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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.
Your next ten, fifteen, twenty years of retirement savings, I think, has more to do with strategy and less to do with just blindly putting money in the market and hope it works out. Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to that oversimplified advice you've heard hundreds of times. This show is all about the nitty gritty. Now remember this is just a show, not financial advice, so continue doing your education or getting your education, whatever it means.
Mike:Anyway, text your questions at (913) 363-1234, and we'll feature them on the show. As always, David, what do we got today?
David:Hey, Mike. If you're 50 years old and are just starting to save for retirement, what would you do?
Mike:Just starting to save for retirement. This is more common than people realize. Mhmm. So one of the biggest misconceptions I see people make, let's do the risk first, the problem, is they go all in on high risk assets. So these are true statements.
Mike:K? The S and P five hundred is a great growth ETF.
David:Okay. K. These are statements you've heard people say? No. This is factual.
David:Oh, okay.
Mike:So it would have been very difficult to have a diversified portfolio that beat the S and P five hundred for the last ten to fifteen years.
David:Mhmm.
Mike:It's basically just grown with a few very quick crashes. K? And people always seem to say or wanna say, know, financial advisers can't beat the S and P five hundred, and so you might as well just go all in there, all growth and blah blah blah. And kind of all true. Most financial advisers are not going to beat the S and P 500, but people forget to ask the question, well, why is that?
David:Yeah. Why is that? Can we ask that question
Mike:now? Well, yeah. Let's let's do it later though. Yeah. So so CBs people say, well, you can't beat the S and P 500.
Mike:Well, you you can. You could go all into the queues, QQQ, the Nasdaq 100. That's basically all tech. So you're less diversified. You're more concentrated.
Mike:You have less stocks. So instead of 500, you've got a 100 companies. That's more risk you're taking. But it has beat the S and P five hundred on performance in most years, and for the last ten to fifteen years, has significantly outperformed it. But let's just go back to 2000.
Mike:Okay? The S and P five hundred over the next three years went down 50%. Five zero.
David:Oh. That's not growth. No.
Mike:That's a real market crash.
David:Right.
Mike:The Nasdaq one hundred or the QQQ went down like 80 some percent. So when people say more growth, more growth, or more risk, more reward, that's not true. It's more risk, more potential reward, but the inverse is true. More risk or more downside exposure you should take. So that's why when people say, well, I'm all growth.
Mike:I'm only the S and P 500. I go, okay. Out of ignorance, you're probably wanting to grow the assets. So the question you said, well, can we ask it? Why do financial advisers, you know, not wanna beat the S and P 500?
Mike:It's not out of laziness. It's not out of selfishness for fees. If you look at a very boring, cliche portfolio, stock bond, I don't agree with this portfolio, but I'm gonna argue it for a second.
David:Alright.
Mike:$60.40 split from 2,000 to 2,010
David:Alright.
Mike:Beat the S and P 500. Because over that time period, the S and P only did, like, around 0% total growth. But because the bond funds were doing well when the stocks weren't doing well, it was able to slowly make a reasonable return for the time. And then from 2010 to 2020, it lagged because bond funds weren't making much money, but the stocks were on a tear. But if you look at '20 or 2000 to, like, 12/31/2025, and you compare just the S and P 500 to a 6040 stock bond fund split, the twenty five year period of time, they kind of did around the same performance.
Mike:Isn't that interesting?
David:Yeah. Why why do we think that was? Or
Mike:Well, the first couple of first ten years, the stock bond fund mix was able to grow when the stocks weren't growing, so it got ahead.
David:Okay.
Mike:So it had more money in the account, so it was able to compound at a better rate.
David:Oh, okay.
Mike:And then eventually, the S and P caught up.
David:Alright.
Mike:But no one knows the future of the markets. So when you think of retirement, you need more predictability than high potential but high risk.
David:When you're young, high potential, high risk, no problem. Right?
Mike:You want the markets to crash when you're 20, 30 years old.
David:Oh, yeah.
Mike:Because when it crashes, you're buying in at a discount. It's like Black Friday. Everything's on sale. So you don't care. But when you're retired and you need the income, you're looking for more consistency.
Mike:So a more conservative portfolio might be more appropriate because you need help preventing from the the losses. Or maybe you just emotionally can't handle Wall Street roller coaster. The Wall Street roller coaster's rough. So if that's true, then putting in the secondary market class, so the stock market and the bond market, creates more predictability because you're diversified outside of just the stock market. Now if you wanna include real estate in there, you might actually increase your performance with decreased volatility.
Mike:There's other ways you could diversify this, but the idea is just because you're trying to play catch up doesn't mean you should just take on more risk.
David:Yes. So if you're 50 and you haven't saved anything
Mike:That doesn't mean you go all in on the S and P 500. Does not mean that at all. Should you have a part of your portfolio in the S and P 500, maybe. I have no problem with that.
David:Mhmm.
Mike:Probably more so on stocks or stock funds, ETFs, as opposed to cherry picking stocks. K? But but that's the first red flag is don't assume that more risk is more reward. It's not true. And you're looking for more predictability.
Mike:Now, I would also almost encourage someone in this situation to consider not going all in in the market.
David:Oh. Because you because that would be a little bit counterintuitive. Right? Because you you're oh, I need to catch up, so I need to get into more riskier stuff so I can catch up, make up for lost time. But you say no.
Mike:So make sure you have your emergency fund in place because when the markets crash, that is an opportunity for you, but you also may lose your job. The joke about or the expression, I should say, joke is kind of a sick way to put it, but a recession is when your neighbor loses their job. A depression is when you lose your job. So you need to make sure that you're able to cover your own needs for a certain period of time. So assuming that that's been taken care of, if you look at the market today, it's arguably overvalued, which means at some point in the future, the value of the market could be less than today's price.
Mike:So if the market, for an arbitrary number, is worth a $100 a share for whatever the market means to you
David:Alright.
Mike:Overvalued means at some point in the future, it'll probably be worth $80 a share or $70 a share. No one knows. That's not promissory at all. They could be completely wrong. But there's a reasonable chance that if history repeats itself, that the market may not be as valuable in the future as it is today.
Mike:So you may consider hedging your bets with other resources and not just look at buying products, which a stock is a product. A bond or bond fund is a product. It's something you're buying. It's an investment. But in my mind, I mean, it's Walmart's a product.
Mike:It's a company. It's a product. It's something you you can buy into. Anyway. But if you had some reserves on hand so that when the markets crashed, assuming you kept your job, you could buy in at a discount, that's a neat situation.
Mike:It makes sense.
David:Yeah. Yeah. We're we're we we don't what's what's that old cliche? Don't put all your eggs in one basket.
Mike:Well, yeah. It's you wanna have some dry gunpowder. You you wanna be able to make a few waves. So if if you're putting some some of your assets in a CD, you might say, gosh. It's really not growing.
David:Yeah. 2%.
Mike:I want everything in the market. Mhmm. Well, what if the market's flat for the next ten years? The way to get around that is to have some assets in a fixed account or in a protected account or in something that's less risky, so when the markets go down, you can buy the dips. You want to buy the dips along the way.
Mike:Your next ten, fifteen, twenty years of retirement savings, I think, has more to do with strategy and less to do with just blindly putting money in the market and hope it works out. People win because of strategy. But a system. It's always about systems. We have this expression, you've heard it, to exhaustion, but we follow systems, not sentiment.
Mike:What's your system of growth? That's I I think that's that's really what is your system.
David:Okay.
Mike:We have the bear market protocol. Part of that system is to have some assets that are protected so you can buy the dips that accelerate your growth moving forward.
David:So it may be that this person who's 15 hasn't started saving, even if they had started saving at 25 years old, maybe their strategy shouldn't be much different either way, it sounds like.
Mike:Yeah. I mean, who's gonna say, I've saved enough. I wanna get lazy with my money, and just whatever happens happens. That's laziness. That's pretty sad.
Mike:That's like, I think of the biblical parable of the talents. Oh, yeah. You know, you're gonna bury your talent, get chastised later. Well, you got, what was it, five talents? You make it in 10?
Mike:Or two to four? Whatever the numbers were. If you have resources, if you have assets, be a good steward over it. Be mindful about the investments. Don't get lazy.
Mike:Don't get comfortable for it. Jeez. Now there's one other part that's really interesting here. K? Because this person is starting over or I guess starting to begin with
David:Yeah.
Mike:They have the opportunity to do more deliberate tax planning. And what I mean is, where what income do they want? When they retire, how are they gonna take it? What if the first five years of their retirement, so they're gonna they're gonna try to retire at 60 years old, they only need, let's say, 40,000 of income a year. K?
Mike:And the first five years, they're gonna spend down brokerage funds.
David:Okay.
Mike:Well, 40,000 even if 40,000 was from an IRA, I guess, but 40,000, you could do that tax free.
David:You could withdraw it tax
Mike:capital gains. You could structure it in a brokerage account to enjoy long term capital gains, and that gives you then some room in the standard deduction, assuming the taxes don't change drastically, to then do some IRA Roth conversions at that point too.
David:Mhmm.
Mike:You might decide to fund straight to the Roth. You might decide to do all sorts of things. The point being is the person has, in some sense, an opportunity because if they can fund the right buckets in the right way based on a deliberate plan that they've put together, they can become more tax efficient. So it's kinda like asking the question, well, do you wanna pay 20% in taxes or 0% in taxes? Well, zero.
Mike:Well, where you fund is gonna matter. And if your income is too high, maybe you delay some of the funding strategies. If the income is within a certain threshold, then maybe you can enjoy some Roth, enjoy some brokerage account, and set it up for long term capital gains. There's just there's more to do with it. So if you're 50 years old or 51 or 52 or whatever it is, and you're just starting to save, don't lose hope.
Mike:Just say, here's my opportunity. Let's get very deliberate with it because the more tax efficient you are, the less you need to save. Does that
David:make sense? Yeah. It sounds like they wouldn't do much differently except maybe we could tell them, hey, be sure and take advantage of your catch up contributions. Right? That that extra, whatever it is, thousand dollars a year.
David:Yeah. Take advantage of that. Yeah. Beyond that, though, where you're just you're doing your deliberate planning like anybody else would have.
Mike:Be very intentional with the decisions that you make, with the the four zero one k savings, the matching. All of the resources you have available to you become very deliberate, very intentional.
David:There's less room for error,
Mike:I guess. Less room for error. That's a great way to put it. If you're in that boat, by the way, and you wanna work with one of our advisers, you can always go to retireontime.com and click the discover what's possible button at the top of the page where you'll be able to talk with one of our advisers for thirty minutes and explore your lifestyle and legacy potential. We wanna help you succeed, whether it's with a one time plan that you can manage on your own or an ongoing relationship, whatever is right for you.
Mike:But it all starts with a simple phone call. You can go to retireontime.com. Make sure you like and subscribe to the show. The best, the bigger the show gets. Whether you subscribe to it via podcast or on YouTube, the better the resources, the more the content that's there, and the more we can support you through educational means to help you make good informed decisions.
Mike:We'll see you in the next episode.