Welcome everyone 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.howtoretyearontime.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 cover it all. Now that said, please remember this is just a 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 mister David Fransen. David, thank you for being here today.

Hello. Thank you.

David's gonna be reading your questions, and and I'm gonna do my best to answer them. You can send your questions in right now or anytime this week by either texting them to 913-363-1234. Again, that's 913-363 1234, or email them to hey mike@howtoretyme.com. Let's begin.

Hey, Mike. Is it true that you need 1 and a half $1,000,000 save to be able to retire?

I've seen this ad before.

Yes. Many times. I have as well.

So if you are the average person with the average income and the average income expectation in retirement, with the average expenses in the average city in the I mean, filling the average for every situation, then maybe that's true. The thing about these advertisements is I hate them, but I appreciate them.

Okay. Why is that?

So you can't not have money to retire. So if if you say, hey. I've got, like, $10,000 to my name. I wanna prepare it to retire in 5 years. Well, that's just not gonna happen.

So you do need to have some money saved. So I appreciate them saying, hey. You need to have some money. So I start now or, hey. Let's, you know, let's get serious about this thing.

Hopefully, you've been saving at least 10, 15% of your income every year in a 4 one k at the very least. But the reason why I hate it is because I mean, think about the expenses in Kansas City versus the expenses in New York City. They're very different. Yes. Think about the expenses in Kansas City versus, let's say, Iowa, Kansas.

K? Little shout out to family down there. Uh-huh. But they're very different places to live. Kansas City, for example, you might spend a half a 1000000 to $1,000,000 in a house.

If you go to the outskirts of, you know, Clinton, Missouri or Riola, Kansas, you might spend a 100 to $200,000 for a similar house. And I say might that's a there's a lot of overgeneralization there, but you get the idea. It's just different. So the idea behind this, I think, is saying, hey. You should probably save money.

You ought to know how much you need to save in order to retire. I appreciate the intention there, but everyone is so different. I've seen people retire with less than 200,000 to their name.

Really?

In that situation, it really came down to tax planning. All of their assets were in IRAs, and so they had to figure out how to slowly convert assets and then maintain a lower tax bracket so their Social Security was tax free, that their income was below a certain threshold so that was efficient, that RMDs wouldn't disrupt things, and that we were taking advantage of not the zero tax bracket, but the lowest tax bracket and the standard deduction. I'm not a CPA, but a CPA hat would wear

in

this situation. Right? I've seen people that had 1,000,000 of dollars that could not retire because the income that they wanted exceeded the amount that their assets could support. So it just depends on what you want. Now something that a lot of people don't really think about, David, hopefully, have some fun with this, but where's the money?

Before you started working here, did you ever think about that? Like, hey, maybe I have a different amount of money that's I'm gonna access from 401 k versus my brokerage account. Like, those are very different scenarios.

Yeah. I've not thought about that once.

So 1,500,000 of what? So 1,500,000 of an IRA is a very different situation than a 1,500,000 of a brokerage account.

Okay.

You've already paid the taxes in the brokerage account. It's invested in somewhere. And even then, are those assets in a long term capital gain situation? Is the basis low? So when I say basis low, I mean, is there has there been significant gains in those positions?

So when you take it out, there's a 15% or 20% in some situations, taxation on it. Oh. The dollar amount that's in your account isn't actually how much you can spend. The ability to distribute or to take the money out so you can spend it is a whole another factor. And that can be the difference between people being able to retire and not retire.

I mean, look at your IRA. K. Let's say it's a $1,000,000 so we don't disclose how much you've saved.

Okay. Yeah. Love that.

So $1,000,000 nice and simple. Really 800,000 at best is probably yours.

And that's because of?

Federal taxes, state taxes. When you take the money out of an IRA, right, you have to pay taxes. Yeah. Is 1,500,000 enough to say, I don't know? Because it depends on how much you want as income, but it also depends on how much you have saved and associated with that income and where it is saved.

There are levels or layers to this that need to be uncovered. And this is why it gets, I think, very complex and oversimplified plans maybe gloss over some efficiencies that could have been incorporated to help you get more out of your hard earned money. So how to create income, I think, is the crux of the whole situation. How do you how do you enjoy spending your your money? Right?

Sure.

That's a tax problem, not just an investment problem. And we can talk about income. We can talk about taxes. But there's a whole another layer that I wanna mention here too. So we talk about the taxes.

You know, you take the money out. You pay taxes if it's IRA. Right? If it's, capital gains issues, to access the money, you have to sell it, to be able to spend it. You've got some tax issues in all of those strategies.

Okay. It's a tax problem. Got it. And RMDs, by the way, they can push you into certain tax situations that aren't ideal.

Okay.

All of that matters. Okay. So let's say that all that solved. There are still other things you need to account for. So is a $1,000,000, 1,500,000 enough if you and your spouse were to retire and be retired for the next 20 years?

Maybe. Well, what if one spouse, you or your spouse were to pass within 2 years? Is it still enough? Because your taxes just went up and one social security is now gone. What if that's 30, 40,000 and your your expenses roughly stay the same?

That can destroy a retirement.

Think about that. Yeah.

People fixate on this dollar amount and they forget the strategies that need to be worked into the the equation. Market risk. Okay. So 1,000,000, 1,500,000 saved up. Great.

What's the market gonna do for the next 10 to 20 to 30 years? That kind of matters. If markets are always averaged 6 7% year over year, it'd be a very easy thing to solve. But markets can go flat for 10 plus years period of time, which Goldman Sachs has come out and said the equities market may be flat for the next 10 years, like it was in 2000, like it was in 1965, like it was in 1929, like it was in 19/06. Notice the pattern?

Right. It happens.

It happens. And does it make sense why a flat market can suffocate your retirement? I mean, you're you're retiring with the idea or the intention. You're gonna grow your assets, and you can take income off of the growth. Right.

That's a strategy for many people's retirement plans. Okay? Many people use that. Well, if it doesn't grow for 10 years, you're going down slowly. And if you're going down slowly, then you have less money to try and recover from when the markets eventually take off.

Makes sense.

Market risk might factor into how much do you need to save. And then that you've also got other things like reinvestment risk. I don't think we've ever talked about reinvestment risk on the show.

It doesn't sound familiar.

So reinvestment risk is the idea that when an investment comes due or matures, what's the going rate at that time? So okay. CD. 1 year CD, let's say it's 4% for easy easy times. Right?

Okay.

Well, what's a CD you can offer you in 1 year? No one knows. Right. So what if you're living off of right now, all your money is in CDs, the 1,000,000 or 1,500,000, and that 4% works for you. But then the Fed drops rates.

Now CDs are 2%. Your income just got cut in half. Oh. So what do you do? Do you just take the hit?

I guess you'd have to.

So reinvestment risk affects many, many things like those who are using CDs or treasuries. For example, or any fixed account municipal bonds, corporate bonds, k, can affect those. Interest rate risk, reinvestment risk can also affect fixed or fixed indexed annuities. So a lot of people have been renewing annuities lately because they bought it in, like, 20 14, 2015, 2016 when interest rates were low. They're now higher, and so they could enjoy some reinvestment risk and actually get a better annuity, technically speaking.

I know a lot of people have been doing this this year, but it can be the inverse. You could have your annuity come due and then end up with a crappier situation. So these are things that need to be thought about and talk through before you really dive into how much do you need to save? Well, it depends, and this is why. Let me just reiterate again why.

How much you save really is contingent on how much money do you need in in income. What other resources do you have social security? Do you have a pension? Do you have real estate income and all of that? It's a tax equation.

Income planning is a tax problem, not just an income problem. You've got market risk. You've got spousal risk. You've got reinvestment risk. And those are just kind of the the top risks.

Congress could in the future, anytime, pass new law that says your taxes are going up instead of now 20% of your IRA being subject to taxes. Maybe it's 30%. These are things that people need to understand. It's not just I've saved enough. I can retire and it magically works out.

I frankly think it's rather unfair that we've gotten rid of the pensions as a whole and gone to this 401 ks situation to where we are now deferring or demanding, it's probably a more appropriate word, that people who do not have a financial background are now expected to manage their money like a financial professional.

It's a big ask.

Well, and then these big companies are are touting out these oversimplified ideas and glossing over things like spousal risk, reinvestment risk, market risk, or tax risk. And they say asset allocation, the efficient market frontier, all these jargony words which have legitimacy to them, but are often not fully explained. Just do this and and you'll be fine and close your eyes and it just it just bugs me. Yeah. Your ability to retire really depends on many key points.

And if I've said it once, I've said it again, there's no such thing as a perfect investment product or strategy. There's no one investment that can do everything that you need. There's no one strategy that can solve all of your problems. We want it simple. Humans inherently want simple.

There's the classic business expression. Keep it simple stupid that we all want to cling on to. The problem is it's never going to be simple. You can oversimplify it, but there's a cost to that. And that cost is flexibility or growth potential or maybe additional risk or something.

There's always a cost to oversimplifying it. And this is why over and over again, I cannot say this enough. First, put your plan together. Just basic numbers. Can you afford to retire based on the income you want and the assets that you have?

And then dive in to the efficiencies and the strategies. That's how you address market risk. What if the market did go flat for the next 10 years? Could you handle it? What if a spouse were to pass?

Would it be okay? What if interest rates were to just tank? What would happen? Then you put together your growth focused portfolio, including the reservoir strategy, which I talk about my book, how to retire on time. Basically, just like a city has a reservoir of water in case of drought, a reservoir, how I define it, is a a group of principal protected assets in your portfolio that you can draw from whenever the markets go down or you you experience financial hardship.

That's it. Because if it's principal protected, you can't lose money, so you can't accentuate losses, so you can use it and tap into it while your other accounts have time to recover. That's it. A reservoir is not an actual strategy. It's an idea.

You can use CDs, treasuries, fixed fixed index annuities, cash value life insurance. There's a number of investments for products that can be used for it. But the idea is that it's there for when you need it. So let me say that all again. Plan first, explore these strategies and the efficiencies to help get more out of your money while you prepare for risk.

The many layers of risk so you can determine you have saved up enough or not. And then design your portfolio in such a way that you can implement those strategies and support the overall plan. I don't see another way that you could do this. Yes. It's complicated.

But what's your alternative? You could just throw it all in the market and hope it works out. You can buy a bunch of annuities and turn on income for life and hope inflation doesn't erode. Hope taxes don't erode your lifestyle. Hope you don't have a life event that you may not be able to afford.

Those simple strategies, that that's the that's the crux of it all. 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. Go to www.yourwealthanalysis.com today to learn more and get started.