The D.B. Cooper Heist
One afternoon in November 1971, a man calling himself Dan Cooper (nicknamed D.B. Cooper by the press) boarded Northwest Airlines flight #305 in Portland bound for Seattle. He was wearing a dark suit and a black tie. Once airborne, he opened his brief case showing a bomb to the flight attendant, and proceeded to hijack the plane. As the plane landed in Seattle, D.B. demanded (and received) $200,000 in cash, four parachutes and food for the crew. He then released all the passengers.
With only three pilots and one flight attendant left on board, they took off from Seattle heading south while it was dark and lightly raining. About 45 minutes after takeoff, D.B. sent the flight attendant to the cockpit. He then slipped on a parachute, tied the $200,000 bag full of twenty-dollar bills to himself, lowered the rear stairs and jumped into the night. When the plane landed, all that remained near D.B.’s seat were a few parachutes and his black tie. Assuming he lived, D.B. Cooper had $200,000 in 1971…….he's rich. Or was rich…………..…here is the point:
Let's imagine the story ends there, and D.B. decides to retire from being a thief and become a normal retiree. He decides to invest his $200,000 in a portfolio of bonds (no stocks at all) that pays him 4%/year after taxes. So his income from those bonds in 1971 is $8,000 per year. The average American in 1971 earned about $8,000 per year from working, so D.B. is in good shape, right? (source: U.S. Dept of Commerce)
Fast forward from 1971 to 2001………D.B. Cooper would be about 70 years old. And his income would be………..the same $8,000 per year. But because of inflation (estimated at 3%/year compounded yearly), he now needs about $33,000 per year to live the same life. So what are D.B.’s choices? Well, he could engineer another daring aerial heist and hope his 70 year old knees don’t disintegrate when he parachutes into the Cascade Mountains, or he could cut back his standard of living in a BIG way. Can you imagine if today someone asked you to endure the rest of your life on 75% less money than you normally spend?
Two of the main and equally dangerous threats to a secure financial retirement are:
- Temporary but miserable declining stock markets (which historically have best been battled with bonds)
- And the inevitable rising cost of living (which historically has best been battled by stocks). But our D.B. Cooper did not factor this in.
Always remember that an efficiently structured retiree portfolio is deliberate, diverse, and has balance.
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