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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
You ever wondered if ChatGPT, Claude, or any these AIs could really put together a high quality retirement plan? They might. So to find out, we put it to the test, and we're gonna show you everything here on this episode of how to retire on time. Alright. So David joining me here from Kedric Wealth.
Mike:David can see my screen as well, and we're gonna dive into really Claude and ChatGPT specifically. We have no endorsement towards them. We're not in support of this. Frankly, I don't know everything that's gonna happen with this conversation. But But we're gonna show you both chats at the same time.
Mike:We don't wanna be impartial one to the other. And we're gonna try and start as if it's the average American that's trying to figure out if they can retire or not. Okay? What's a good prompt? If if you were put this together.
David:Yeah. Well, as you were typing that, I was just thinking, oh, does it need to know if you have it in a four zero one k or an IRA or a Roth?
Mike:I mean, you you will Those are I don't wanna assume too much. Let's start from the most basic things. Let's just say, I have a I have 1,000,000 saved for retirement. Put together my retirement plan for me. Mhmm.
Mike:I want maximum income, tax minimization, and an overall good plan. I think one of the things that's interesting is like, we don't know how to define good. What do we want our money to do for us? We haven't really specified that here. Well, these are just the general things that people typically start the conversation.
Mike:Well, want this. I want this. It's almost like they're they're telling a professional or an AI what they think they're supposed to say. Uh-huh. So we're gonna click that, and then we're gonna copy and paste the exact same starting place.
Mike:Let's just kinda see where it goes. So, first define your safe income target. Well, first off, this is not safe. That's a red flag right there. 4% is not safe.
Mike:And 4% of what? I think that's one of the biggest red flags right off the get go. While Claude thinks Claude's usually a little slower, which might actually be a good thing. I don't know. Yeah.
Mike:But first, to find your safe income. So if you've got 4%, well, right off the bat, here's here's the issue with this. Okay? 4% of what? 4% bond funds?
Mike:4% of a a fifty fifty split between stock funds and bond funds? Or is it 4% of everything the S and P 500? Right? Those are fundamentally different portfolios, and the sequence of the return. Right?
Mike:The markets are gonna have 20% gains and 30% losses or whatever it ends up happening. That's that's gonna determine then 4% of the balance. And if the markets go down, you take out 4%, you accentuate the losses. So this idea of conservative or safer, 3.5% to four four four point five or 5%, that's a that's an interesting just place to start. If we can just pause there for a second.
David:Okay.
Mike:Okay? And notice how it's trying to appease us. It's giving us the information we want, not the information that we need. Mhmm. Yeah.
Mike:Here's an interesting fact. The last ten years or so, so we're recording in 2026, 2026, the last ten years, the markets, the S and P 500 have averaged over 10%. That's pretty good.
David:Mhmm.
Mike:But if you go back from 2000 until the 2025, so we have a defined period of time, the average returns really around 8%. Okay? And if you did this with the S and P 500, and drew out 4% or 40,000 or 35,000 or so from the portfolio, you probably would not have survived 2000 to 2010. Mhmm. But it's not mentioning any of that.
Mike:No. See, it's it's not that AI is bad. AI is one of the most incredible things that you do. But right off the bat, you you would just assume, oh, well this is easy. I don't need bond funds.
Mike:Everyone says the S and P makes more money anyway. Well, what's the period of time? Are we creating a bias or not? So that this is just just the first first off here. Let's keep going down chat GPT's answer.
Mike:Investment strategies income versus growth hybrid. Okay. So core portfolio, let's say 60% stocks. Okay. That makes sense.
Mike:But is it explaining why? 20 to five to 35% bond funds for stability or income. Well, is it stability or is it income? Because a bond fund, technically bonds are fixed income. That's the term for it.
Mike:So it's you're you're taking income from a dividend. But are you taking 4% from the portfolio and all of its gains? Are you taking 25% of the so just this is this is investment ambiguity in my mind.
David:Yeah. I wonder if it's because maybe we we didn't give it enough information at the beginning. What if you would have typed like a paragraph long prompt to start and
Mike:then That assumes you know the prompts.
David:Mhmm. Right.
Mike:And you know your your specific needs. You know exactly what you want your money to do for you. This is kind of how I would assume most people are gonna start their retirement. And they're gonna look at REITs. So REITs are are okay.
Mike:Mhmm. In my mind, it might be better to do a private placement of so preferred stock, as opposed to REITs. You got a little more liquidity. You've got typically an exit out of it. You've got similar income.
Mike:REITs are illiquid Mhmm. Or the good ones are. The public ones will struggle. That's that we've had other conversations about that in the in the show. Dividend focused funds.
Mike:Okay. Well, the question about dividend focused funds, one of the one of the parts would be that we ask for is tax minimization. A dividend focused fund, if it's in a brokerage account, not an IRA or a Roth, that right there could create a tax issue. So taxes income, not as long term capital gains. You would see line two or three a and three b on your your ten forty tax return to know the difference from there.
Mike:Which could be hundreds, if not, maybe a couple thousand dollars of I mean, on how much money you have of taxes you didn't need to pay. Yeah. So why this works? Stocks, that's correct. To help it fight inflation.
Mike:Bonds to reduce volatility. That is true. If you look from 2000 to 2010, the flat market, if you were all in equities, all in stocks, you would not have made a dime. But if you added 40% in bond funds, you have some stability. You actually would have made money throughout that flat period of time.
David:Oh, right.
Mike:So that is true, but it might not be connecting the dots, And greed might say, well, bonds are boring. Last couple of years, bonds have lost money. So that that's an interesting bit. And by the way, it does talk about let's see. 60% stocks.
Mike:I mean, it's not it's not a bad starting place. It's just, do people have enough context as to why? Mhmm. And I I don't know. I like how Claude's saying, alright.
Mike:Let me ask you some questions before we just jump right to it. Oh, yeah. Appreciate that. Not an endorsement for Claude. Their soon to be IPO.
Mike:Alright. So max income, instead of blindly taking 4%, use a dynamic withdrawal strategy. So withdraw more when markets are up. Cut slightly when markets turn down. Well, how is that supposed to work?
Mike:You just tighten your budget when markets go down, but you can live more lavishly when markets go up?
David:On very basic level, I guess it makes sense. But why should you have to do that? Right? You're you're subject to the whims of the market.
Mike:Yeah. That that's a it's a very reactive position.
David:Mhmm.
Mike:And then it says tax minimization. This is where most people lose money. Tax strategy depends heavily on account types. If you have traditional IRA funds, okay. Well, that makes sense.
Mike:If you have Roth, got it. So the goal but it says the goal is to smooth it all out. Let's see. Use later retirement, capital gain management, tax loss harvest. So it's it's giving you kind of it's throwing the kitchen sink at you.
Mike:But it probably I'm assuming it's not gonna say, if you have a lot of brokerage funds, or you know, a highly appreciated asset, maybe take the income from that for the first two years, and be at a near 0% tax bracket.
David:Mhmm.
Mike:And then turn on your other income. Like that kind of strategy probably won't happen. Let's let's see. Add income boosters. Okay.
Mike:So dividend strategies. This is true if it's in your IRA, but if it's in your brokerage account, a dividend strategy it it might not okay. Dividend or ETFs or stocks can yield two to 4%, provide psychological comfort, but it's not explaining the detriments of this. So dividends pay out until they don't. And when the markets crash and companies are in a financial hardship, they're experiencing financial hardships, they can stop paying dividends.
Mike:That's when then that price goes down, and then you're selling at a loss. And it's kind of the same thing as if you were to sell the stocks as a loss. So this is false comfort that's being perpetuated by, oh it's really this simple, just buy these things and and forget about it. And I'm not biased. You know, there's probably people at this point going to the comments, oh, well, he's biased because he's a financial adviser and he wants to I I build plans for people who wanna manage their assets themselves.
David:Mhmm.
Mike:The whole purpose is to hire someone to ask the right questions for their specific situation. At that point, if you have a portfolio and you're comfortable with the responsibility and and you're you're that you're okay putting in the work to manage it, great. Do it.
David:Yeah.
Mike:You don't need to enter into a codependent relationship with an adviser. Codependent is not a good thing. Mm-mm. I mean, I don't know. Like, you know how to change oil in the car.
Mike:Right?
David:I I used to do it, and then I stopped.
Mike:Why'd you stop?
David:I just couldn't be bothered anymore.
Mike:Okay. It's the same thing. Can you be bothered by managing a portfolio or not? You pay a financial adviser because you can't be bothered by it. You don't wanna put in the work.
Mike:It's not for better returns. That may happen, but it's not a guarantee. So just for all the haters already in this conversation. Alright. So then we look at Social Security critical.
Mike:Claim at 62. No. Okay. 62. Yeah.
Mike:But maybe 64 reduced benefits. There's a there's a an accelerated reduction of benefits at 62 or 63 years old, which is not mentioning right here. Yeah. We should probably retitle this, how to hate on AI responses in retirement planning. Yeah.
Mike:No. We're gonna give it some benefits here. So, okay. Health care, big risks. That's important.
Mike:Sample retirement income plan. So let's say you target 50,000 with your million dollars. Alright. 35 to 40,000 portfolio. Your social security, which you'll get later.
Mike:Well, hold on. You're just gonna take $3,540,000. Let's say you're 60 years old, so you're gonna live off of that Mhmm. For the first, I don't know, three to seven years, and then you get a 15 to $25,000 bump. So your healthiest years are the years you have the least amount of income.
Mike:Oh. Or you keep working, and then you retire later and you've you've spent that's interesting.
David:Mhmm.
Mike:And that would lead people to wanna file earlier. And if you file earlier, your income could be hurting because you've you've accelerated or exaggerated the reduction schedule of Social Security, and then optional annuity income layer. Okay. That's fine. Is it right or not for you?
Mike:It'd be interesting.
David:Yeah. They don't say
Mike:Biggest mistakes to avoid. Going too conservative, you'll lose to inflation. That is a true statement. Mhmm. A withdrawal too much early, that is also a true statement, but it's without context.
Mike:If structured correctly, you can have a higher withdrawal rate during your retirement as you wait for Social Security to start, but you wanna take it from less risky assets, positions, investments, or products. Ignoring taxes can cost 10 to 20% of your income. That's true. Though it's kind of glossing over it. And then no flexibility during market downturns.
Mike:Yeah. You wanna have some flexibility during market downturns. So simple optimized plan. Okay. Let's say I am 58 years old.
Mike:My million is in my four zero one k.
David:Which is likely because he that put him in generation x and that was that's kind of the first like 04/00 '1 k generation.
Mike:Let's see. Age. And I want to retire today. Okay. Uh-oh.
Mike:This is cool. Normally, withdrawals before 59 and a half trigger a 10% penalty, which is true and that prevents people from retiring sooner even though they could afford it. You can use the rule of 55. Is fun. So now we're we're going on the good job chat GPT.
Mike:Yeah. Okay. Well, hold. We we gotta Let's see.
David:Claude wants more.
Mike:Okay. We got Social Security. Oh shoot. Hold on. Social Security only.
Mike:No no pension. Social Security part time work. No. Yeah. Okay.
Mike:Social social social security. We'll do moderate growth. And what are your retirement expenses? We'll we'll put it in the middle group right there. Let's see what happens.
Mike:Alright. So back to chat GPT. So the big constraints here, 58. Okay. So that that is true.
Mike:You can withdraw from from the four zero one k. Good. Now that said, I don't know. Like, you could still take out some of your assets from the four zero one k, leave enough in there to bridge the gap, and then invest elsewhere. So there it might it might cause you to assume you have to keep everything in the four one k, but your realistic target income, safe baseline is 35 to 40,000 a year.
Mike:Stretch with optimization, 45 to 50,000. I I would I would disagree with that. I'm not saying you could get more or less. I'm just saying that it's You want to you want to have the income plan with the Social Security optimization and the tax minimization. Something we're not even talking about is if you accelerate your IRA to Roth conversions very very quickly
David:Mhmm.
Mike:More money's coming out of your your accounts to pay for those taxes. So even though you get to a tax free retirement, you've accentuated the losses. Even with the gains, your balance goes down. Which makes it more difficult to sustain yourself. So sometimes people get too aggressive with the tax minimization, and in this situation they're actually able to take less income.
Mike:So start on $4,040,000. I'd willing to bet you could have more. You know, on the fly, we should probably put together a plan just to combat it a little bit. Alright. So phase so it's '58 to 62 the bridge years.
Mike:Withdrawal strategy, 35 to 40,000 a year. Rule of 55. Well, you only need to do that from 58 to 60, but start do small Roth conversions. Do small Roth conversions in the four zero one k. K.
Mike:Alright.
David:It's saying it wants to bridge from 58 to Social Security age. Is that the bridge they're talking about?
Mike:I'm assuming so. It doesn't explicitly say that yet. Oh, it does down here.
David:Oh, yep.
Mike:Okay. So that's interesting. And then you go to Social Security age, delay, got it. Plan to 70. Doesn't really give a step by step breakdown.
Mike:Suggested allocation, 60% stocks, 30% bonds, 10% income assets like REITs. That's a very traditional portfolio.
David:Mhmm.
Mike:And the reality is, that probably could work. We're we're giving up a lot of efficiencies here. This is portfolio ambiguity. It's not explicitly saying what to do when markets go up or when markets go down, and how to take income and what the strategies. They're just saying, buy and hold these things and it might be a good thing.
Mike:What's interesting though about this is the the 4% rule by William Megan. It wasn't a sixty forty split like this is suggesting. Was actually a fifty fifty split. Oh. So it's it's slightly more conservative, but that's it it's cross referencing the sixty forty idea from Harry Markowitz on how to grow your money versus the fifty fifty split which was which was the the the research between behind the 4% rule taking slightly less risk.
Mike:So Okay. Tax minimization strategy. Fill your lower tax brackets. That's true. And these are just kind of these are arbitrary general rules.
Mike:It's not giving context that in 2016 that even the lower tax bracket, you still paid more in taxes than today's brackets. I mean, you could you could go into the thirty second percent bracket and still have a similar effective tax rate than the lower 20% brackets in 2016. So if taxes go back to where they were in the 2036 time frame
David:Mhmm.
Mike:You don't want to be in the 10 12% tax bracket. You're gonna wanna go a little bit higher because over the grand scheme of things, going in a higher bracket is actually more tax effective than the the previous brackets we've experienced. And no one knows the future of tax planning. No one knows the future of, you know, what the rates will be. The tax code's written in pencil, but these are things to consider.
David:Yeah. And that all that sounds almost counterintuitive, right? Oh, you don't wanna be in the 10% bracket, you wanna be a little bit higher.
Mike:Yeah. Okay.
David:So there's more to that.
Mike:So risk management, non negotiable. Keep one or two years in cash. Well, why why cash?
David:Just straight straight up plain vanilla cash?
Mike:Yeah. Prevent selling investments in downturns. Well, what about a buffered ETF with a 50 to 100%, it changes.
David:Mhmm.
Mike:Percent buffer, the markets likely won't go down, but you're gonna get more of a return than cash.
David:Yeah. Or you're like your save your bank savings account.
Mike:I mean, if the markets go down next year, then yeah, cash would was the better option. But if markets increase for the next two or three years, or inflation is an issue, cash is trash. So splitting the difference might be reasonable. It's never even mentioned buffered ETFs.
David:Yeah. And inflation has been sticky as of this recording.
Mike:Yeah. Healthcare gap, you'll need to pay for affordable care act insurance. Keep your income low, qualify for subsidies. Then that's that's a nice idea. Alright.
Mike:Partial annuity. These are income boosters.
David:Uh-huh.
Mike:Interesting. So partial annuity, Vanguard, Fidelity, got it.
David:That could almost be an ad right there. Right? I mean what if Vanguard paid Sam Altman and company?
Mike:They didn't. If it were that way, then BlackRock would be in there too. No. It's Vanguard and Fidelity are just the the poster children of do it yourself, buy low cost funds. Here's a great platform anyone can invest.
Mike:And that's a really cool thing that they've done. Mhmm. I do not wanna disparage Vanguard or Fidelity from what they've been able to accomplish. It's been quite revolutionary. It's it's like this is a terrible analogy, but you know, William Tyndale wanted to make the bible so everyone could read it.
David:Oh, right.
Mike:Right? That was It's like Vanguard Phil. You wanna make everyone able to invest. So you'd have to go through a bunch of pretentious financial people. Yeah.
Mike:Anyone could do it.
David:Alright.
Mike:Probably a sacrilegious example, but Alright. And the part time work, even small would reduce withdrawal pressures. So let's just pause real quick on this one, and then we'll we'll play with Claude for just a second. But here's something that's interesting that was never mentioned. Alright?
Mike:So first off, you've got risk. Your income let's go back to the the expected income. Suggested strategy withdrawals anywhere from 35 to 45,000 per year. What they don't mention here, and look. I wrote the book How to Retire On Time against exactly what I'm about to say.
Mike:So this is not financial advice. I'm not supporting it. I just wanna point out that this right here, it's telling you what the masses want you to believe.
David:Mhmm.
Mike:It's telling you the the ambiguous, arbitrary, cliche, boilerplate, what the what everyone says they hate about the industry, they're telling you exactly what to do here. To do that thing. Yeah. You could, if you wanted to. Just hear me out here.
David:Okay.
Mike:You could buy annuity Uh-huh. Which it subtly hinted at, but the marketing is so strong against annuities that you you love to hate them, as as you would say.
David:Right.
Mike:You could put 600,000 in a guaranteed income for life. I don't know. Get somewhere between 40,000 from that 6 that 600,000 might generate about, I don't know, 67% guaranteed for life. Based on what I typically see today at this age range. That would get you your 40,000 guaranteed for life, no risk, which didn't really talk about sequence of returns risk.
Mike:And then the rest is just invested for grievio on top, just just extra benefits. Never was that mentioned, and in that strategy it would be technically significantly lower risk, but you wouldn't have known those rates.
David:Yes. Do we feel like if if the average person out there did exactly this and they abided by this plan, would they be okay? I mean, is this is this good
Mike:bad? You said okay? Mhmm. Good, better, best. I would say this is good.
Mike:I I think if you went down this path, there's a good chance you would survive.
David:Mhmm.
Mike:But immediately, I'm seeing all sorts of potential inefficiencies. I mean, incredible amounts of inefficiencies that that that would be here. And and we can talk about that a little more. Don't wanna make this too long winded. Yeah.
Mike:There's other strategies you may or may not know. It's not really opening up this idea of going more into real estate, if that made sense. Going more towards, well, what stocks are and it can't probably give you financial advice. But this is boilerplate stuff where someone's gonna assume, oh yeah. Well I could do that.
Mike:Okay. Yeah. I mean you could also give your I mean, it's probably a dumb analogy. But you could probably give yourself foot surgery. Doesn't mean it's gonna go well.
Mike:Right. Right? You might pay the price for for various things. I'm not comparing it to being met. Like that's obviously more technical.
Mike:But there are many inefficiencies here. It's just a general set it and forget it kind of rebalance every year, take a little bit here, and just wing it along the way. It's not really It's a plan that's very open and fluid. Not my cup of tea.
David:And we we don't really know exactly where Chad GPT got all the, like What what was it trained on to know how to to give us this information here?
Mike:I don't know.
David:Yeah. I mean, that's that's kind of the point. We don't know.
Mike:I mean, it's the Internet. Yeah. It it's uploaded as much of the Internet as they can to kind of figure out what's going on.
David:Which may or may not be you know, we all know there's there's some good stuff in the Internet. There's a lot of bad stuff. And it's all getting sort of jumbled in together here without knowing more specifics about the person it's speaking to.
Mike:How would the rich plan my retirement? Just kind of a funny question.
David:Oh, they build systems.
Mike:Well, that's a very different approach. Why why can't you give me that? They aggressively manage taxes. Okay. They use a bucket strategy.
Mike:So cash income three three to 10. Stable withdrawals, stocks keep interesting. They stay invested more than you'd expect. Wealthy retirees often keep 50 to 70% stocks. That's out of context.
Mike:Wealthy people don't need all of their money. They're not trying to maximize their income. Half their portfolio might be for legacy purposes, but it's not really explaining that here. So that's interesting. Interesting.
Mike:Okay. So let's go
David:to Claude here for just a Claude, you've been neglected.
Mike:Portfolio today, annual drawdown, it's saying 50,000 which is considered a reasonable withdrawal rate. That's not bad, it just is. So it is a reasonable withdrawal rate. The reality is if you go back from '20, I mentioned this earlier, but 2,000 to 2025.
David:Mhmm.
Mike:If you did a stock bond fund portfolio 6040 like it was chat or GPT was was suggesting, your portfolio would average around 7%, historically speaking. So if you're taking out four or 5%, you're kind of in the ballpark of just living off the profits. But when the markets go down, you're gonna take less income, you've gotta adjust your quality of life. You have to adjust your lifestyle. Your bills don't adjust with it, so that there's some danger with that.
Mike:So you hope that that the market crash doesn't happen for a couple of years, so you can kind of build up a little nest egg and then take it on the chin. Still not pleasant. Obviously, this chat GPT has not read my book. Alright. So Claudia, The Bridge Strategy.
Mike:So 58 to 70 now. A tax treatment ordinary income, no 10% penalty. Hold on.
David:Yeah. They've presented
Mike:No 10% penalty after 59 and a half doesn't tell you about the rule of 55. Mhmm. Maybe not yet. So key actions, Roth conversions, tax bracket. You can't you could do a conversion, but even the Roth still has a penalty.
Mike:Watch your modified adjusted gross income. So those are some general rule of thumbs.
David:So
Mike:you're 58 years old, your withdrawal before 59 and a half triggers a 10% penalty, unless you use 72 t. Okay. So 72 t is a tax rule that basically says, you have to take systematic withdrawals for an extended period of time. Usually it's like ten years. And that's around what's called the riskless rate.
Mike:The riskless rate is based on then what whatever the treasury or, you know, the money markets are doing. Like, there Mhmm. There's a whole calculation of the riskless rate. But anyway, I I don't mean to gloss over that. It just changes.
Mike:So just search riskless rate, and it will tell you what the riskless rate is. And you might say, well, what how do you use the 72 t? But the problem with 72 t is it's based not on all of your assets, it's only based on the account size. So in this situation, you have to keep all of your assets in a four zero one k, which has restrictive investment options. It's only whatever's available to you in the four zero one k.
Mike:And then you have to take out slow withdrawals. It's not mentioned the rule of 55, which would not even be relevant at that point. So there's some just a lack of of strategy there. Recommend claiming Social Security at age 70. Okay.
Mike:This is interesting. So you're gonna take 40 to 50,000 for the first ten years, and then when you hit 70, you get a a huge bump. But you're gonna wanna travel when you're 60 to 65 years old, not 70 to 75 years old.
David:Yeah. Much less.
Mike:So why wouldn't you bridge the gap and maybe take slightly higher withdrawals and do a bucketed approach? Kinda like what the quote unquote rich do over here Mhmm. Which doesn't even really fully do the bucket strategy over there, but it it does over here. And then age 67 or 67 to 70 years old. Got it.
Mike:Age 70, mandatory four zero one k IRA withdrawals. So it's still staying kind of glossed it's glossing over a lot of this stuff. Here's the full breakdown. I'm not gonna read this for this this video.
David:Yeah. It's a lot there.
Mike:Oh, it does. Rule of 55 withdrawals. Oh. So it comes later, which is good. Okay?
Mike:Biggest issue is delaying Social Security. And if you delay Social Security, you're either having less income or you're putting more pressure on your portfolio. It's one or the other. You can't you can't not pick one of those options.
David:Mhmm.
Mike:And if time's your most precious commodity, too many people I believe are delaying their Social Security and working longer than they need to because they don't know how to bridge these gaps. I mean, you could just by way of argumentation, you could just do a SPIA. Single premium instant annuity. I'm not These aren't really that good. But if you want a simple band aid solution, you could just buy a payout for five years, or six years, or seven years, whatever the the terms are that you want, and that bridges the gap with no no risk.
David:And that means you just basically give the insurance company some money, and then they pay it
Mike:back instant annuity. Or you could do a CD ladder.
David:Oh, yeah.
Mike:CD treasury or a MYGA ladder, modified adjusted gross or not modified adjusted gross. That's that's that's tax. A multiyear guaranteed annuity. Mhmm. A MYGA.
Mike:Yep. A MYGA will set you up to where you've got it's basically a seed from an insurance company, but you can do like a one year money market or checking account. Year two, this is the bucket strategy. Year two is maybe a CD. Year three is maybe a treasury.
Mike:Year four is a MYGA because you got a slightly better rate. Year five, you might do what's called a MYGA. Oh. Yeah. Not like a chia pet.
David:My chia.
Mike:So MYGA. A MYGA is a newer version where they've they've tried to blend basically the MYGA and the index annuity together. And they say it's illiquid for five years, but at the end of five years, you're either gonna get like whatever percentage of the S and P or participation, like you've got an index option Mhmm. Or the fixed whichever was greater. So you're guaranteed a baseline, but you can get slightly up if over that time period the markets were up more.
Mike:And that's a better way to hedge against inflation, but it's there for five years. So you could ladder that out. That's kind of a nice, Yeah. Nice way to go about it. But portfolio structure, this is moderate risk.
Mike:Fifty, thirty, 20. Stocks, bonds, 20% in cash?
David:That seems a little high, maybe.
Mike:So let's start asking some fun questions that that you might not know to to ask.
David:They do say there at the end though, Claude, the three professionals worth hiring once.
Mike:Yeah. One, a fee only CFP to build a full time plan. Now hold on. A CFP is an educational credential. It they are considered fiduciaries.
Mike:It's a very difficult exam. But I wouldn't gloss over just CFPs, because you can have a CFP that gives you a a cliche plan Mhmm. Or you can have a CFP that gives you a very strategic plan. You wanna find a qualified person, and find someone that has a strategy that's aligned with your your preferences, if that makes sense.
David:Mhmm.
Mike:So don't just look for CFPs. All CFPs are gonna think differently.
David:Mhmm.
Mike:They all have their own opinions. So look at the person and their strategy. CPA to optimize conversions. I don't know if the CPA is really gonna do well with optimizing IRA to Roth conversion tax strategies. CPAs are great for tax, but you might get that from the CFP.
Mike:Mhmm. That's a pretty normal thing that advisers will will talk about. But what if I were to use buffered
David:Oh, okay.
Mike:ETFs instead of cash in the portfolio assuming the buffer was 50% or more? Ask him.
David:Okay, Claude. Go with he's saying you got you got a great question.
Mike:That's a sophisticated idea here, chat GPT. Great question. This gets into real strategy that some retirees use. Uh-huh. So just so I we're all on the same page, a buffered ETF is basically it's it's typically over a one year period of time.
Mike:You've got some upside potential, like maybe it's six or 7% cap of the S and P if it grows. And then the downside's going to vary. And that it might be one year 50% of a buffer, the next year 70%. These are max buffered ETFs. But the idea is real simple.
Mike:It's it's basically stating that if the markets go down, they they have an option contracts that buffers it out so you don't take the hit.
David:Mhmm.
Mike:So in by way of example, if markets are down 50%, you don't really lose anything if the buffer was 50%. If the buffer if the markets are down 60% and the buffer were 50%, you just lost 10%. That's not that bad of a deal because you've still got better upside potential than your typical CD or treasury. Okay? Right.
Mike:What's funny is the buffered ETF is kinda like the insurance is the fixed index annuity from the insurance company, just on the security side. They're similar. They're not exactly the same. They have differences, but they're they rhyme, if that makes sense.
David:Mhmm. Maybe one is cheaper than the other. Does one have less fees? Buffered ETF versus fixed index annuity.
Mike:So many fixed index annuities don't have fees. Oh. It's just built into it. Oh. Because it's illiquid for a longer term period of time.
Mike:So the insurance company has a high probability they're gonna make money on
David:it. Mhmm.
Mike:The buffered ETF's gonna have like 80 point point eight zero, 80 bps, basis points. Right? So point 8% every year regardless of performance. That's the expense ratio for it. Right.
Mike:So, you know, it Now, Tomato to motto Okay. People are gonna make their money. Yeah. Alright. Instead of the 20%, you you'd hold buffered ETFs in your sleeve.
Mike:Your allocation might look like this, replacing cash. Honest trade offs, you'd likely get better long term results than pure cash, but with slightly more complexity and slightly more tail risk than true cash. That's true. So that's a very nice neutral response. I can appreciate that.
Mike:Alright. Let's see what you're thinking. Can I keep upside exposure, protect downside? That's smart. Why cash exists, and why the wealthy still hold it.
Mike:Yeah. But if if 20% of your portfolio is in cash, let's say, you're not gonna keep up with the market. Some of it's gonna grow. And that's and then people say, well, I didn't make as much as the market. Well, you put it in cash.
David:Yeah.
Mike:So what do you wanna ask it at this point? How what's your takeaway so far on this? Because you've never done a retirement plan through ChatGPT. You've only known
David:Yeah. Our That's true. I think it's it's interesting how it's not giving a lot of this. It didn't suggest buffer DTFs to us until we asked about them. So I I wonder why that is.
David:But, yeah, if I didn't know about them, then maybe I would have just gone with the first thing it told me or I mean, it seems it seems safe enough and and good enough. But then you have to ask yourself, was is that what I want? Something that's just good enough?
Mike:Here here's my big takeaways is it can work. And if you have control issues, if you have trust issues, and you're never gonna work with a financial adviser Mhmm. This is a good place to ask it questions.
David:Mhmm.
Mike:Yeah. But I would wherever you're gonna start, start asking it questions like, what don't I know that if I did would change my approach? Those kinds of questions, this is metacognition where you're challenging your own thought processes Mhmm. Or you're challenging AI's quote unquote thought process. Whether AI is sentient or not, I don't I couldn't tell you.
Mike:Mhmm. But it's now it's bringing up sequence of returns risk.
David:Which, yeah, we already mentioned.
Mike:Yeah. Taxes will likely be the largest expenses.
David:We've said that before.
Mike:Healthcare is a tax problem in disguise. Also true. Safe withdrawal rates are too simplistic. Oh, that would have been nice to have a disclosure at the beginning of this. True.
Mike:Volatility. I mean, the the reality is you can do so much research and you can learn and you can learn and you can learn. When people buy the book, we give them an AI prompt list to ask difficult questions that they might not know to ask. Yeah. Because we this it's like you've got a neutral PhD in your pocket.
Mike:You're asking questions, and you're getting a lot of great information.
David:Mhmm.
Mike:The problem The only problem I see with AI as of now, is connecting the dots of what do you want your money to do for you? And then knowing the right questions to ask. And when you work with a flat fee adviser who doesn't have the incentive of, well, this is the portfolio and everyone needs to to do this portfolio, or this is the product we sell, and here's here's why you need to buy this product. If someone is actually truly neutral Mhmm. Like we try to be here at Kedric Wealth, then then you can use ChatGPT and second guess everything that's being mentioned, and truly explore what is right.
Mike:You can have the card conversations like, okay, well sequence of return risk is more dangerous than average return suggest. Oh, how do you wanna solve for that? Mhmm. Like in my book, for example, I talk about this really simple concept called the reservoir. Now here we call it the Kedric reserves, but the idea is really simple.
Mike:And it's never mentioned this at all. But if we were to distill retirement planning down to the the most basic form, it would be as follows. Never mentioned here. Mhmm. And that is, just like a city has a reservoir of water in case of a drought, we believe that a part of your portfolio should be in assets, whether it's investments or products, that can't lose money.
Mike:So that when markets go down, you take income from it so that you don't accentuate losses. Having two portfolios, one that handles the growth, the inflation, the flexibility, and all of that. But a secondary smaller portfolio, however you want structure, whether it's baseline income, whether you wanna do the bucket and ladder things out, whether you want a more dynamic strategy. If some accounts can't lose money, based on our research, you significantly increase your overall probability of success. You don't accentuate losses if implemented correctly when the markets go down.
Mike:And a lot of these risks that's now turning into, that's that's going through are solved. Yeah. But you wouldn't know to think that way. That's why you hire a professional to teach you how to fish. I mean, can you imagine?
Mike:Just I don't know a famous fisher, but you're going out to a lake and you've got your your w t 40, because you heard about that from grandpa. You you put that on the hook and it's supposed to help and you put a worm on there. And then you get a fishing pro who says, here's your setup. Here's how you cast. Even if your casting kinda sucks, you're still set up for a lot more success with the right tools, in the right places, with the right environment, than you just going out there and trying to figure out your own.
David:Right.
Mike:We're talking about potentially hundreds of thousands of extra dollars due to inefficiencies if you don't find someone to work with.
David:Mhmm.
Mike:This all goes to the Dunning Kruger effect, which really goes breaks down to when you don't know the right questions to ask, you're disadvantaged. And people overestimate their confidence because they don't know what they don't know. That's that's my conclusion. Great tool. Yeah.
Mike:Use it.
David:It seems like the
Mike:As a more compliment.
David:The more you interact with it and the more you prompt it, it it gives you more. And so you maybe shouldn't just take the first answer. So one of my big takeaways is.
Mike:Yeah. I would agree. Alright. Well, that's all the time we've got for this show. If you enjoyed it, make sure to tell a friend, leave a rating, subscribe to it wherever you get your podcasts, or on YouTube.
Mike:You'll probably watch this on YouTube since we were sharing our screen. But if you wanna join any of our workshops, buy the book and all that, it's available on retireontime.com. We'll see you in the next show.