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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.
Hello, and 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. The 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.how to retire on time.com to get the book and some bonuses as well. 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, an insurance agent, and a tax professional, which means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational, as in not financial advice. If you want personal financial advice, at least if you want it from my team, you can request your wealth analysis at no cost by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Frandsen. David, thank you for being here.
David:Yes. Thank you. Good to be here.
Mike:David's job, you got an important role, is to read your questions, and I'm gonna do my best to answer them. You can send your questions in now or later, but just save this number, 913-363-1234. That's 913-363-1234. You know what's fun is you can submit those questions anytime in the week. We collect them all, and then we address them on the show.
Mike:So you can send them in 913-363-1234 or email them to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. I'm working with 2 financial advisers right now. They always seem to contradict each other. Is that normal?
Mike:This is a great question. It's a funny thing because, yes, I would say that is normal. And I would want to know who they are, what their credentials are, and and what's going on there. Because the the reality is, are they exploring what is right for you, or are they trying to sell you something that makes them money? For example, it's a a very common misconception that financial planner x y z or, you know so let's say mister Smith is so mister Smith is in securities, so he he really deals with stocks and bonds and all of that.
Mike:And then you've got mister Jones, who deals with insurance. They may both present themselves as a financial professional. They may both present themselves as a retirement planner. So the title, quote unquote title, may be confusing, but they actually sell different products, they have different licensing, they have different things they can and cannot offer. It's kinda like when you'd go to a grocery store, you expect all the groceries to be there.
Mike:So wouldn't it be weird if you went to a grocery store and it was only meat or only vegetables or only processed packaged foods? It's like you could technically get the job done, but Right. It may not be as expansive as it might be. And I would even go as far as to say, is it a grocery store that offers your basic stuff and the healthy stuff and maybe the gluten free options, and is there is there an expansive gluten free aisle? Is there a bunch of dairy free?
Mike:You know, what are the allergies that are custom to you? That's kind of what, in my mind, where this goes. Because depending on if you're talking to mister Jones or mister Smith, they may not really discuss their limitations. And I think that's kind of a conflict. Well, it is a conflict of interest.
Mike:But are they sharing that with you? And even I would even go to say that some people are dually licensed, so they have securities and insurance, but they don't have tax credentials. So that's kind of a a a misnomer there, and they might have different opinions, and they might lean very heavy on selling insurance products because it's very easy from a financial business standpoint to sell someone an annuity, turn on the income, and really never need to talk to them again. I know that sounds rude. Insurance companies will promote the annuity.
Mike:This isn't wrong. It's just, hey. Sell this. The insurance company takes care of the management, everything. You know?
Mike:Hopefully, it grows, and then you help the client turn on the income, and there's really nothing to do. From an operational standpoint, that's very simple.
David:Yeah. That sounds very simple.
Mike:And then on the security side, you have a portfolio. You really manage the portfolio. It's a very simple operation, and people are either in the portfolio or they're not in the portfolio. Notice the lack of planning in some sense. And I don't wanna overgeneralize this.
Mike:There are many good financial professionals that get into the weeds that do legitimate planning. I have just found that they are far and few between. Does that paint a clear picture of why there might be a contradiction?
David:Yeah. That's right. They they may, you know, we sometimes have a habit as people, right, just humans to sort of do the path of least resistance. Right?
Mike:Yeah. Or we just assume they're doing something
David:Yeah.
Mike:That they might not do. Now how do you navigate
David:this? Yeah. How how are we to know if if
Mike:they have Let me let me dial in a little bit more into the what is right conversation. When I say what is right, it's what is right for you as opposed to who is right, which would suggest that, hey. This is how we do business, and you're either in or out. That that doesn't make sense to me. So in our situation, it is actually pretty common to where once we get to know your investment philosophy, your comfort level, the emotional side of it, we built your plan.
Mike:We've gone down the list to say, you know, gosh. Based on your needs, your plan, your lifestyle, and legacy expectations that and the strategies we're gonna need to implement for tax efficiency so you can get more out of your money, it might make sense to have a few CDs in here. Mhmm. And they'll say, okay. Do you sell CDs?
Mike:No. Not really. I mean, I I could. We manage money at Schwab, but you can get a really good CD at a bank. And and I don't wanna name a specific bank right now because they change all the time.
Mike:If you go to bankrate.com and look at CD rates, that's one of the best resources publicly available to shop CDs. If you look at what is right, and what is right is a part of your portfolio is in CDs for short term protection with short term liquidity for maybe a vacation you want 6 months, but you don't want your money just to sit in cash or whatever it is. I wouldn't get paid on making that recommendation, but I'm looking for what is right. Maybe you have a significant amount of your money in nonqualified accounts. Nonqualified meaning that if the account grows and then you sell it, you pay capital gains.
Mike:There's no retirement benefit. It's not an IRA. It's not a Roth. It's an after tax, a nonqualified, a brokerage account, a TOD account. But let's say you you believe in passive investment, you buy and hold.
Mike:You don't really know what to buy and hold, but you just know you don't wanna be actively involved in the trading. You want to just kind of set it and forget it for legacy purposes. Okay. So what's being managed? It doesn't make sense to pay out, let's say, a 1% management fee on assets that really aren't doing anything.
David:Mhmm.
Mike:You're setting that you don't want to create tax issues. And so what financial professional is gonna say, you know, here's the portfolio, buy this. And if you really don't need to touch it for a long, long time, then you're good. I don't need to manage it. Financial professionals that take that position that really explore the what is right, I have found rarely conflict with other financial professionals who are exploring what is right, because you're not scared of the truth.
Mike:You're not scared of the the specific needs and wants of a person. It's just so rare. I coach financial advisers all over the country, and it's so fun when I find an adviser who does not care what the solution is as long as it's what's right for you. Even though we have different businesses, we have different investment philosophies, we tend to find a lot of common ground and agree on things, which creates a lot of harmony for the client. They're going, okay.
Mike:This makes sense.
David:Mhmm.
Mike:If the expression is a canary in the coal mine is the red flag saying something's off, If you're getting 2 confusing contradictory opinions on something, then you may wanna stop, slow down, and ask questions.
David:Right.
Mike:And I have story after story after story of this. But let's give some actual this is not financial advice. This is life advice. How do you determine if the financial professional is able to operate at, in my opinion, the highest capacity in the in the best position for you?
David:Yeah. Are there are there some, like, telltale signs that we can
Mike:Yeah. Here here are some questions to ask. They're extremely direct. They're professionals. Yeah.
Mike:If they can't handle these questions, go somewhere else. I hope if you would talk with me or my team that you ask us these questions too. Yeah. Because they need to be addressed. And this is just the shortlist, and, by the way, if you're listening to this on on radio, we are primarily a podcast that also structures our show to be on radio.
Mike:Just go to wherever you get your podcast, and you can get this show over and over. You can listen to it on repeat if you want, so you can get these questions. Just look wherever you get podcasts, how to retire on time, and you'll find this show. So what are those questions? The first one is what licenses do they have?
Mike:In my opinion, in 10 years of doing this, everything is affected by taxes. This is, from a friend of mine, a financial advisor out of Washington state, actually, brilliant CPA and financial advisor, and he says that there are 6 markets that you can invest in. There's the cash and cash equivalents market. There's the bond market, the debt market. You've got the equities market or the stock market.
Mike:You've got the insurance product market. You've got the real estate market, and you have the alternatives market. Six different ways you can place. Are you working with someone that has the licensing available to help you place your money in potentially all 6 of these markets or not?
David:Good point
Mike:who wants to go to a grocery store that sells nothing of a certain category that's that's rough
David:right
Mike:if you go into a butcher you're going to a butcher to buy meat but if you want to go to one place and get everything it's very frustrating when you realize oh they don't have all of this category so what licensing they have I believe people should be looking for someone that has a series 65 license or a series license that's called nickname the fiduciary license because it's financial planning for a fee. It's all transparent. There's no back end commissions that could create an additional conflict of interest. I believe they should have an insurance license in case you want insurance products and you're not pinned against an insurance agent and a securities person you have translate between you can have one person that can explain both yeah then I believe they should have some sort of tax credential tax licensing or just something that basically can they do your tax return or not if the answer is yes good. If the answer is no, proceed with caution.
Mike:If someone doesn't won't do your tax return, but they used to do tax returns, that qualifies. Check that box off.
David:Okay.
Mike:There's just something magical about walking through, your 10:40 and all of the other things that could be attached to it. When I say other things, are you the real estate investor? Do you have a small business? I mean, all those schedules
David:Alright.
Mike:They they affect. So, anyway, what licenses do they have? Are they licensed or credentialed in one way or the other in taxes, securities which is the financial planning side of things and in insurance do they abide by the fiduciary standard is the second question this has become much more confusing
David:yeah unpack that what what is the fiduciary standard
Mike:So fiduciary standards suggest that the professional must operate they're they're legally bound to do what's in your best interest and to put your interest ahead of their own. The problem is when you have multiple licenses, you can wear multiple hats and say, alright. I've got my fiduciary hat on here, and then you take it off, and then you put on your brokerage hat here, and then you sell a product, and you can switch the hats back and forth, and kind of disclose it. I mean, you you mentioned it, but you might miss it in those, quote unquote, transitions. That can get tricky.
Mike:So, like, for example, in our ADV, that's our advisory disclosure agreement, we have it clearly written that it says the fiduciary standard is what we operate, and it supersedes all other standards or all other interpretations of the standard. So my insurance license, my tax license cannot supersede, or I can't change my hat when I'm talking with someone. I have to remain in the position of being a fiduciary
David:okay
Mike:that's not always the case there's a great former sec, regulator who's basically said you can steal from people as long as you disclose it now he's being sarcastic but the dual hat conundrum is a way people can kind of get around stuff like this, and if any regulators listening to this, it's like, I know it's cringeworthy. We see it often. It's just sad, But it's kind of the way things have become, and the DOL has made it even more, difficult because an insurance agent, as I understand it right now or at least in the near future, an insurance only agent who could only sell insurance products, who is not supposed to do comprehensive financial planning, who is not supposed to do tax planning, who is not supposed to talk about securities, can say they are a fiduciary in the moment that they're helping you roll over your 401 k and put it into a an insurance product and sell you an annuity. That's confusing to someone because now they've created this allegedly temporary fiduciary position versus someone like me who is stuck in perpetuity in the fiduciary position. And how are people supposed to know this? I mean, David, did you wake up today thinking, you know, I better read a bunch of legal jargon and clarify what a fiduciary actually means.
David:I must admit I did not.
David:It's a character flaw
David:of mine.
Mike:Yeah. Do they abide by the fiduciary standard? And then ask them to review your tax return in person. Here's my return. What do you see?
Mike:Yeah. Don't fall for this. Alright. We wanna see your statements and your tax returns, and we'll review it, and they take it back to the office, and then they don't really do anything with it.
David:Sneaky.
Mike:Yeah. It's you assume, you know, in the room, right, where nobody will so that the Hamilton in the room.
David:Gotta be in the room where it's happening. And then the
Mike:room where it's happening. You assume something's happening. It may not be happening. It may be alright yeah they have a tax return they look at the very bottom they say alright so here's how much they made income got it and maybe they're not looking at lines 23 and looking at dividends being reinvested from your non qualified assets maybe they're looking at your real estate holdings and seen what's going on from the different costs and breaking down your your actual real estate assets now they cost effective for all they not and comparing them the addresses that are listed on your tax return for the real estate investors on their actual market value asking you how much are you getting from income and then doing a comparative analysis and that was just like one little moment of the 10.40 and all the things that can be gleaned and what's really fun at least for for the clients I work with is I like to look at their 10.40 every year if we're doing your tax returns great if not that's okay too but we're gonna look at it we're gonna walk through and we're gonna adjust your investment strategies based on the thresholds and what's happening each year oh it's so fun but anyway ask them to actually do a review of your tax return and watch them do it see if they squirm or if they can actually hold their own ground people can typically tell when people are faking it it's hard to fake a tax return
David:yeah
Mike:what services do they provide that's an important one when I say services that they provide what do they do I mean do they just do a do they just manage assets in the market are they an investment advisor only do they do financial planning what extent do they do financial planning do they do tax services I mean and just for context here's our list because you need to have a baseline at least, and this is a very high bar, but we do comprehensive financial planning. We do wealth management. We do tax services. We have our proprietary investment models. We do insurance services, and we can also look at your current policies and are licensed to comment on them in great detail.
Mike:For anyone except for the state of Missouri, sorry people in the state of Missouri, but everyone else, we can actually help you create your estate plan. We've partnered with wealth.com to make that available to you. Real estate investors, we can help you get out of it and defer all your taxes on the capital gains and enter into retirement plan. Most people won't even touch that. Most financial professionals are limited to what they can do, and it's usually some financial planning and some investment models.
Mike:And the insurance agents, maybe it's just that. Real estate exits, 1031 exchanges, Delaware statutory trust, qualified opportunity zones, or maybe you go into the alternative space looking at privately held REITs. Maybe you're looking at oil and gas partnerships. I mean, the list just goes on. And people tend to private equity, private debt, for example.
Mike:And people get very frustrated when they realize they've been shopping at 711 thinking they're at the grocery store.
David:Oh, boy.
Mike:Business exit plan succession planning, another big one. If you wanna sell your business, you can structure it right, keep a lot more of your money, or structure it wrong and pay a lot more in taxes and have a bad deal. These things matter. And then let's let's keep going. What limitations do they have?
Mike:Everyone has limitations. Let me share one of mine. Non qualified assets in the market we're not very good at. When I say not very good at, we specialize when it comes to growth investment strategies in qualified accounts. We actively manage them and we grow them through our proprietary models.
Mike:Nonqualified, though, our models create a lot of tax issues. So if you if you want us to manage your assets in the market, we would say, you know, we might not be that good at that, and that's okay. We're good at creating a portfolio that can create tax efficiency in the assets. We're good about creating a portfolio that you can buy and hold and then you just keep yourself. But to really dive into the nonqualified growth in that category, admittedly, we're not the best at.
Mike:We typically use nonqualified assets in a plan for other things. Most people that enter retirement have the majority of their assets in qualified accounts, so it works out. But if you have, let's say, $10,000,000 and it's all nonqualified, all, you know, TOD or SMA, whatever whatever the acronym is that you're used to, after tax funds in the market, we might not be the best fit. You may wanna go somewhere else that specializes with that. Everyone has limitations.
Mike:So what what are they? What's the investment philosophy is the next one? If they can't articulate how they invest, that's a red flag. Oh, well, you know, we just kind of figure it out. No.
Mike:Mhmm. Gotta be able to articulate what it is, or else they're just kind of winging it. That's my opinion. Our investment philosophy, for example, is growth. Everyone needs to have growth because we don't know what the future has in store.
Mike:And if you lock up assets into irrevocable income streams in retirement or you have too much illiquidity or you don't have enough growth or we don't know what the future has in store. We don't know what life events will happen. You've got to focus on growth. And in a portfolio, you've got 2 versions of growth. You've got growth with risk.
Mike:You've got growth with protection. And it's being able to navigate the balance between the 2, and that's where our planning philosophy comes into play. You plan efficient growth portfolios. You put a plan together first. Forget about the investments.
Mike:Forget about the products. Put a plan together with an assumed growth rate. Just what does it look like? What does your lifestyle look like? Let's put that on paper.
Mike:What's your legacy plan look like? What do you wanna give? Then we dial in, and this is just our planning philosophy, would suggest then you go to efficiencies, Social security optimization, tax minimization strategies, healthcare preparation and planning. I mean, the list just goes on and on and on, but you look at the efficiencies because the plan itself and the efficiencies you want implement are gonna affect the products you then choose. So it's a very specific and repeatable process based on our planning philosophy and our investment philosophy is what's in the market.
Mike:You wanna grow through systems not sentiment that's our proprietary models it's an algorithm that helps us find the efficiencies I mean for example I'm going a little bit long winded here but if I'm saying you should ask people these questions let me give you my answer yeah so you can at least get some context of what it looks like so for example one of our models looks at the top 400 stocks of the S and P should you buy all 400 of the stocks of the S and P no probably not Probably half of them aren't really going anywhere. So our models look to get rid of the stocks that aren't going anywhere, get rid of the inefficiencies, and stay in the positions that have more growth potential. That's a system. We've taken out the emotions, taken out the sentiment, and that's how one of our models operates. And there's different variations of that.
Mike:But it's a system. Yeah. We believe in growth, not value, not dividends. If you want a nice long lecture, we could talk for hours about why we have moved to growth in the modern market as opposed to what value used to be. Value used to be the thing.
Mike:Dividends used to be much more competitive. Things have drastically changed over the last 20 years. Have you updated your philosophy to the modern market?
David:Yeah. Some people listening might not know that. They might not know that, the sort of old paradigm of dividends and value
Mike:Oh, yeah.
David:Changing.
Mike:Oh, it's it's significantly different. And if you say, well, Warren Buffett says, well, Warren Buffett's managing billions of assets.
David:Yeah.
Mike:You've got, what, a million? Oh, yeah. Very different situation. And you're managing them under the restraints of a fund. You're managing them under different restraints.
Mike:So anyway and then how often do they visit with clients, understand what the relationship looks like, how do they get paid? Those are a few other questions that I believe should be addressed. How to tell if they're being salesy? This is a key one. As you're asking these questions, if they only focus on the benefits, they're probably being sales y.
Mike:If they don't give multiple solutions, they're probably being sales y. What what do I mean by that? There's more than one way to skin the cap. There's more than one way to put together a portfolio. So if they only show you one or they don't at least mention other options, they could be taking you down a predetermined path to sell a specific product.
Mike:If they speak over you and you don't really understand, but you've been kind of bullied into just saying yes, they're probably being salesy. Get out. In my opinion, you should not be investing in anything you don't understand. Even if you don't have a financial background, if someone can't simplify it, they probably don't understand it.
David:Yep. That makes sense.
Mike:And then if they say things like, well, this is just how we do it, And let's say you refer to this person, and you say, well, I I heard good things about you, and this is how we do things. You want in, you want out. No. Yeah. How was that exploring what is right?
Mike:Anyway, I don't get it. I mean, if you got a financial adviser, if you got 2 financial advisers, ask them these questions. If you wanna see what a holistic and comprehensive conversation looks like that exploring what is right for you, then here's what I want you to do I want you to pull out your phone assuming you're not driving right here just remember this number later but text analysis keyword analysis to 913-363-1234 that's keyword analysis to 913-363-1234 or you can go to www.yourwealthanalysis.com. It won't cost you a dime, but the night and day difference you'll experience from seeing an open what is right conversation when compared to the confusing sales pitch of conflicting data, contradictory claims, and just potential problems. I mean, just it's night and day.
Mike:Test it out. Try it out. Doesn't cost you a dime, but it really could open your eyes to your lifestyle legacy potential. That's www.yourwealthanalysis.com, or text analysis right now to 913-363-1234. That's all the time we've got for the show today.
Mike: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.
Mike: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.