Financial News - Reading Between The Lines

In this episode Jeff discusses reading between the lines of financial news, his case of the week, listener questions, and alternatives for conservative investors. 

What is Premiere Retirement With Jeff Vogan?

Every week Jeff Vogan comments on the state of the market and economy as well as gives advice on retirement planning and wealth management.

When it comes to investing, retirement taxes, healthcare and estate planning, the decisions you make today can greatly affect the quality of life for you and your loved ones tomorrow. What you need is straight and unbiased information on the most important issues you will face when planning for your retirement and financial future. Good news, you found premier retirement radio with Jeff Vogon. Jeff is the founder of Premier retirement planning and wealth management. And he's been guiding people financially and into retirement for 30 years. So get ready for an hour of the most comprehensive financial information on the radio premier retirement with Jeff Hogan. And now here's Jeff Vogon. And Jeff shade.
Thank you so much. Welcome to premier retirement with Jeff over the radio show that gives you the straight talk and honest answers you need to help you reach your wealth management and retirement goals through Smart Investing and careful planning. My name is Jeff shade. And as always, you know, I'm just here to ask the questions for you. But of course, the words of wisdom and solid advice come from Jeff ogen, founder and president of Premier retirement planning and wealth management. Jeff, how you doing this weekend?
It's always a good day when I'm with you. And with the listeners here and doing well.
Yeah, likewise to Jeff, it is always a good time when we're here with the greater Tucson area and the listeners because we really do appreciate them. And by the way, if you have a question or comment about our show, you can reach us by going to the website premier att.com. We always love to hear from you, Jeff, let's start off with the week that we do most weeks and that is talking about current events. I saw an article here from a person who said the s&p 500 is up over 18%, NASDAQ at 40%. In 2023, the market is doing great. And what she's alluding to is Those are the headlines, but she says Are you kidding me? Stop reading what's in front of you in the news and start reading between the lines, she says that there is some information between the lines that they just don't want you to know. So is the market doing great? Or are they just trying to snowballs here a little bit?
The market is doing great. I mean from the standpoint of where it's come from its bottom trough you know from the bottom. However, if you look back two years from right now all the indexes are down. Well, not every index on the planet maybe but at least three majors, the NASDAQ Dow and the s&p two years ago, they were higher than they are right now. So does that sound good? Well, it all it means is we wrote the market down into the abyss was a lot of selling and there's been some buying back. There's a lot of new millionaires and billionaires created over the last decade or so that don't understand fundamentals. They just understand if you throw money at the market goes up. So they just keep doing it. You know, there was an article I read and maybe I think I shared it with you as well about John Malden, who talks about cycles, you know, cycles are everything the thing is, is if you don't believe them, then you do irrational things. And right now, you know, we're in an economic cycle where we're in a contracting period, you know, money supply is going down. It's shrinking and shrinking and shrinking at unprecedented levels. In fact, I mean, depression or you type levels down 5.8 annualized, that's a reduction in actual currency. Yet somehow GDP continues to look like it's going up, you know, some of this money that stimulus money the billions and trillions of dollars that have gone into stimulus is still out there, you know, hasn't been spent yet. A lot of that's just gone into the market and driven prices up, but it's sitting there as equity. But does that equity really do anything? No, it's just kind of a number as to what somebody paid for stock at its last trade, you know, and then they times that by the number of shares and that somehow everything is worth so much more, but is it really or is it just because somebody had some money they didn't know what to do with so they put it in the market. The other thing that's up is, you know, infrastructure spending there's a lot of companies that are scared of the market they're not even buying their own stock, they're selling their own stock well what are they doing the money they're buying a lot of fixed investments that's a lot of the GDP growth the gross domestic product growth isn't consumer goods isn't toys and cars and the discretionary items so much as it is discretionary but there's a lot of business money that's been gathered up a lot of companies have hoarded cash and some of them are buying back their own stock for one thing that's just driving the market up because they're trying to employ this cash into something a little bit better buy stuff now because you know, borrowing cash later is going to cost money so might as well try to get everything done you can now the other thing is they're doing a lot of infrastructure like companies buying bigger buildings, expanding their equipment, not a ton but that's been a big part of the GDP growth as far as I understand it, and as I read but you know, we've also got you know, I mean crazy stuff happening with consumer debt you look at the credit card balances have gone over a trillion dollars I believe that's for the first time ever, I've never heard of it being that high defaults or growing earnings as of last quarter. We haven't got the numbers for the third quarter until October. So we had about a month ago to see you at this last quarter really played out and I'm anticipating probably not as good as people think because summertime a lot of people aren't vacations. There's a lot of maybe some spending money but I don't know that the big corporations may not be growing as fast during that time, because everybody's kind of used that summer is that kind of a summertime low in earnings and things but earnings just from year to year from a second quarter the second quarter a year ago, we're still down 7% Even though the market seems to be rebounding and be as resilient as ever. So back to this economic cycle type discussion is we're in a cycle we're in a contraction cycle, we've been in a decreasing interest rate environment for almost 40 years, which is great for bonds, great for fixed interest, great for making money. And even on your safe money. Now, you lose money on your safe money unless you just buy a CD for a year and get to 5%. And then you could at least make money on short term stuff. But long term investments, you know, that used to be kind of the hedge in the market haven't been for the last couple of years, the stock market is as sketchy as can be. They've got companies like Nvidia that, you know, are probably doing the same thing is, and I haven't looked at their balance sheets, but you know, Nvidia came in was stronger than expected earnings because of this AI hype. I get that, but their price earnings ratio was still 250. That means, you know, is that company going to really double or triple in size? It's already so big, can it I don't think it can so me the price earnings ratio should be somewhere in line with growth rate. So if the company's growing at 50, I'm okay with a 50 price earnings ratio. I don't think that company earnings or revenues are going to be growing at that rate of speed, especially with the competition coming in yet the stock goes to $400. And they come out with his blockbuster earnings report. And it's still at 150. Well, is that really sales? Or was it just orders that they counted as sales? Or was it products that were created? I remember back to the time when I'm jumping around here I sorry, I get kind of ahead of myself ADHD kicking in here. But you know, it reminds me of the.com Bust when the.com companies like Cisco on a one on one, Cisco Domino's, Cisco is if you don't you showed him he's one of the 30 Dow components and it's been there forever. But you know, there was a time when Cisco was actually booking a sale. As soon as the product was made boxed up and stuck on a truck for shipping, even an app hadn't been bought yet or paid for. And so they were actually booking sales and creating this fake growth rate as to whatever it wanted to basically dictate based on production, those games can still be played a little bit and I kind of anticipate in Vidya might be playing some of those games to try to get their stock propped up might be 100 or 200, our stock, but I just don't think it's a $400 stock. And there's a lot of things that are just, in my opinion, a disconnect, I'm just talking about one stock that seems to be getting a lot of press right now, I look at Microsoft, you know, Microsoft's one of the biggest, I mean, it's a big player in the industry. But if you look at it's also a component of the Dow, if you look at how the indexes work, the indexes are really not even a real picture of the market. Anyway, Microsoft is roughly 8% I think it's seven or 8%. And Walgreens, for example, is also in the Dow and it's got like point 4% market cap, but United Healthcare is the biggest one at nine, I believe. So in other words, if the Dow has 30 stocks in it, and if United Healthcare goes up, or Microsoft goes up, it makes roughly 15 to 20 times as much an impact on the Dow as Walgreens going up, or if Walgreens goes down eight bucks, and UnitedHealthcare goes up one buck, the Dow goes up, that doesn't make sense to me, right? So there's a lot of just kind of weirdness in what we're seeing in the market. And the index is some of these big companies that really can't lose money because they have license to print money, you know, Microsoft, not as much as United Healthcare. But you know, as people get older, everybody gets Medicare supplements, and they raise the prices every year. So they're going to make profits. And they're going to continue to make the Dow go up regardless of what the economy says, right. So the indexes are kind of an interesting point of reference to how the economy's doing the market still, but all it really says is okay, there's a few companies that are stable enough to get a lot of attention, and people are buying their stock and driving it up. And if they're a big company, they're a big part of an index, they actually get to drive the index. You've heard of The Magnificent Seven, seven stocks that make up the entire gains year to data. The s&p is made up by seven stocks because they're cap weighted, and they're big and Vidya being one of them Apple, Microsoft, Facebook, Google and Amazon and Tesla. And I think it's Tesla. Anyway, there are seven stocks that can attribute to every bit of the earnings based on their cap weight in this there's more stocks in the s&p 500 that are down year to date than are up yet the index is up. So to your original question, the indexes are all up the market is doing great. Okay, the markets doing good? Is the economy doing great? Well, if you have more stocks that are going down, they're going up. And if only seven stocks are equal to the balance of 493 other stocks as far as net profitability, or the other foreigner 93 stocks or breakeven mean, and more of those have gone down and up. I don't think the market breadth is any good. I don't think it's any surprise that when when the markets up 20% And I see people bring their portfolios in if they got a random or diversified portfolio of stocks, bonds or mutual funds, how come they're not up 2030 or 40%. Like these indexes say they are right, they're not unless all they have is an index fund and then they get lucky because they're playing the cap wait game with the index. At the same time. If some of those bigger stocks ever do sell off, then you get a bigger butt kickin on the way down. But again, you know, this whole stock market is baffling to me nowadays, I learned fundamentals in college business major, you know, I understood as a stockbroker, you know, what made a stock go up and what made the stock go down. And generally it was based on fundamentals, earnings, growth, you know, market potential, and, you know, bottom line is how many people were willing to buy it, but it seemed to be a more logical reason behind why people were buying stock than there is nowadays. So, you know, when you look at just all the things out there, I mean, I'm as confused as everybody and the thing that doesn't confuse me however, is earnings are down, money supply is down. There's still enough liquidity out there to be buying the stock market up but that's got to end because the cycle will complete every cycle ends up completing. But right now people are not worried about the cycle, so they're not capitulating to that cycle. When somebody gets if there becomes a bit of news, oh, by the way, nobody believes the Feds gonna keep raising interest rates even though they say they are you. I mean, you look at the market if they believed that they wouldn't. I mean, they're, they're pricing in a pause. And that's why the markets been going up lately. And occasionally, it'll go back down based on an economic number that makes sense to make the market go down. But then people forget three days later, start buying again. So yeah, there's gonna come a time when the free cash kind of dries up or when even the dumb money investors not dumb people, I mean, shoot, these people are rich, but they're not investing based on the traditional fundamentals that, you know, I've driven this market for decades and even centuries, it's been more of a a well, this is the way it is, is the new modern monetary theory and whether the market goes up, because if it doesn't the federal just print money, well, wait a minute, they're doing the exact opposite of printing money, they're actually contracting, the money supply, it's already retraced over a trillion dollars. Well, that's not good news. Well, for the market, it is actually good news and the fact that we have to kind of reel in this excessive spending over the last decade or so and get somewhere back to a fair market value where people can buy and trade on, you know, fundamental reasons that makes sense. I think we'll be in a better position when that happens. But you know, honestly, I don't know when it will happen. But this article you referred to, and the money supply, tightening and the fact that things are not what they seem because we're not hearing the whole story is absolutely true. And it's what I've been preaching for the last year and a half is things are not like they used to be things are not logical. Right now. There's an irrational market. And I don't want to play in an irrational market, even if it's going up because it could also be going down just as fast. I'd rather be in something a little bit safe and sane, and be the tortoise of the race right now. So I don't know if that answered your question. I went all over the place. But bottom line is there is a lot of disconnect between the information that we're getting and the true information and the condition of our economy. Right now.
We're talking with Jeff Hogan on premier retirement planning and wealth management about the market and what's going on today. And Jeff, before we continue, I want to take a moment to remind our listeners how they can have a conversation with you to ask their questions about the market volatility and what they should do. If you're looking for answers then request your no cost no obligation from your retirement roadmap by calling 52078 Donati 59. Again, that number 5207809 at 59. Now when you call, you're gonna get a friendly voice the other end of the line more than likely Shelly, who will gather some basic information from you and set you up with a conversation with Jeff to create a path towards your successful retirement. Now remember, it's not going to cost you a dime. But it could help improve your quality of life in retirement that could last as long as 30 years, you're gonna get to ask Jeff your questions and get the answers that you need to put you on the path to a successful retirement. Again, no cost and no obligation for this call 5207809 At 59, it's 5207809 at 59. Or you can also request your complimentary consultation online at Prem red.com. That is p r e m r e t.com. Jeff, let's talk about your case of the week. This is something that we do every week, where we discuss a case that you've had in the past week, or the past two weeks that our listeners can relate to. So Jeff, what's our case of the week this week? Well, this is a
kind of a fairly common case lately. And this is a person that has done very well saving. They've had modest jobs, but they've always lived the rule of thumb to live within your means and have amassed a nice portfolio of about three and a half million dollars, including their home, some real estate and some investments. Now a few years ago, now they like they have liked real estate for quite a while, we'll just call Bob and Jane. So Bob has been a teacher at a high level making, you know, six figures plus and now he's just kind of easing into part time and kind of phasing out in the next couple of years. He's 69, she's 68. And they've got some real estate generating, I think he's about maybe 20 to $25,000 a year. And that's about 1.2 million in equity. They've got about a million dollars already, in principle protected annuities, they are not really that crazy about the stock market, they've got a little bit of fidelity and other Mutual Fund monies. They do have an advisor that has sold them stuff, but doesn't really pay attention and does any reviews with them. So that's kind of why they're looking they really don't have a plan other than a guy that keeps wanting them sell new annuities. They liked idea principal protection, they got their annuities, five to 10 years ago, when interest rates were really low, they're not doing very well. They're renewing at horrible rates compared to today's new interest rates. And that that is kind of a problem. When insurance companies make one or 2% on your money, they can only maybe double or triple that at best and indexed annuity. But if they're making 5% on your money nowadays, and they can double or triple it and they keep one or 2% of that you can actually do a lot better. So a lot of people are frustrated with the old annuities now that they're not paying as well as the new ones. So he had a proposal from a prior advisor to sell all these annuities and buy new ones. Well, one of them was going to take a 17% penalty, but it only has two years left to run out of surrender, which is ridiculous not to wait. So I said wait a minute, your broker is gonna flip something, make a little commission and you're gonna lose 17% And the net difference is maybe three to 5%, which means you got three or four years just to get back to even. But you can move this without a penalty and two years without lose 17% and still make a little bit of money in the meantime, oh, and by the way, you can take money out of this particular annuity, you can take 10% a year out for the next two years. And you can already reposition that with some of your other money into another annuity, he's got another annuity with one company that will take and actually change that annuity to a new one. But he's got the similar problem, he's going to lose money, it's going to be three or four years before he breaks even, or this particular annuity lets you take up to 20%, free withdrawal plus 10%, for the following three years, while it runs out of its surrender period. So instead of cashing all these annuities in losing 15, or 20%, we're going to move them just over the next two or three years just to penalty free amounts to establish some good annuities that will allow you to add money to later and then when they become free and clear, we'll look at the market and not lose him any money, he kind of liked the idea of not losing any money. And that's kind of what made him a little bit freaked out about bailing out and having such big penalties just to get new annuities. And honestly, it seemed like it was really more in the favor of the agent that was going to sell something and make another commission that it would be in him, I don't mind making a commission if you're better off to I mean, it's a win win, right. So but this didn't really seem like a win win, he could do a lot better by moving him over the next three years, rather than moving all at once right now and still get those higher rates of interest. So we first of all curb the deals that he was already down the road making. So when cancelled those and kind of created another redistribution plan into new fixed indexed products. The other thing is, is the new ones are a lot better. Now the wife had just inherited some money. So she was actually going to go down the road and put money into one of the annuities that she already has with another company. And I said, well just rotate that old annuity with that company into a new adjuvant annuity company over the next few years and then use the new money to go into something that you don't even have a different type of product that actually has higher upside. So we looked at that. So we basically fixed their fixed indexed stuff, their principal protection into a more lucrative way going forward. So we re established a lot of their money or position their money so that over the next three years, they're gonna rotate out of those older annuities that aren't paying very well into the new annuities that are based on much higher interest rates. So they'll probably make I mean, seriously, probably hundreds of 1000s of dollars in extra returns over the next few decades in their retirement just by looking at it that way and upgrading when the upgrades are available. So first of all, we upgraded their fixed products. The other thing is they were into real estate, they know they've done well. But he knows that while he's working, somebody calls in the middle of the night to fix a toilet or somebody moves out, they can run over and clean it and get a new renter in there, whatever. But once they get retired in the next couple of years, he's planning on retiring probably in the next year, she's just kind of waiting for him to retire. Because he's kind of, you know, already kind of out of the picture for her job go. So they want to travel, they want to do some fun stuff. So he's saying, you know, he says, I really think I work pretty hard on 1.2 million to be only making $21,000. Net. And that's what it was, I found the number was $21,000. Net in the real estate cash flows, although I get some depreciate, she gets my income. I said, Well, you like tax advantaged income, right? He says, Yeah, he says, I really don't think I want to be a landlord. I said, right, you want to retire? Where can you get that same kind of net income. So here's what we did the 1.2 million actually, if he sells out over the next few years, he'll end up paying about 200,000 in taxes, meaning he'll have about a million left, he paid about seven or 800,000 for the properties, but he's depreciated a few 100,000 of it off of that. So he's going to have a significant amount of taxes, maybe 200 of that Max, maybe somewhere between 102 100 between closing costs, fixed costs, you know, just just to turn over those properties. So let's say with that million dollars, he can put that into ulurp life insurance retirement plan. He says I just want to really give this money to my kids. He says, You know, I don't really need it. We live well below our means. I said, Well, what if we took that million dollars, and we created a situation where between that and a couple of dog annuities that you have that we can't really get out of in the next few years. We just take the 10% withdrawals and between the real estate money and the other kind of doggy annuity money that we can't rotate out over the next two or three years. Let's just roll that into a ulurp life insurance retirement plan and generate some tax free income. He says, Well, I guess so he says, Will it still grow like real estate? And will it generate, you know, at least 20,000 in income, I says not only will it grow, but if you took $21,000 out in income, it'll be tax free. But here's the deal. What if you want extra income, you could either reinvest or give it to your kids while you're alive and create memories instead of just give them a dump of money in the end. Bottom line is this alert plan. We could pay into it for 10 years and starting in year two, take somewhere between 90 and $100,000 in tax free income out of it. He's like, Well, wait a minute, he's you're talking about a seven year $80,000 pay raise plus taxes. I said plus you save taxes, right? That's the equivalent of about $150,000 in income from other sources. Do you think he could make 150,000 a year off of 1.2 million in real estate? Well, no way. I said, Well, there you go. You just got an upgrade. He says, Well, actually, when we first started talking about we started started talking about just the real estate money and it came out about 60 or $70,000. He goes well wait a minute, if that's tax free money, he says can I add to it? And that's why we ended up coming around and saying hey, what if we just use doggy annuities that you have to take money out 10% At a time that you just bought a few years ago, you know we can just liquidate over time add some money to your real estate money amortize that million dollars basically pay in over a 10 year period. To tie into the loop, get some interest on that money while you're doing it. And then in 10 years, you basically have a tax free retirement life. Bottom line is when we, when we ended up looking at the next 30 years, there are no late 60s. But let's say they live under their 90s 95. They're really good health and probably get Preferred rates on their insurance products based on the fact that they really have no issues. So bottom line is over the next 30 years, if they live to 100, their actual out of pocket tax expense is going to be about six and a half percent based on the money that they could pull out of this plan. Now, they may not want to pull this money out of the plan, they might want to leave a little bit money in the plan so that their kids get a bigger tax free retirement maybe. But as it is, even if they took approximately three and a half million dollars in income tax free income by doing this lert program and still leaving over a half a million intact for them, that's if they max out the withdrawals, they're still going to leave about five and a half million dollars in assets to their children based on their home based on the annuities they have based on the other investments. So bottom line is they were in a situation where you know, they had crappy annuities that weren't paying, they would have probably lived on air somewhere between 80 to $100,000 a year now we're now we're bumping their income. So between like 150 and 250 a year paying a lot less taxes and still even five and a half million dollars to their heirs when they die, they thought this is a serious upgrade. And the situation that they were in all they had before was a do it yourself plan at fidelity that they could pick and choose their mutual funds. And they hadn't really been doing that good in their opinion on that real estate that caused a lot of headache and turmoil trying to find renters and clean up and pick up after themselves and maintain it that they now got rid of so they can truly retire and bumped their income by about $80,000 a year Oh, not just 80,000 hours. So that was just on the loop conversion between the real estate. The other thing that they did is if they had just rough figures, about a million and a half in principle protection that was making 2% Or in other words 30,000 A year and now they're making say six, on average, that's another 50 or 60,000 a year and growth on those strategy to those investment products that they weren't gonna get because they upgraded into a new strategy that was still principle protected. So there's a lot of upgrade opportunities, there's a lot of ways to get you out of the risk. They don't have to be in the market. I think all we have in the market here in this overall plan was maybe about $300,000 left of the of the three ish million outside of their home, only about half a million dollars or less would be even exposed to the market right now we're not exposed to the market, we're just exposed to short term interest that's you know, paying a guaranteed rate of return that can pay their bills and leave them plenty of liquidity for everything that they need. So that's the plan of the week, very typical situation, somebody wanting to actually retire and get out of their real estate and upgrade some old annuities. That's a common thing around here. But it's possible and easy to do.
Jeff, based on our conversation here about our case of the week, I'm willing to bet that our listeners have some questions about what you might be able to do for them. So if you've got questions, we invite you to call us to request your complimentary premier retirement roadmap, just a friendly conversation with Jeff that will cover a wide range of topics based on your individual situation so that you can proactively adjust your financial plan to address your retirement journey and any blind spots that may hinder you from reaching your goal. So if you're not on the right course, when would you like to make some adjustments? I would bet that it is right now. Again, no cost no obligation whatsoever that number to call 5207809 59 520-780-9059 One call could make all the difference. You could also request your complimentary plan online at Prem red.com. That's PR EMR ea t.com. If you're just joining us, this is premier retirement with Jeff Hogan. I'm Jeff shade. And if you want to hear the show again, don't worry. We're also a podcast just go to wherever you get your podcast and search for Premier retirement with Jeff Hogan. You'll get this show in all of our past shows so that you can stay on top of your wealth and your path towards a successful retirement. We're gonna take a quick break when we come back. We'll be answering listener questions and more when our show continues right here on 790 k and S T Tucsonans. Most stimulating talk
you can't start a trip you've never taken without a plan. And you can't start your retirement journey without a comprehensive plan to get there safely to request your no cost premier retirement roadmap call 580-780-9059 all requested online at Prem red.com. Now back to more premier retirement with Jeff Hogan and Jeff shade.
Welcome back to premier retirement with Jeff Hogan, founder and president of pre retirement planning wealth management offices right here in Tucson also up in Mesa. If you're up that way. Once again, the number to call for questions comments about our show 5207809 8059 It's 5207829 59. And again, if you would like your no cost, no obligation premier retirement roadmap review, call that number 52782 9059 or requested online at prim ret.com. This is the part of the show of course every week where we answer listener questions Jeff we'll kick it off with Roger listening to us in Tucson Roger says I'm 64 just retired in June. My wife is 60 He is still working. My wife is a big believer in holding a Balanced fund with a mix of stocks and bonds. Now, I agree this is easy and effective during the accumulation phase. But now that I've shifted to the distribution phase, I want growth assets and income assets in totally separate funds. What are your thoughts on this strategy?
Well, Roger, it's obvious you've been listening to my show, or you have somehow aligned your values and thoughts with mind, maybe your wife needs to listen a little bit get Jun to tune a little bit, and she'll hear this enough times, maybe she'll be corrected in a nice, less subtle way, rather than you having to pick on her to make her change her mind. I know spouses don't like to do that. But maybe they hear it from a third party, they'll come around Balanced fund with mix of stocks and bonds as Wall Street's way of having you just leave your money there. So they can continue to deal with fees, and they don't really care about your income plans, livelihood or your whether you lose money, it's really all about their profits, not about your profit, it was about your profit, you know, they let you go to cash or you know, be a little bit more vigilant in the way they manage money. However, the market is the market. It's the big macro economy of all the holdings in, you know, equities of every company out there, right and bonds the same thing. So we saw stocks sell off last year, we also saw bonds sell off as interest rates go up, everybody wants a new bond with a higher interest rate than the old bar with a low interest rate. So they sell off, and those old bonds lose money. So you can lose money in stocks and bonds, it didn't used to be that way for 40 years, every time the stock market to get funky, you just go into bonds, and you'd make a little bit of interest. And typically, when the market get funky, they'd lower interest rates or in order to create more liquidity because it's the modern monetary theory, right, just print money, so to speak, keep lowering interest rates and keep creating, you know, more turnover with the, you know, more cash out there more empty money supply that we talked about in the first segment, with all that extra cash, of course, it prompts the market backup. So they need to get this never ending situation where bonds keep getting better, stocks keep getting better. And every time the stocks get worse, they just print money or do quantitative easing, meaning lower interest rates. So people have more of an incentive stay in the stocks, they can get money cheaper and do other stuff with cheap borrowed money instead of their actual savings. And they could put that in the market. So you know, overall, they exhibit good, you know, in a pretty good trend, other than a couple of, you know, hiccups in 2000, where we needed a correction in 2008, when the banks got a little out of control, we needed a correction. But overall, that situation has been, you know, pretty bullish for a decade, including bonds, not now. So you can lose money in stocks and bonds, we just learned that. So you should also learn that, you know, if you're in an income phase where you want to start drawing income out of your investments, you've already accumulated, what you've accumulated doing the stock and bond thing. And that's great, because the timing, when you did, it was the best, you know, some of the best timing that we've had in history where both bonds and stocks are going up at the same time. So you really couldn't lose with a stock and bond mix for a long, long time. Now you can lose with the stock and bond mix, you can lose it at the same stinking time. There is no hedge and 60 40%. I mean, why do you even balance it with equities that can go the same direction at the same time? That's not diversification. What you need in diversification is you need some assets that are not correlated the same way with the market. So the market is going down because or market gets pressured to go down even though it's not because there's a lot of money out there still going in. So basically, you know, the stock and bond is really a Wall Street thing. Where do you go with your other money? Okay, well, I like principal protection, here's the deal with what we're doing with principal protection, you can buy short term, even government bonds that pay somewhere between four and 5%. Or better, you can own them for three to six months, there's no risk there. You can buy CDs that are short term, there's maybe no risk, it depends on the safety of banks, and how solid the FDIC wants to be when the banking crisis comes. But I think there may be one based on the fact that no banks want a loan. So where do you put your money and do what you want to do, Roger, and basically, you'll get out of what June wants to do June wants to do the traditional way, you're just gonna ride the roller coaster. And by the way, every time you need money, you're gonna lose money every time the markets down. So it is not a recipe for success in retirement when you need your money. So you're correct principal protection, how do we get that right now, not losing money is more important than making money even though you can't make money on safe stuff. Short term bonds, not long term bonds are one way to do that. And principal protected accounts that insurance companies use where they ladder, a bond portfolio, and they don't really care about the price of bonds going up or down because they're maturing on a daily basis. And they've already established their cash flow for the next few decades. So an insurance company can manage a bond portfolio better than you and I can, and they can use that interest based on using leverage through options on the market indexes, they get the best of both worlds. So if you want a mix of stocks and bonds, why don't you protect your assets with bonds that don't lose value to you that you basically pass that risk on to an insurance company and let the insurance company bet the interest on market. So in the years are the timeframes a year, two years, three years, whatever the timeframe is that you want to look at the market. If the market goes up during that period of time you make money, but if it goes down, you don't lose money. That's a much better hedge than the old rule of thumb where you actually got to make money on bonds when the stock market didn't make money. So you always had that Oh, either or type proposition. I don't think that proposition is going to come back anytime soon. With The Fed telling us that they're going to keep raising interest rates, that's good for insurance companies who can use their new money to buy higher interest rate bonds and invest that money in options that are related to the market. So you get the upside, but also be protected on the downside. So my opinion is the insurance companies over the last 20 years or so have come up with a product and a strategy that basically has saved the day from this big market cycle where we would have to otherwise wait for the bond market in the stock market to turn around where we go through maybe up another last decade, a 10 year period where the stocks go up and down and up and down and all over the place. And every time you spend money, you're either locking in a loss or a little gain, and you end up with less money at the end of 10 years, you know that then you started with. Now it's not necessarily bad to spend some of your retirement funds and retirement but you don't want to draw it down to where every time the market has a hiccup. You keep on locking in losses and you run out of money by the time you're 80. I mean, because I assume you want to live in retirement maybe a little longer than that. Or even if you don't want to you might anyway, so we need a long term plan where you don't lose money, not losing money is a lot more important. And you know, June's plan still puts you in a place where you lose money over time, Roger, your plan is to protect some of those assets or most of those assets. And I'm with you on that.
Roger, thank you so much for listening to us in Tucson. I hope that answer your question. And of course, we'll be sending you out Jeff's book retirement the road ahead, Jeff, our next question this week comes from Bill who's listening to us in Casa Grande says I am 66. And thinking seriously about retiring this winter, I've heard you talk about sequence of return risk and how retiring at the wrong time can have a great effect on returns on your investments is this year, the wrong time to retire. Considering that we still have higher than normal inflation and market volatility.
Well, you know, just from a standpoint of just pure logic, if you work another year, you do pad your retirement by a little bit. But you know, I would put it on a plan and just see if you've saved enough to where it doesn't matter. It's okay to not make money some of those years. Because what happens in a bad market cycle is a marketing that goes down stays flat for a while you don't make money and you spend your gains from prior years, you just don't want to spend all of them. The other thing, the sequence of return risk is really about if you have all of your money in the stock market, and it goes down. And I've shared the story about Noram, who retired right at 2000. And the market went down for the next three years. I mean, went down really hard, but he's spending his money out of the market. While it's going down. I think if you're going to retire, make sure you have enough money in principle protected account. So if you have a million dollars, you don't stick it all in the market lose 50% of it while you're spending it, and then only have about a quarter of it left in the next three years if the market tanks like it did in the dot bomb crash. But you know, have two thirds of it, let's say in principle Protected Securities, even some cash that you can live on while that market cycle improves and comes back on the market does always come back. But it doesn't come back if you spend some of that money along the way. So anything and that's kind of based on his last question that Roger was asking me is like now that you've shifted in the distribution phase, you want growth assets to be totally separate, those growth assets are going to have periods where they go down, and they need to be left alone, if they're going to grow, they can't be spent. So you got growth assets that are typically more volatile and take the biggest hit and bad markets. And then you've got the safe assets that you can use during your your income phase. So as long as you have income to bridge the gaps, as long as you have enough buffer so that you can have some zero years. Remember, if you have some zero years, and over three years, you spend, let's say five or 6% of your total net worth because you didn't make any money, you're down five or 6%. As long as you didn't lose, if you've got all that in the market, and you spend money while the market goes down 50% You might be stuck down at about 40%. How are you going to make it back if you're still spending the same amount you did when you had the full value of your your assets working for you. But again, if you're only down five or 6%, because you spent some money, you were making some and you never lost when that market cycle rebounds. You remember what it rebounded after it went down 50% over three years, the first year 2003 out of the gate was like 25%. And it had some really good double digit returns over the next few years to make up the difference between that 50% loss at the s&p add in that crash in 2000, another 50% crash in 2008. There are some really good years again, a 30% year in 2013, which is kind of the end of that rebound years when the market finally came back after the 2007 and eight crash. That was when it finally got back to even. But what you don't want to do is write it down to half your money spend all the profits as it grows. And then when you have that 30% increase that 30% increase only happens on half your money. That means you only made 15% But you'll still lost 50% Locked in when you spent money. If you're following me bottom line is you need to spend money that's not down, it's okay to spend principal, it's just not okay to start locking in losses. So again, sequence of returns only has to do with spending money. If the market risk is beating you up and you're using that money. If you're not using that money, then sequence of resist really, really doesn't come into play if you have a plan. And you can see that there's some buffer for some bad years in there. And that's what we do. We lay it out in a spreadsheet and you know, it might come in that it makes more sense for you to work another three to five years I've had that happen. A lot of times people say I want to retire in three years. I'm like, Okay, well you might be but it seems like if we don't make any money on the investments that you're making, you might be a little tight. Maybe you got to consider five years. Other people say gosh, I think I might have to work till I die and I'm thinking No you don't. You've got income from Social Security pensions, no debt. You've got four million dollars, you're gonna be okay as long as we don't lose $4 million, or two or three of it. So again, you don't have to have $4 million to build a plan. But let's say you have only six or $800,000 that you need to fill the gap between social security and pensions. Well, if that's enough in a safe place, or you only need to have maybe 400 of it to build an asset that creates the extra income that 20 or 30 or whatever, $1,000 you need an income to make sure your bills are paid for the rest of your life, then you got an extra $200,000 in you know, slush money that would give you the confidence to go ahead and return right now. So again, everybody's situation is an it depends situation, how much do you plan to spend? How much did you save? How risky Do you want to be? And how safe do you want to be? And how much do you want to convert into assets that protect balances give you predictable or even guaranteed lifetime income? And then go from there, but you need to see it on a plan first, I can't really tell you if it's time to retire now or time to retire in 10 years until we see the whole picture. Bill, we
appreciate you listening to us in Casa Grande. And if you have questions for Jeff again, that number Pi 20780 9059. It's 5207809 at 59. And Bill we'll be sending you out Jeff's book retirement the road ahead. Next question, Jeff is Chuck listening to us in Oro Valley Chuck says my wife and I are both 64 plan to retire in four years. At this point, we do not have a plan for long term care and how to pay for it. I'm worried that when the time comes either of us will have too much to qualify for Medicaid, but not enough to cover even a year of long term care, you have a suggestion as to how to financially plan for long term care expenses.
Wow, well, if you're looking at having only one year worth of financial expenses, I'm guessing that you've got Social Security and a nice pension to cover your bills. And not a whole lot in savings. I mean, savings can grow double or triple, you can double them two or three times if you leave them alone, over the next couple of decades. I'm assuming you're healthy now and expect you know that long term care situation and be more like when you're in your 80s or 90s. So if you think you only have enough to plan for that based on savings, maybe you ought to just look at your cash flow and see if you can buy long term care policy, if you're qualified for it. I hate them actually hate the Pay As You Go policies because if you don't use it, you lose it and you just paid all that money. If you could put what you would pay into a long term care policy and invest it just dollar cost average into even the stock market, even in a choppy market or into something that pays a relatively good, it has good upside with some principal protection that has a chance to grow, you might be able to self insure, but again, it would be a budget situation where you'd have to look at what you can spend what you can save whether you can afford long term care policies, long term care policies, the Pay As You Go version, so far, 100% of them have price increases, or they'll say, Oh, your premium doesn't increase. But we have to reduce the benefits because of our claims, liabilities and people living too long. So we have to save the day and stay in business. So we're gonna make some alterations as you go. Most people get burnout of price increases end up dropping their policies and end up using them when they don't have insurance. So I'm not a big fan of the pay as you go like health insurance type policies for long term care, I prefer more like a what we call asset based long term care, which is either through loops, life insurance retirement plans, where you have a death benefit, maybe you've got 100 or $150,000, you think is only enough to cover you for one year in a nursing home. But if you put that into a policy that had $400,000, with a death benefit that you could use for long term care, Oh, and if you don't use it for long term care, your heirs get $400,000. That's pretty good. Oh, and if you happen to need some to live on, you can spend some of that $400,000 On a tax free basis. Doesn't that sound like a little bit better deal, it's kind of a cake and eat it too tight plans called asset based long term care. So again, depending on your situation, how much you have in savings, or how much you can divert out of your cash flow based on what your spending plan is versus your income plan is, you might be able to afford a ulurp a life insurance retirement plan that set up more maybe less for income that I've always talked about, maybe less for a death benefit, which would just make your heirs rich, not you but also be there for long term care should you need it and also be there for you if you need an income raise. Or if you need to just withdraw a little bit for a purchase or an emergency down the road. That wouldn't affect you on a tax basis because life insurance is tax free. And if you park some money in that type of a policy and do it the right way, you can always have access to that money on a tax free basis and whatever you don't lose goes to your heirs or is there to supply you with the cashflow you might need for the long term care that you're talking about terminal illness, even home care and other chronic illness type situation. So again, there are some very creative lert programs that we call asset based long term care plans. You might want to consider those but let's look at your overall situation. I don't know how much you haven't saving. I don't know how much your cash flow is. But when we find that out, we might be able to make a better plan for you. That doesn't keep you guessing.
Chuck we appreciate your listening to us in Oro Valley and of course you're gonna get Jeff's book retirement the road ahead if you have questions you'd like us to answer on the air you can get it to us by calling 520-780-9059 That's 5207809 at 59 Better Way I think is to go to premier att.com br E M R e t.com and leave your questions there in our contact form. arm and once again, you can call 520-780-9059. If you want to request your complimentary premier retirement roadmap friendly conversation with Jeff that will cover a wide range of topics based on your individual situation that may uncover some blind spots that may hinder you from reaching your retirement goal. If you're not on the right course. When would you like to not probably right now, before it's too late to do anything about it, you can also request your premier retirement roadmap online at Premier att.com premret.com. Jeff, in the few minutes that we have left in the program today want to talk about some investing alternatives for conservative investors. Everybody, I think has some level of risk tolerance with some people have more of a risk tolerance than others. So let's talk about some alternatives for conservative investors. Now, the first one would be cash, but they're also cash equivalents. What are some of the cash equivalents that people should consider if they are just very, very conservative?
Well, you know, CDs actually have become a great alternative for some entrusted with your bank money, I have still finding people that have, you know, $150,000 in checking and savings making 1%, when they could get a CD that pays for I think, for your bank money going to CDs for your investment money, because we want that to be liquid and nimble and get back in the market. When there's buying opportunities. I think the cash equivalent would be, you know, money market rates, sometimes, some of the retail accounts actually do better than some of our institutional accounts that we use. But you know, we love ETFs that are totally liquid ETFs exchange traded funds that are full of short term investment bonds, Bloomberg has one, there's one called S. Gov STLB, that we like, it's just basically really short term bonds. And every time one expires, they replace it with a new one with a little bit higher interest, you know, even Netta fees, we're getting somewhere between three and 5%. On returns on that so far this year, and you know, a volatile stock market environment, I think that makes a lot more sense than keeping the cash making zero, especially if you have to pay a fee, because you have an advisor, and I certainly am okay with you paying a fee if you have an advisor because you should get some value added. But if they're just parking your money and not doing anything, then you should just do it yourself and buy it in a retail account. But the bottom line is, there are some alternatives. The other thing is is, you know, the penalty free portion of your annuities, your principle protected accounts are also available, as in my opinion, a cash alternative. If you look at your liquidity picture, and you have a million dollars in indexed annuities and $100,000 in the bank, you really have 200,000 liquid because you can get 10% of those annuity funds that are principle protected out that's kind of a cash equivalent, in my opinion, because it can be in your bank account in a matter of a few days to cover that another big one. But honestly, this is the asset class people forget mostly, and that is life insurance. I'm not talking about term insurance, where you're just trying to make somebody rich when you die, I'm talking about your own tax free bank, where you put money in I mean, let's just give you an example. If you could walk into a bank and say, You know what, I really want this money to be liquid, I want to park some money here, I want to be able to get it and I don't want to pay taxes on it. Because I get really tired of buying CDs and getting taxed on it even though I don't use the money. And the bank says well, gee, we just happen to have that available for you. In fact, we're offering a 6% rate of return on our savings account, how much would you like to put in cash? Well, I'd like to put in a whole lot. But I only have a little bit of money to go with great. Well, what if you could go down the hallway and borrow money at 3% and come Park it here at 6%. And there's no limit on how much you could borrow. Now, let me back up here. So wait a minute, you can borrow money from the same institution at 3% or 4%, or even 5%? And you could put it in a savings account that makes six, wait a minute, why would you not do that? Well, why would you not do that? Oh, and I don't have to pay taxes on it while it grows. And I don't have to borrow money from it. I don't want to Well, that's what you can do with ulurp Life Insurance retirement plans, an insurance company will invest your money in a ladder of bonds where they know that they're getting their cash flow needs met, they've got your money in a safe place. Typically government bonds, investment grade bonds or better stuff with next to zero default rate, if you look at their overall portfolios isn't the point something less than 1% point two or 3% default possibilities on the bonds and stuff that they buy in their portfolios. So they really don't have any risk in their bond portfolio other than the value of that portfolio, that doesn't bother you. Okay, so insurance companies will invest that they'll take the interest just like they do on principle protected accounts, they will invest it in options. And if you look at historical returns, somewhere between six and 7% is reasonable. That's even based on interest rates that were available a few years ago, based on the new interest rates, they can probably even do better than that. But let's just go with the overall low interest rate type environment that we've been in and say, hey, if they can make 6% on my money, but here's the catch, what do you have to do to let an insurance company park all your extra cash in a bucket for you to use on a tax free basis? Well, you have to buy a little bit of life insurance. So we use indexed universal life insurance because the requirement is you're allowed to buy a lot less insurance than you would on say a whole life policy, which is what most insurance agents and most insurance companies would love you to buy or you have to buy like let's say a million dollars with a life insurance in order to put a couple $100,000 away in cash. Well, what if you're only going to put a couple $100,000 away in cash? Let's say you were gonna put a half a million dollars away in cash the whole life might make you buy a million and a half to $2 million of insurance and you have to pay for that. cost of insurance for the rest of your life, meaning that if you make any money on your cash, it's just gonna go to the cost of insurance. Well, what if you could buy, let's say $50,000 worth of insurance or $100,000 of insurance, you put $500,000. In there, your insurance policy is only 600, meaning you only have to add $100,000 of insurance to make this thing legit. Okay, so now the 500,000 is growing at 6%, let's just say, which is 30,000 a year, the cost of that $100,000 of insurance, if you're 60 years old, is probably around 1200 bucks. So you have like, what 29,000 in profits, that's extra that you get to accumulate on that account. And let's say, oh, for income purposes, I want to borrow 50,000 a year. So you borrow 50,000 a year, well, what's the interest on 50,000 a year at, let's say, 5% 1%. Last year, you paid 2500 bucks and interest, but your account just made 29,000 in interest on the gross that you put in, that's net of the cost of insurance. So your account still grows, and you borrow 50,000. And that interest goes against the interest that you make next year, you do the same thing. Okay, so you borrow another 50,000. Now you have to pay what 5000 interest? Well, at this point, now you're making 31,000 in interest, because you make an interest on the interest you minus the cost of insurance. And the older you get pretty soon you don't have to buy any insurance, when you're in your 90s You don't even have to buy insurance, you just get to play this interest rate game. So bottom line is you can park a lot of money, what you do is you borrow against that ever growing cash value that you stuffed into an insurance policy and it continues to grow and grow and grow and grow and grow till you die. And maybe half a million dollars turns into a million and a half in cash flow tax free. And then when you die, there's a few extra $1,000 for your heirs because you had to buy a little bit of extra money, there's some money left in your account. So that in my opinion is an asset class, if you roll it back a little bit, where can you put half a million dollars in reduce the balance by $50,000, especially if it's a volatile account and not run out of money in 20 years, I don't know where there is an account like that. But the loop, the life insurance version gives you a lot more staying power, a lot more cash flow, a lot less taxes, easy access up to 90% of your surrender value is how much you can borrow back out of it. So you have to leave a little bit in there just to cover the cost of insurance. But so what you have the tax savings into that, you know, $50,000 in actual cash flow, you'd have to be withdrawn $75,000 out of an IRA and paying, you know, a third of that and taxes to be left with 50,000 bucks. So why not pay taxes now on some of that money, invest in ulurp do a different asset class. And by the way that asset classes stealth when you take that $50,000 a year out or whatever it turns out to be that doesn't even show up in a 1099 or on your tax returns. You don't have to file taxes on it. You don't have to use it as provisional income to decide how much taxes you're gonna have to pay on your social security. You don't have to use it as income on your tax return so that the Medicare premiums that you pay double or triple like some people do, and when I show these blurbs to people two out of the last three alerts that I just presented know that this last week by them says I really liked that
we're talking about investing alternatives for conservative investors with Jeff Hogan a premier retirement planning and wealth management. Once again, if you'd like to talk to Jeff about your individual situation, get your no cost no obligation retirement roadmap call 5207809 59 It's 5207809 59 you can also request your plan online at Prem red.com pr emret.com. Well, Jeff, we're out of time for this week. I want to thank you for your time but most of all, thanks to find people here of Tucson, Arizona for joining us for Jeff Hogan. I'm Jeff shade. Have a great weekend. We'll talk to you again next week with another edition of Premier retirement right here on 790 k and S T Tucsonans. Most stimulating talk