised by how quickly it bounced back and retraced so much of its lows. The fed, as we had talked about, really came in and has really taken, not only used the 2008 playbook, but they executed it in a two-minute offense, and then they added to it substantially. I mean, they did some things absolutely unprecedented. And that was great, and they did exactly what they should have done.

Kevin Kroskey:                  But just how positively markets have responded, particularly certain segments of markets have responded, I certainly welcomed. I’m happy to see it. But that was definitely surprising to me.

Walter Storholt:               Yeah. I think so as well. So risk versus uncertainty. A big piece of the puzzle. And we’re going to see that continue to play out because there’s still plenty of risks in our path related to the coronavirus and COVID, and still plenty of uncertainty out there as well.

Walter Storholt:               Now, you dropped that big term earlier, non-linear modeling.

Kevin Kroskey:                  Right.

Walter Storholt:               Are we heading that direction?

Kevin Kroskey:                  We are. We are. I’m going to put on my smart glasses here for the last portion. Whenever you are making these projections, say for a retirement plan, well even before I go there. We’ve all heard this flattening the curve. The curve basically was, when you looked at the spread rate and people getting infected, there’s the rate that’s happening. And we’ve all probably heard that one person gets infected, and at least the belief at the time was, they’re going to infect two or three other people.

Kevin Kroskey:                  A lot of things continue to change here. It’s been very clear that a lot of people that are actually infected are asymptomatic. There’s a lot of things that are probably going to continue to change. So I don’t want to pretend that I have all this hard evidence at this point. But that curve basically, if you think about it in your mind, and you’re looking at that image, going from left to right there’s this line that keeps going higher and higher at really a faster rate, that’s non-linear, exponential. And if you’ve ever looked at a chart of money growing, and you look over it at a long enough period of time, you see the same sort of phenomenon happening.

Kevin Kroskey:                  Think about it when you started saving in your 20s, and you didn’t have more than about two nickels to rub together. But you started, you put away a little bit, and you started going from there, and over time, it got a little bit more and a little bit more. You advanced and worked up the career ladder, and went ahead and made more money, but didn’t change your lifestyle all that much, so you started saving even more.

Kevin Kroskey:                  Over time, you built up a nice, little nest egg, and then, particularly if you got lucky and had a good series of returns, say, in your 50s, when you had been saving at this point for more than 30 years, and you had a couple of really good years, going through your 50s, late 50s when you had accumulated all this money, and all of a sudden what you see is your money grew and doubled. You grew more dollars in, say, just the last couple of years than you did in the whole entirety of the 30, 35, maybe even 40 years.

Kevin Kroskey:                  So, the same sort of curve, increasing at an increasing rate. Non-linear. Linear is just, as it implies, a straight line. So this has ramifications, as I just talked about, in terms of money accumulation. I just did some quick numbers. This was the only preparation that I did. I took about two minutes before I signed on, Walter. So I guess I’m not completely shooting from the hip. But I had two minutes on the hip. So here’s the math that I did.

Kevin Kroskey:                  Let’s assume that, say, we left $100,000 to our 20-year-old grandchild when we passed. They go ahead, and they invest it for 40 years. If they were to earn a 6% return, and they’re a great-grandchild, they’re going to be very steadfast at that, and tax-efficient, and they’re not losing any money to taxes. No fees and they’re not going to go blow it wherever. So that 6% earns and compounds each and every year. They invest it for 40 years, now they’re 60. So they received it when they were 20, $100,000 inheritance, grew for 40 years, 6% return.

Kevin Kroskey:                  Walter, I’ll put you on the spot here. What do you think it ends up at?

Walter Storholt:               It’s going to be a couple of million dollars, right?

Kevin Kroskey:                  It’s about a million bucks.

Walter Storholt:               It’s a million bucks. Okay.

Kevin Kroskey:                  I’m just going to use round numbers here. But you’re in the set of the figures. I’ll count that as a partial… You get partial credit for that. Good job.

Walter Storholt:               Partial credit. There we go.

Kevin Kroskey:                  I always loved in at least advanced math, where you had to show your work because even if you didn’t get the answer right, the process-

Walter Storholt:               Yeah, you get that partial credit.

Kevin Kroskey:                  Partial credit. Absolutely. I love partial credit. Well, I like getting the answer right as well, but let’s say that we go from a 6% return to an 8% return. If I’m working from 6%, it’s obviously 2% more (on an absolute basis). 2% is a third of six, so it’s a 33% greater return going from six to eight.

Kevin Kroskey:                  Here, if we have that same $100,000, we earned 8% each and every year, no fees, no taxes, untouched-

Walter Storholt:               Ooh, ask me again.

Kevin Kroskey:                  40 years later, did you break out a calculator?

Walter Storholt:               No, I was just going to say, “Probably a couple of million dollars.”

Kevin Kroskey:                  Good job, Walter. Inductive reasoning. Very, very good. So you’re exactly right. It is a couple of million dollars. It’s about $2.2 million.

Walter Storholt:               Wow. That’s a significant difference, from a 2% difference, which leads to a pretty big difference at the end.

Kevin Kroskey:                  Let me put it in these terms. So a 33% greater return leads to 120% greater wealth. Again, a 33% greater return leads to 120% greater wealth. Non-linear, exponential, and big difference. A small change in the input leads to a really big change in the output.

Kevin Kroskey:                  And certainly this is something that we deal with all the time, and this is also why retirement planning is that I-N-G, it’s that present participle that we’ve talked about before. You’re going to make projections when you’re starting out, and say you’re in your 20s or 30s. I mean, the runway, or the ballpark, is just so wide that as you get closer, say, to retirement, a lot of things that…You can do a good job measuring what somebody’s going to spend. There’s a lot of uncertainty, or I guess there’s a lot of risks, if you will, that you can take out of the equation. But you still can’t predict investment returns. There’s always going to be these exogenous shocks to the system. You can’t predict returns exactly. There’s a lot of uncertainty when it goes into the markets in general.

Kevin Kroskey:                  You have to be able to deal with it as I said. In short, it’s making sure that you’re matching your assets back to your plan properly. You can deal with the short-term expenses that you have with high-quality assets. Cash. High-quality bonds. Short-term bonds. And as you go out in terms of the time spectrum, you can go up in terms of the risk and uncertainty spectrum.

Kevin Kroskey:                  One of the things that were very interesting to me as we went over the last four to six weeks, or the last two months at this point, where here we are at the end of April, do you remember that cruise ship? Was it the Diamond Princess? I guess there were a couple of cruise ships that they really wouldn’t let come in.

Walter Storholt:               Mm-hmm (affirmative). One-off Japan.

Kevin Kroskey:                  Yes. It was interesting to me because, at that point, I think it was 700 people that were on the ship, and these people really didn’t know about the virus at that point in time. They’re just out there cruising; they’re living life on that big Petri dish that they’re on. They’re probably just, all the handrails, maybe even licking some elevator buttons. Who knows?

Kevin Kroskey:                  But they’re not even paying attention. Coronavirus, COVID, was not even really on the radar for much of that. So it was this little experiment that was going on. And I’m going to talk about some numbers here. Don’t take them as gospel. I’ve read some articles. I’ve read some science. This stuff could have changed. But it’s not going to take away from, I think, the point that I’m trying to make here.

Kevin Kroskey:                  But, it was something like a 20% infection rate. And the mortality rate, at least at the time, there was a Stanford epidemiologist who wrote a paper on what we knew and what we didn’t know about COVID, and this was mid-March when the lockdowns were just happening, he was really in the minority, and really looked at the Diamond Princess and talked about its 20% of the people getting infected. It seems to be about a 1% mortality rate. The population is obviously a little bit older on these cruise ships. So when you look at it across a bigger population, say for the US; obviously, COVID has disproportionately affected people that are older chronologically or biologically.

Kevin Kroskey:                  He was just saying, a lot of the modeling that was being done, the assumption seemed to be off and seemed to be too conservative. Now, I don’t think anybody would argue that when you have a situation like this, it’s better to err on the side of being conservative, right? I mean, we don’t want to be shooting from the hip, here, and just say, “Ah, it’s not going to be that bad. Let’s go ahead and not shut it down.”

Kevin Kroskey:                  I think like in Ohio, what Governor DeWine did, he was certainly on the more aggressive front. And I think it was completely accurate. However, at the time, as well, I can’t remember her position, but she’s the head for the health department in Ohio, Dr. Amy Acton, said something on the order that there were 100,000 active cases of COVID in Ohio. It was mid-March, about the time that Ohio was shut down.

Kevin Kroskey:                  Now, remember what we already talked about, in terms of that exponential growth. Today, or at least last week or so, I just looked it up, there were only 15,000 confirmed cases in Ohio. Now, granted, there is a lot of people that are asymptomatic. There’s probably a lot of people that had it that were tested, but the test wasn’t positive for whatever reason. But nonetheless, we’re talking about a month later, and even if you correct for some of those imperfections in the data, 15,000 is a very small fraction of 100,000 cases, that were stated to be in Ohio a month earlier. A month earlier.

Kevin Kroskey:                  And when you’re growing exponentially, you would have expected many, many more cases later on, even with social distancing. And so my point here is, again, this pandemic, this curve, it was an exponential curve. These models used assumptions that, again, you could just be a little bit off, and I’m sure that these people that were doing these models probably had a bias to be conservative too because they knew the gravity of the situation. And ultimately, this has led to projections that were way off.

Kevin Kroskey:                  And some of this, again, it’s back to that risk and uncertainty. They weren’t sure what was social distancing really going to do? Maybe there were some precedents when you go over to China, to South Korea, to Singapore, but those countries, when they had prior outbreaks for SARS, or whatever, I mean those countries are different. The US has never had this. So this is uncertainty if there ever was one.

Kevin Kroskey:                  So some of these assumptions on the spread rate were going into modeling the uncertainty about the spread, under these social distancing assumptions that have been put in place, and certainly have not been uniform state-to-state. There’s been no national enforcement or guidance. But nonetheless, the modeling has been terribly more conservative and terribly wrong.

Kevin Kroskey:                  Again, I’m going to make this emphatically clear; I am not saying that this is not a serious situation. It is. However, we’re on the brink here of reopening and ripping the Band-Aid off or peeling it off, or what-have-you, and I think we have to start thinking about not just what the scientists are saying, but really about some of the other ramifications as well. There are obviously very real economic implications that are going on. It’s very clear that there’s data that supports that for each 0.1% increase in the unemployment rate, there are alcoholism increases, there are domestic violence increases, there are suicide increases.

Kevin Kroskey:                  This isn’t a political statement. I’m not registered Democrat or Republican, so basically I guess I offend both people. But this is just trying to look at the math and the science here, in understanding risk and uncertainty, and just looking at the data and trying to make an informed decision, and really understanding the situation. I get it that we want to be conservative, and we have been. Particularly in Ohio. That’s great. But the projections were way, way wrong. We did not have 100,000 cases in mid-March of COVID.

Kevin Kroskey:                  Even with 15,000 from last week, and even if we were to assume that it didn’t grow at all from mid-March, which is obviously not a realistic assumption. And even if there is, say, I don’t know, 100% more people that had it that the test just failed and then maybe a couple 100% more from the 15,000 where they weren’t tested and they were asymptomatic, we’re still not getting to the 100,000-odd that they said were in place in mid-March. I’m sorry, Dr. Amy Acton, whatever data you were using was way wrong. I don’t fault you for that. Better to be conservative. The key is, now, how are we going to use this going forward?

Kevin Kroskey:                  A couple of other examples before we talk about that and wrap up. Walter, do you remember the New York State ventilator shortage?

Walter Storholt:               Sure. Yeah. We thought there was going to be a mass run on them. Yeah.

Kevin Kroskey:               What happened to it?

Walter Storholt:               We don’t hear anything about it anymore. It’s totally just gone away.

Kevin Kroskey:                  They started shipping. Yep. You got it. They started shipping ventilators to New Jersey, and I think to other states.

Walter Storholt:               They redistributed it. They had too much.

Kevin Kroskey:                  Completely. And they’re building, I forget what they’re called, these makeshift hospitals that are probably never going to be used now.

Walter Storholt:               No.

Kevin Kroskey:                  Again, better to err on the side of caution. I’m not trying to not be empathetic, or not take this situation seriously. But I think we have to be honest in the assessment that a lot of this was just way wrong. So as serious as it is, it has not become to the level, even with the assumptions about benefits of social distancing, and what have you, it just hasn’t gotten to the level that people said it was going to get to. Very well-informed, very smart people with very sophisticated modeling, and it just hasn’t gotten there. Dr. Fauci-

Walter Storholt:               Data and information changes. I mean, the most visible things we had to go off were people being sealed in their homes in videos in China, welded into their homes and not able to come out, and then the awfulness of Italy. So if those two worst-case scenarios are then what your initial modeling ends up being based on then, that’s really problematic, because then if the worst-case doesn’t happen, you do end up this far off. Just from the layman’s eyes, that’s how I see it all having played out. We just had our initial modeling based on these worst-case scenarios, and it didn’t end up being what the average experience is across the rest of the world.

Kevin Kroskey:                  Yeah. We talked in a prior episode, really before the gravity of the situation hit, and I mentioned the swine flu, and I went back. Yeah, it was certainly after we recorded the podcast, but the mortality of that ended up being very low. And it seems like even though we’ve, I think, had around 50,000 diagnosed deaths from COVID, and again, there are all kinds of issues with well, there’s probably other people that probably died that weren’t diagnosed, and what-have-you, and maybe even some on the other side of that.

Kevin Kroskey:                  But, it seems like the mortality rate is going to be pretty low, way, way lower, orders of magnitude lower than what was initially believed. And the same thing happened with the swine flu. It was initially believed to be around 1.5%, and then it ended up, I think, down at 0.1% or maybe even 0.05%. And who knows where this is all going to shake out with COVID. But the key is, things are changing. And I guess what I’m concerned about is, we don’t know how people are going to behave, but I can speak for myself in saying that I’m going to certainly pay attention.

Kevin Kroskey:                  I’m a Pittsburgh Steeler fan. I ordered my three cloth masks of the Pittsburgh Steelers logo on them. I’m going to be going out-

Walter Storholt:               Nice.

Kevin Kroskey:                  I’m going to continue washing my hands. We’re certainly going to continue to take precautions. But I’m also ready to start getting back out there, in a smart way and trying to get back to some sense of normalcy. I do think we’re teetering on the brink where if this is overshooting in terms of being conservative is that we are going to run a real risk of having some implications, that some of the second-order effects that we talked about, from all the economic turmoil and the domestic violence and the suicides, and all this… Again, apolitical, but it’s in the data. It’s there. It happens.

Kevin Kroskey:                  But, I think you’re getting to the point where continuing to be uber-conservative is probably posing more risks of some of the second-order effects being larger than the first order. So we’ll see. I certainly may regret just saying the sentence that I said. I don’t think that I will. But I think we all need to… What I’m saying is, at least from what I can tell, certainly in the minority. I think, I don’t know, 60-some percent of the population definitely wants to go ahead and continue as we are and stay in.

Walter Storholt:               Well, of course, because some people are making more money unemployed with the extra $600 a month than they were when they were employed.

Kevin Kroskey:                  Yes. Yes.

Walter Storholt:               Why wouldn’t you want things to continue as they are?

Kevin Kroskey:                  For sure. My kids they can’t go back to daycare. I mean, obviously, we got to be smart about this. I’m not saying we’re going to reset back to normal. That’s not real. Obviously, the people that are chronologically or biologically older, have autoimmune diseases, I mean, they have to be very careful.

Kevin Kroskey:                  But, when I think about, and particularly when I’m down here in Florida, I mean, people are terrible drivers down here. And that doesn’t keep me in the house, or not going on the road. I just adjust my behavior. I bought a much bigger, heavy SUV, where if one of those morons does run into me, I got a big heavy vehicle, so hopefully, I win. But I’ve adjusted my behavior. And I think we’re all going to adjust our behavior going forward, no doubt. We don’t know how exactly. But we have to start moving back to some sense of normalcy and do it in a smart way.

Kevin Kroskey:                  I would really love to see some leadership here at a national level. Going through this, you hear about now, it’s like, well, we really need to be able to control and test and do contact tracing, so we don’t have another wave break out. Well, yep, all these people that are unemployed, why haven’t we been hearing about the government hiring these people, the states hiring these people, to do contact tracing? Get them unemployed. Pay them a little bit more than what they’re making on unemployment, even with the extra $600 a week. Get them back to work, and oh, by the way, help preclude this second wave from being worse than maybe what it otherwise would be.

Kevin Kroskey:                  To me, that’s the kick in the pants, is it just seems like we’re a nation that’s starved for leadership in many different regards. And I just don’t get the political BS that comes into this, but I think that’s maybe the missed opportunity. But we always seem to persevere despite all the turmoil that we have, whether it’s political turmoil or this COVID situation. No doubt, the people of this country, and the people of this world are going to persevere. Yes, things happen. People die. We all do at some point in time, but we are going to persevere as a people, and we are going to get back to whatever the new normal is, and things are going to get better. It’s just the way that the world works, and it’s up to you if you want to choose to believe that.

Kevin Kroskey:                  Before I keep shooting from the hip any more, Walter, I think I hopefully have made my point about risk and uncertainty in this non-linear modeling, and maybe made some poignant points about how retirement planning, and some of the things that go into the same stuff that we have to do from an investment or a retirement planning standpoint, are the same sort of modeling things that are going on with this pandemic. And risk and uncertainty are everywhere. It’s just the way that the world works.

Walter Storholt:               And also understanding that the prognosticators, just like we’ve seen with some of the coronavirus talks, can end up being way off, and the same thing in the financial world. We’ve had people for years saying, “This is the year that the market is going to crash. This is the year the market is going to crash. This is the year.” And finally, they were right this year, but they were wrong the previous six or seven years. The modeling, or the reasons that they have for making those predictions even though they seem to be very smart about it, didn’t have a great impact until it just happened to be the broken clock is right twice a day kind of thing happened this year for those predictions.

Walter Storholt:               So, yeah, modeling can be way off in many different ways in life, and financial planning certainly another one of those realms that it might not be correct. So you can’t follow these things as gospel, especially when it involves risk and uncertainty. I, on the coronavirus thing, identify with you pretty much on all your points, Kevin. I will say, I think we should celebrate, and we need to remember the initial goal. The initial goal wasn’t to all hide in our homes until COVID disappears. It was to flatten the curve and keep the hospitals from getting overwhelmed.

Walter Storholt:               And in a large success, a large win, we emphatically have done that, other than the couple of cases in New York City where some hospitals were definitely getting hit pretty hard, for the most part, we haven’t needed to build those field hospitals, and moving the ships into place to handle the ridiculous overcoming amounts of patients, never really came to fruition. Everyone who needed a ventilator got a ventilator. So I think that’s a win, and I think both sides should be able to celebrate that. And then I think both sides. We could say this about any political conversation, but not necessarily politics, but just the two sides of this debate. The ones who say, “Keep it shut down,” and the ones that say, “Open it up,” neither one is heartless or a pansy for not wanting to go back to work, or heartless because you’re valuing the economy over the potential of losing a few more lives.

Walter Storholt:               I mean, neither one of those sides is wrong in their reasonings, and the values that they have. And I think if we can drop some of that name-calling and finger-pointing, and just have logical discussions like this, we can compromise and keep things moving forward in the right direction. So it’s nice to hear you talk about those kinds of things on this show, and look at this from a logical standpoint. What makes sense. Giving credit where credit’s due, of saying the lockdowns have helped. We did flatten the curve with it. But we’ve got to have an adult discussion about accepting a level of risk and getting life back to normal in at least some respects, too.

Kevin Kroskey:                  Life is risky. We’re all going to go at some point from something. It’s just, which risks are you comfortable accepting?

Kevin Kroskey:                Donald Rumsfeld, when President Bush was in office-

Walter Storholt:               Are you going Mission Accomplished here?

Kevin Kroskey:                  No, no, no.

Walter Storholt:               Okay.

Kevin Kroskey:                  It’s like, the known unknowns, the unknown. See, I’m screwing up.

Walter Storholt:               Yes. I know the quote you’re talking about. Yes.

Kevin Kroskey:                  I have a lot of sympathy for him right now, or empathy for him, because I’m just mucking it up just as bad as he did.

Walter Storholt:               The unknown unknowns.

Kevin Kroskey:                  The known unknowns and the unknown unknowns. I mean, I didn’t roll off his tongue that well, but he was definitely on to something when he gets into this risk and uncertainty. We have to accept we’re accepting risk every day. Whether you’re sitting in the house or going out of the house,  I mean, we’re taking this to the point that is probably absurd, which hopefully makes the point even clearer. But it’s just the way that the world works. The world is a risky place. It doesn’t mean it’s a bad place. It’s a risky place.

Kevin Kroskey:                  So I think we just have to accept that and know that things aren’t going to be perfect. It’s not all sunshine and rainbows and unicorns, as my six-year-old believes. But it can be a good place, and it is a good place, and it’s up to you how you want to experience it as well.

Walter Storholt:               Here it is, Kevin, for you.

Donald Rumsfeld:             Something that hasn’t happened is always interesting to me, because as we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns. The ones we don’t know we don’t know.

Kevin Kroskey:                  I apologize to Donald Rumsfeld. That was very eloquent, now that I hear it again.

Walter Storholt:               But it still is a confusing quote, that’s for sure.

Kevin Kroskey:                  It’s confusing, but it’s very profound. He was very accurate. So good for him for saying that. It’s exactly what we’re talking about, the risk versus uncertainty. He’s just saying it another way. But that’s the world.

Walter Storholt:               Yeah. Yeah. Tell me what I don’t know I don’t know, is an important thing to remember in lots of different phases in life. I think maybe the other thing you were thinking of was the quote, “Life is inherently risky.” “There’s only one big risk you should avoid at all costs, and that’s the risk of doing nothing.” I’ve always thought that was a pretty good one as well.

Kevin Kroskey:                  Yeah. I hadn’t heard that one, but yeah, no, I like it. I’m very comfortable with risk. But I’m also proactive in planning for uncertainty.

Walter Storholt:               Mm-hmm (affirmative). That’s true.

Kevin Kroskey:                  Yeah. That’s what we have to do when it comes to retirement planning. I’m going to go ahead and put a cap on my shooting from the hip. I could continue-

Walter Storholt:               You’re going to pass on to one of the other experts now, right?

Kevin Kroskey:                  Yes. And you did a fantastic job summarizing some of the things that I was saying. So I very much appreciate you, Walter. I don’t know if I’ve ever told you that, but I don’t think I’ve ever put it out on our podcast waves. So thank you very much for making me sound even better than maybe what I didn’t earlier.

Walter Storholt:               Well, you did a great job of shooting from the hip, so I say do it more often. You’re okay shooting from the hip. You pass with flying colors today—so great job on that.

Walter Storholt:               As always, if you’ve got any questions for Kevin Kroskey, feel free to reach out. It’s easy to do so. If you want to talk a little bit about your own financial plan, about how you’ve structured things to prepare for retirement or your financial future, and we covered a lot of ground on today’s episode, even shooting from the hip. We talked about a lot of important things. And if you’re not getting that sort of analysis and that level of thought going into your financial plan, ask yourself why. Why is that the case?

Walter Storholt:               If you’ve got any questions for Kevin, reach out by calling 855-TWD-PLAN. That’s TWD-PLAN. 855-TWD-PLAN, or go online to TrueWealthDesign.com, and click on the “Are We Right For You?” button to schedule your 15-minute call with an experienced advisor on the True Wealth team.

Walter Storholt:               Kevin, this was a lot of fun. I appreciate the help and guidance. You brought up some great information points and things to think about in today’s episode, and we’ll do it again next week.

Kevin Kroskey:                  Thank you, Walter.

Walter Storholt:               All right. Have a good one. That’s Kevin Kroskey. I’m Walter Storholt. We’ll talk to you next time right back here on Retire Smarter.

Disclaimer:                         Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.