Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just to show.

Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request Your Wealth Analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my colleague, mister David Fransen. David, thanks for being here.

Yes. Thank you for having me.

David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting them to 913-363-1234, or you can email them to hey mike@howtorettireontime.com. Let's begin.

Hey, Mike. How do you get rid of risk in retirement?

Oh, this is a loaded question.

Yeah. Is this is this for real?

Let's address what I believe the person is trying to get at. This person probably has an unhealthy relationship with money. This person probably loses sleep over money. This person probably is still working and trying to figure out how to not work because their health is going down, but they just can't take the leap. There is a significant mental shift when you go from working for an income stream to having to take your your assets and generate income from that.

So there's a lot that needs to be understood here. But here's the the honest truth that every person in sales would hate for me to say. Every financial person, regardless of your insecurities, insurance tax, does not want me to probably say this because it hurts everyone's sales. There is no way to eliminate risk in retirement. Cannot happen.

So the only way to proceed is by taking calculated risks based on a quality comprehensive plan that explores the strategies that can help increase your probability of future success. Anything otherwise, in my opinion, is a sales pitch. Here's why. Let's say you have 10, $20,000,000. Technically, you could get really, really sick and stay really, really sick for, let's say, 20 years and slowly go through that.

Technically, that's true. Now is that likely probably not but if you were living off of let's say $60,000 a year with $20,000,000. You're also living well below your means and most people want to live their best life. So let's address this question in a normal income situation. Let's say you've got a million to $3,000,000 saved up for retirement.

Let's say you want a 100,000 or so. In total, you've got some Social Security in there and you got some income from your assets. Okay. This is a normal situation that most people I meet with have when it comes to the retirement planning. So how do you address this?

Let's talk about the various risks that are there. And I'll go through kind of a general list, and then we'll kind of talk about them 1 by 1. So you've got market risk. Markets crash every 7 or 8 years. Markets can go flat for 10 plus years and markets correct like a 10% top to bottom every 1.8 years or so.

Okay. If you draw income from an account that's experienced significant losses, that accentuates the losses, that makes it more difficult to recover. That trips you up along the way. So there's market risk. I think most people inherently understand market risk when it comes to retirement.

You've got inflation risk, which a lot of people I think there was a, some sort of study recently that said, like, 13% of retirees are coming back to work this year because they just need to. So all the people that bought annuities in 2018, 2019 retired then turned on their income, and then we had what was a 20, 30% inflation or something incredible. Yeah. They all really got hurt because they locked in flat income. They had no upside potential.

They didn't plan for inflationary risk. And so now they're squeezed and have to figure something out. So they might be going back to work part time. So I call it inflationary risk or annuity risk. Annuity as an annuity income stream risk.

Now there's 3 ways you could take income from an annuity. You've got fixed increase each year. You've got an indexed amount, so it goes up with the market. But if the markets go down, you stay kind of there. That's a different way to have that increase each year.

Or you can get the most upfront which is a flat income stream but it hurts with inflation overall but that's a risk. The annuity salesperson says guaranteed income for life and they make it sound like it's guaranteed comfortable income for life. It is not because you have inflationary risk. You've got reinvestment risk, which is more in line with the interest rates. So the Fed interest rate does affect CD rates, high yield savings, and so on.

So if you've got a bunch of CDs, they might be like 1 year duration offering 4% or so. But what happens next year? What if the Fed does drop rates and now your CDs are 2%. Can you live off of a 2% annual dividend? That's called reinvestment risk.

Then you've got legislative risk so that they're just changing the laws on you. Yeah. You know that that that's tax risk. That's Social Security risk. That's anything the government controls.

Medicare risk. Medicaid risk for those who are on Medicaid. So legislative risk really has a large ripple effect, and it's even more risky in my opinion when you have high debt. Right? I think we all know that one.

Yeah. Health care risk, not necessarily in the legislative standpoint, but you've got health care risk, which is the risk that you get really, really sick and bankrupt your retirement or bankrupt the surviving spouse's retirement if you're married, k, or partner. So there's the health care costs. And who can predict the future health care? Who can predict your health next year?

I mean, no one plans on getting cancer. No. No one plans on getting a stroke. Right? You don't sign up for that saying, well, I think I'll get diabetes in 4 years.

Yeah. No one's deliberately asking for that. So we talked about tax risk as well. There's longevity risk that outlive your money. You've got spousal survivorship risks.

So your income needs will probably stay similar when your spouse was alive to when your spouse passed and your taxes go up because you're now in the single tax bracket instead of the the married filing jointly. And this list goes on and on and on. Life has risks. So the question is, how do you get rid of as much risk in retirement as you can while still accomplishing your goal? Because you can't live off of cash in the mattress.

Doesn't work that way. I mean, I guess you could in theory, but you're hedging against inflation risk and you're hedging against currency collapse risk. I don't think our currency is gonna collapse. It might lose value, but I don't think it's gonna collapse. So let's talk about how to solve this.

This might be, I don't know, one of the more fun conversations we have. Alright. Because the question was so open and we could just explore a lot here. Yeah. When it comes to your retirement plan, the primary question is, can you afford to live the life that you want for the rest of your life?

Okay. Most people are gonna die around 86. So let's plan to age 100. So there's a roughly 15, 14, 15 year buffer. Okay.

Of just additional income. And let's assume that you're gonna put in the amount of income that you want to live the life that you want net of tax. So how much does it cost to be you every month? K? And let's let's see if we can target that number with a 6%, let's say, average portfolio growth every year.

Why 6%? Because if you do it right, you should be able to get around 6% or so even in a flat market cycle. When I say if you do it right, we'll talk about portfolio structure in just a second. So you're not getting greedy. I say I'm gonna get 10% every single year.

You're saying, I don't know what's gonna happen, but let's put a target in there because over the long term period of time, money should grow. So you've got 6%. Let's say 7% also could work, in my opinion, depends on how you structure your plan, but 6, 7%. And then you put in the income that you want. Does your principal do do you dip into principal or not by the time you hit your expected life expectancy?

If the answer is yes. Okay. You're probably in good hands. And then if you live long enough, you could dip into principle as you kind of peter off. You with me so far?

Yeah. Next, you got to explore the strategies. So once you can determine okay. I believe based on conservative projections, I should be able to retire. Now we need to explore the strategies of okay.

How aggressive do I get on the IRA to Roth conversions? If you get too aggressive, you actually hurt your principal and it hurts your assets or the amount of money you have later on in life. If you don't get aggressive enough, you might get hit with tax inefficiencies with r and d's later on in life. If you file for Social Security at 62 years old, it will have a different effect on your overall plan, especially your portfolio and the income that comes from your portfolio. It will have a different effect then as opposed to if you were to file at 70 years old.

There's a ripple effect. And so that's why you start exploring strategies. What if one spouse were to pass in 5 years from now and we got rid of one's Social Security income stream? What would happen? Could you still do you see how we're we're picking the various situations and saying, what if, what would we do?

Yeah. That is planning. It's not about an arbitrary portfolio that should do well in all situations because no one knows all situations. And so you're picking the plan apart and you're exploring the strategies. What if the markets crash next year?

And what if they were down for 3 years? What would you do? What if the markets crashed in 15 years? What would you do? This is the exercise.

When I talk about planning, it's not about some fancy projection and some proprietary portfolio that's supposed to just solve all of your problems because that's that's a black box, and it's really just a bunch bunch of hidden secrets. Mhmm. Doesn't make sense. If you can't articulate the strategy, there really is no strategy. So once you have your plan, the projections are conservative and look right, then you explore the strategies, the stress test, the what if situations, and then you start putting together your portfolio.

So for some people, they might want guaranteed income for life. I wrote a whole book on how to retire on time. You've heard of it. That actually argues against the guaranteed for life income solution. But I recognize some people need guaranteed income for life to sleep better at night.

And so maybe you explore the various ways you can line up those annuity income streams so that you're hedging against inflation, that you also increase your your amount of income upfront and so on. But you blend it with different annuities. Let's say you take my approach, the one I prefer, and you use your reservoir and let's say you ladder out your income for the 1st 5 years. Okay. Think of like a CD ladder or you can use an insurance company with fixed products, Whatever you what you want, but you've guaranteed your income for the next 5 years while everything else can grow.

And then you have some principal protected assets that are liquid in 5 years or greater that are ready to go in case the markets crash. So that if the markets crash, you could draw income from a principal guaranteed source and allow your other accounts to recover.

Right.

And if the markets are up, you just let it stay there. It's still principal protected. You're just rolling it over. Yeah. There's some reinvestment risk, but it's a part of your portfolio that's subject to reinvestment risk.

Not all of your portfolio subject to reinvestment risk. Then you take all of that and you start putting together a portfolio that's based on objectives, not this ambiguous diversification thing.

Mhmm.

You're actually saying, okay, this is for this. That is for that. And you can articulate it and is built around your plan. Do you see where I'm going with this?

Yeah, I do.

K. That way you can go down this long list of risks and say, okay. We've planned for this risk. Here is how. And we can clearly articulate it in a way that you don't need a financial background to understand it.

But you're ready for the up markets, the down markets, and the flat markets That you're ready for maybe a major life event, a health event upfront at the beginning of retirement. Maybe you're ready for 1 spouse unexpectedly passing early on in retirement and how to hedge against that. Maybe you're you're ready for tax rates to increase or that you're still have enough in pretax dollars that you're able to take advantage of the opportunity if tax rates were to decrease. It's not about going all in on one portfolio or one strategy. It's about having options.

It's about being able to be flexible while following principles and guidelines along the way. This level of planning is not common. But how do you get rid of risk in retirement? You put the time in so that you can create a plan that's designed to last longer than you.

Yeah. You're taking everything into consideration that this is what could happen. And if

you're being proactive, you can avoid being reactive. Is that right? Yeah. That's that's the goal.

I think I borrowed that phrase from somebody.

Yeah. I think a lot of people say it. But I I just I can't emphasize this enough. Too often, people want simple. And if you want simple, in my opinion, there's a price to be paid for oversimplified plans.

Whether it's inefficiencies that are causing you to spend down your principal or spend your money faster than you may realize. Or maybe you're just holding on to less money for legacy purposes. But simple has a price, in my opinion, based on what I've seen. And so going into a comprehensive standpoint, going into a position of I'm willing to sit down in a couple of meetings, a couple of visits that can break it down and explain the benefits and detriments, the risks associated with it, and put together a portfolio that supports several strategies and a plan that works for you. That that's I cannot emphasize enough.

It's just so many people think they have a plan and they do have a plan, but they don't realize they don't have a complete plan. They have a partial plan. They have a plan that addresses some risks. They have a plan that addresses some ways to operate. But in certain situations, it might not work.

It might fall apart. And these are these these absolutes or these extremes going one way or the other. And that's not what we want. We want people to have a plan that's designed to last longer than them. A plan that's focused on growth.

So you have flexibility in the future, that you can adjust your lifestyle needs in the future, that you could offset inflation for the future. Because we don't know what happens in the future, but we can plan to have multiple ways to approach it in the future. You're listening to how to retire on time. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast.

Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date.

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