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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, 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.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.howtoretireontime.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 advisor, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just a show.
Mike: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 at Kedrick today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. Dave, thanks for being here today. Welcome.
Mike:Yeah. David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting them to (913) 363-1234. Again, that number is (913) 363-1234, or you can email them to heymike@howtoretireontime.com. Let's begin.
David:Hey, Mike. What are some questions people should ask about retirement planning, but don't?
Mike:I wish people would spend more time understanding how investments and products actually work as opposed to hearing anecdotal stories and parroting something that they heard but don't really understand. Uh-huh. Most people, in point of fact, don't actually understand how money markets work. Mhmm. That's supposed to be the simplest instrument out there.
Mike:Right? You put money in the money market, it's fine. But there's actually a lot of things to look at when you understand the volatility within even the money market space. Now let's let's expand that and say, okay. Well, I'm a real estate investor, and, you know, what are my options?
Mike:Real estate investors, do you know about Delaware statutory trusts and how you could do a ten thirty one exchange into a Delaware statutory trust, maintain your cash flow, maybe even increase your cash flow, and avoid capital gains tax, not have to deal with the depreciation recapture tax and all of the other taxes associated with that. Move it over. You can retire and actually enjoy your life. Or do you know, maybe you wanna get some of your assets back. Maybe you do a seven twenty one up REIT.
Mike:Oh, Mike, what's that? Never heard of that before.
David:Mhmm.
Mike:Maybe you want it all in a different way. Maybe you use a qualified opportunity zone to sell it, defer the tax for a couple of years. But do you see my point? Yeah. Most people cannot correctly define what an annuity is.
Mike:They just quote, I won't say the company's name, I hate annuities and you should too kind of stuff. And they don't understand. They're reading information about variable annuities, and they don't understand when someone might use it or when not. They just like to be upset about an idea. Look.
Mike:I've never actually sold a variable annuity in my career. Never have. But at least I can articulate when someone might want to use it.
David:Okay.
Mike:So it's like, go into your toolbox. Do you use all of your tools every day for every project? No. But could you tell me how a hammer is supposed to be used? K.
Mike:And you're thinking of one hammers. There's, like, 80 different types of hammers out there. Did you know that?
David:That's true. Yeah. There's the, the ball peen. Right? The ball peen hammer.
David:That's who uses that thing still? I I couldn't use it.
Mike:Curious, your your wife's a dentist. Does she have, like, a hammer for teeth?
David:You know, they do have lots of different little, like, burrs and bits that go on these, like, air propelled, you know You
Mike:gotta tap something in there. Right? So
David:Troy, there's something like that.
Mike:Yeah. Different than a sledgehammer. Yeah. So the the point being is if we as people can stop ostracizing certain investment ideologies and get to a place where we can define things as they are, identify when someone might use it based on their emotional and economic limits, then we can start to understand, okay, to build this plan and to create this lifestyle based on the preferences of what they want, we would then use these tools. Yeah.
Mike:I mean, look, I talked about annuities. Oh, it's the swear word. Yeah. Right? I wrote an entire book arguing against having guaranteed income for life from an insurance company.
Mike:That's what how to retire on time basically is, is, hey, maybe you don't want to buy an annuity and turn on income. But I understand why certain people want at least a portion of their assets in an annuity. Mhmm. I understand why they might want some of their assets guaranteed because they need to live within their emotional limits. It's not an economic conversation.
Mike:It's an emotional conversation, and that's okay. I understand why some people wanna be all in equities, AKA stocks. So do you see where I'm going with this is I wish people would ask more questions to learn as opposed to try to be a self proclaimed philosopher arguing a position that they can't actually articulate.
David:Okay.
Mike:Now let's see if I haven't gone down too much of rabbit hole. Can you just read the question one more time? Yeah. Yeah. Let's let's do that.
Mike:Yeah. What are some questions people should ask about retirement planning, but don't? So the other part is who are you surrounding yourself with? Okay. I I coach financial advisors.
Mike:One of my other companies is to coach financial advisors all over the country. I'll speak at conferences. I'll be on panels. Sometimes I'll actually fly out to their office and help them with certain situations. Mhmm.
Mike:It's to help people do the right thing. That's all that I really care about. The reason why I said, there there's a lot of very well meaning financial advisers out there that maybe don't have the full comprehension. Maybe they wanna get in their lane and just kind of do that one thing really, really well. And there's no problem with that other than what's called the Dunning Kruger effect.
Mike:The Dunning Kruger effect is when you overestimate your own abilities based on a lack of understanding or knowledge. So the more you know, the more you realize how little you actually know. Mhmm. That's another way to put it. So if you have a financial professional, whether it's a financial adviser or an insurance agent that doesn't really understand taxes, that's going to be to your detriment.
Mike:If you work with a financial adviser or, an insurance agent that doesn't understand how the macro and microeconomics work in dealing with inflation and monetary policy, that may hurt your overall plan and strategy moving forward. Many finance professionals I have found don't actually know that the markets can go flat for ten plus years. Mhmm. And they'll say, well, that was just that was a one time thing. I'll say, no.
Mike:That's like, 1965, it was flat for over ten years. Nineteen twenty nine, it was flat for over ten years. Nineteen o six, it was flat for over ten years. And they're going, oh, I had no idea. And I said, yeah.
Mike:Now look at your client's plans. Are you prepared, or have you helped them prepare for a flat market cycle? They didn't cover flat market cycles in the licensing exam.
David:Right.
Mike:So there's this idea that unless you're surrounded by people who are obsessed with research and finding potential problems that have a good BS meter and can say, nope. There's something wrong with that. Then we can start to, again, identify tools as they are, can diversify by strategies, and put together a a proper plan. There's no such thing as a perfect investment product or strategy to assume that you're working with a professional or that you're subscribed to Kiplinger or whatever magazine that you're gonna get enough information. That may or may not be true.
David:Or if you're scrolling and there's, like, a TikTok influencer. Yeah.
Mike:You know, admittedly, sometimes they have great insight. And other times, they're oversimplifying it and leading you in the wrong way.
David:Yeah. So how can we know where's our BS meter to?
Mike:I think the best BS meter is when it seems too good to be true. So for example, let's go back to the swear word annuities. Many times, annuities are positioned to be too good to be true. Life insurance is the same way. Let me give you two examples.
Mike:There are certain annuities that have proprietary indexes that look really, really good. When they illustrate based on the back tested data, it feels like you're basically investing in the market. Mhmm. That's a red flag. If you use an annuity for income, then you're basically trying to get your money back at around maybe a a 5% rate maybe
David:Mhmm.
Mike:Roughly because that's roughly a near riskless rate. And so that's what they're probably trying to match. Now I know there's exceptions to the rules and blah blah blah and all that fine. But, roughly, that's kind of a baseline that then you're going to use to compare the product. So when you see things like, well, this annuity guarantees that my my cash is gonna grow by 16%.
Mike:No. It's not. Because if you can guarantee 16% growth every single year, why won't people do it in the stock market? Yeah. Or in any other industry?
Mike:No. What's really going on is they take your money and they put simulated money next to it. They can guarantee that's gonna grow by 16% year over year. Fine. But that arbitrary numbers can be divided by an arbitrary rate to give you an arbitrary amount of cash flow for the rest of your life, and the insurance company still has the probability of making more money off of your money than you do on your own.
Mike:Insurance is transferring risk. An annuity is transferring longevity risk to an insurance company. They're not gonna get you rich. That's okay. Yeah.
Mike:But let's define it as it is. So if you use an annuity, like a fixed index annuity as a bond alternative, that's fine. You know, it's got upside potential. It's based on an index upside potential. Can't go backwards.
Mike:Hopefully, you buy one without the fees. Is it going to outperform the stock market over the long term? Probably not. Mhmm. We can't say absolutes because you never know.
Mike:But I'm willing to bet my bottom dollar that a stock portfolio will probably outperform a bunch of fixed index annuities in the long term. I think that's a pretty safe bet. Yeah. But market can't provide protection. The annuity can.
Mike:Maybe you blend them together as long as you understand that the fixed index annuity isn't gonna get you rich. It's not gonna make you more rich. It's going to be used as a bond alternative to help hedge against a flat market or a down market. Do you see how we're just clearly defining it with realistic expectations? When you see an illustration looks too good to be true, there's something you you don't know.
Mike:There's one more example real quick, if I may. You have to understand how the indexes work. I won't say what the annuity was, but there was, an annuity. It was, I think, one of the most sold annuities for a couple of years between 02/2010 and 2020. Very, very popular.
Mike:People loved it. It illustrated well. Very convincing bond fund index that just seemed to do no wrong. But at the time that they were selling it, interest rates were historically low. When interest rates go up, bond funds lose money.
Mike:So when interest rates increased, this annuity basically wasn't able to keep growing at the rate that everyone expected. So what happened? They dropped their renewal rates to a lower amount. Now you're making 2% on your cash, which upset a lot of people. Okay.
Mike:It's illiquid until a certain period of time, which upset a lot of people. And it all goes back to, did you understand what you were doing? You bought an annuity, which is just a tool, but you bought it based on a bond fund index. It was not sustainable. Just like I don't think people should have bought bond funds to begin with between 2010 and 2020, because what are you gonna do to get a a crappy rate?
Mike:And then if interest rates go up, you'll lose money. The whole asset class, I think, was fundamentally flawed until now. Now I'm fine with bond funds because interest rates are more appropriate. But do you see how more I'm going with this?
David:Mhmm.
Mike:We need to understand what we're getting into, and we need to understand the layers of risks associated with it and ask yourself one simple question. Is the path sustainable based on the multiple variables that would affect said path? And I don't think that conversation happens enough, at least not in-depth enough. Right. Which is why I think a lot of people get upset about these things.
Mike:If you were to buy a CD, would you be upset if you bought CD from a big bank that offered you a point 5% rate? Just assuming that all CDs are kinda the same. And then you go to your local credit union, and it's like 10 x. Mhmm. You can get a a CDA from a big bank at point 5%, or you can go to a local credit union and get it for, like, 4%.
David:Mhmm. You
Mike:get upset when you realize you didn't do your shopping. I'd be upset. And that's another point. All investments in products and strategies have good offers and bad offers.
David:Okay.
Mike:Have good times where the economics make sense and maybe times you wanna hold off on it for a period of time. But this is where it's like you need to have that comprehensive conversation. You need to be working with a team that understands investments, planning, insurance, and taxes. And if you don't have all of them, then I'd I'd wonder who's asking the questions because you're not a financial professional. Everyone listening in, there's a good chance the majority of people listening in are not finance professionals.
Mike:So why are we putting the Otis on them to ask the right questions? Mhmm. You gotta kind of find out, okay, who's asking the hard questions, and can they articulate it in a way that you understand? You know, I don't I don't expect to learn how to do heart surgery.
David:Right.
Mike:But I'd like to ask a few questions, like, okay, how's this gonna work? Yeah. Never had heart surgery. Hope I never do. Or brain surgery or any surgery really at that matter.
Mike:Yeah. I Think I answered the question?
David:I think so. It was it was we went down a few rabbit holes, but that's okay. That's what we like to do on this show.
Mike:Yeah. It's hard not to. Yeah. 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.
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