I’ve been telling my Intelligence Report readers about my Big Idea kicking off in 2008 with (1) the next U.S. presidential election,
(2) the proposed Olympics in China, (3) the first wave of the 76 million baby boomers retiring, (4) the emergence of the new very light jets
(VLJs), and (5) broad-scale penetration of Korean-like high-speed broadband.

Talk about dynamic systems. The starting point of a dynamic system (the butterfly effect) is an initial condition. The end point is the equilibrium
state. In between are the transient states. And it is the in-between, transient states that we will be observing with my Big Idea and its various
components starting in 2008. The action will be frenetic.

Simple Is Sophisticated

Let’s look at the implications for a 76-million-strong tidal wave of retirees. To retire in comfort, each one of the 76 million baby
boomers will need an objective, reasoned game plan ideally crafted using common sense, logic, and preparation. The potential complexity of
a lifetime financial plan is, for most investors, frightening to comprehend. Take it slow and easy. Keep things simple. Have patience as you
plot your course, and be diligent in the homework you absolutely must do.

Outliving Your Money

You will need help! A financially comfortable retirement that could last a number of decades requires an understanding of compound interest
and its nasty little relative that I call reverse compound interest. The composition of your investment portfolio, including risk parameters
(almost always forgotten or misunderstood), is an issue of intense importance. But first are two equally important issues I urge every retiree,
not just baby boomers, to ponder. In order to not outlive your money, you need to consider the advisability of

(1) Retiring later than planned today.

(2) Dramatically slashing monthly cash outflows in retirement.

Money you have today is high-powered money—it is money that, if invested, could work for you for decades. Most of you are going to want
to hold off drawing down your nest egg for as long as possible. The best and easiest way to cut your withdrawal needs is to slash your spending.
Right away, this means (1) no mortgage, and (2) no car payments or debt payments of any variety, including credit cards.

Moving to a warm climate that will be less taxing both mentally and fiscally is an option I advise. In 1992, Debbie and I became Florida residents,
and we have not once regretted this decision. And, yes, I know from loads of experience that hurricanes (I advise high ground) are a first-order
pain both mentally and financially. But wherever you live, unpleasant natural events are likely to be part of the equation.

Retirement Arithmetic

If you are not yet retired, I’d like you to consider hanging around until they kick you out, so to say.

Why is the one-two punch of slashing spending and hanging around so terribly important for you? You don’t want to outlive your money.

Now let’s look at the arithmetic of a financially secure and comfortable retirement. First, we start with a portfolio balance of 50%
stocks and 50% bonds.

A nice 50/50 mix offers a nice defense against down years. Negative returns are killers for compound interest. We assume an average annual
long-term total return for stocks of 8.8%, and a 5.9% return for bonds. We also assume a 9% standard deviation. And we build in a 0.80% annual
allowance for a registered investment advisor fee. If your portfolio is valued at $1 million or more, the tax-deductible value of a registered
investment advisor is a low-impact cost for the order, discipline, and attention to detail a professional investment staff can bring to the
table for you. It takes a certain set of skills in life to amass after-tax net earnings of $1 million or more, but it takes a much different
set of skills to navigate the emotionally charged and treacherous waters of mathematically adroit, counterbalanced portfolio composition.

The odds of producing risk-adjusted total returns that beat a pro at any task long-term simply are not real good. Ever tried giving your car
a tune-up? Probably not, and for good reason if car tune-ups are not your practiced expertise. Trust me, rustling around with Value Line over
the weekend or sitting in front of your computer screen for some broker’s free research are not likely to produce pleasing results. And
as to the emotionalism of investing, I can only tell you the process wreaks havoc on the portfolios of even the most astute nonprofessional
investors.

Inflation Is a Killer

OK then, Young Research has assembled a series of benchmarks with which to establish the probability that any investor will outlive his money.
We test many different withdrawal rates over an array of time periods. Initially we build in a 3% inflation contractor (the value of your portfolio
contracts in terms of buying power by the net effect of inflation compounding). We use 3% for the first 15 years of a retirement, 2% for the
next 10 years, and 1% thereafter.

These are not inflation forecasts. Our numbers are really modest purchasing power deflators. As an investor ages, we assume that spending
will naturally decline. We also assume, perhaps wrongly, that our investor will have substantial medical coverage so that portfolio cash flow
aimed at medical expenses is not burdensome. As we all know, this situation itself will take some doing.

A Giver and a Taker

How much can you draw from a portfolio that works under my assumptions? Our arithmetic assumes that one retires at 65 and lives to be 100.
More of us will live to be 100 than you would think. That’s a 35-year retirement.

If your parents both lived to 81, I’d wait until you were 65 ½ (as in my case) to take your Social Security. I receive about
$2,050/month, get 25% withheld for Fed tax, and—get this—still have to feed about $6,000/year into the government sinkhole because
I am still working. I am both a giver and a taker. Go figure. If one or both of your parents passed on before age 81, I’d start drawing
your most meager Social Security at 62 ½.

Scenario I

Let’s assume you want to leave to a beneficiary your total initial portfolio in trust. By drawing 6% on your portfolio, you have only
a 21% chance of maintaining the full principal of your portfolio. By cutting your annual draw to 5%, your chances improve, but only
to a still-not-red-hot 43%. At a 4% draw, your probability hits 70%. And at 3%, you have a 91% shot. To maintain purchasing power, there is
zero rationale for a withdrawal above 4%.

In Scenario I, I’d like you to think real hard about slashing your cash outgo to allow a draw of only 3%.

Scenario II

My second scenario allows you to consume 80% of your principal in order to leave 20% to a beneficiary. At a draw of 6%, you have a 29% probability
of success. Not so good. At a 5% draw, you get a still-not-peachy 56%. At a 4% draw, your probability jumps to an acceptable 83%. And at an
annual draw of 3%, you have a 98% chance of success.

You are in great shape.