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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.
Hey, thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look. I'll I'll give you two examples. Okay?
Mike:So recently, we had one guy go through the planning process and has saved more than he knows how to spend. So what what did the plan say? The plan said, hey, you can stay invested, grow this for legality and your charitable intention. And the dividends that you will accidentally get Uh-huh. Will cover all the income you need.
Mike:You don't really need a heavy layer of security unless you wanted it. Now we're in preference, not need. We had someone else who was really trying to push the, the envelope a little bit. They wanted more than five or 6% from their portfolio.
David:Like, as withdrawals?
Mike:Yeah. Were they were really pushing it.
David:Okay.
Mike:So we had to do some strategic Social Security optimization, bump it up a little bit. K? Front load the plan with the income they wanted, but also be okay with pulling it back a little bit at age 70. And then they needed to have an income annuity. Because right now, if depending on your age, you can get like 7% payout on whatever you put in there.
Mike:Now there's still cash value there that eventually will get spent down, so there's some kind of death benefit. But there's nothing else that's gonna guarantee a 7% payout or whatever the rates are. And the rates change, I'm not quoting a particular product. That's just generally what you can kinda get. Maybe a little bit more, maybe a little bit less, depending on your age.
Mike:But they had to put some of that in their portfolio because if they got it wrong in one year, their entire retirement was gone, we had to have some stability because they were pushing their income thresholds. And let me say that a little bit differently because this is so misunderstood. If I were to say, hey, David. You can't ask me any questions, but do you want an 8% average return on your portfolio or a 6% average return on your portfolio? You'd obviously say 8%.
David:Yeah. I mean, I if I get no follow-up questions, I'll take the larger number.
Mike:Yeah. But the 8% has more volatility or a wider range of the wins and losses. So if you're taking the average wins and losses each year, 8% looks better. But the 6%, if you understood how that operated, actually advances your cash value forward better. You make more money off the 6% because you're not getting hit as hard on the down years.
David:Oh, right.
Mike:It's not about max growth and a roller coaster. It's about understanding the volatility or the the swings in the market and how that that affects your cash value every single year on the ups and downs, and how to navigate that while keeping the paycheck coming in. And there's nothing I mean, you could probably do some real estate and for up to five years get a slightly better payout. But what happens in the fifth year when they call that real estate back in? And now you've gotta find something else?
Mike:You're at the whims of whatever the market's gonna offer you. That's a highly risky situation. Mhmm. So is an income annuity a good investment? No.
Mike:It's not an investment. It's a contract with an insurance company to give you a competitive payout rate for the rest of your life.
David:So it's a product.
Mike:It's it's an insurance product that transfers longevity risk. And, yeah, there's a cash value that hangs out for a while, Ten, twelve, maybe fifteen years. So if you died early, the kids would still get the cash. It's designed for income and to stabilise your plan and portfolio. And for some people, they need that.
Mike:If you understand what's what's expected to happen over the next ten ten to fifteen years, I think more people would be open to that. If you think that the last fifteen years are gonna be the next fifteen years, you're probably hating that idea. Right. And that's called a cognitive distortion, by the way, the world of psychology. Where you don't see things as they are, you see the things as you want them to be.
Mike:Mhmm. And the truth is, if the markets keep going up, it's it's one of the worst things you could do. If the markets do what they're expected to do, it's one of the best things you could do. As a part of the portfolio, based on the tax planning and the portfolio responsibilities. You don't put all of your money into one.
Mike:But if you get 60,000, let's say, social security between you and your spouse, and you need 40,000, maybe you buy one to get 10,000 or 15,000. You're going to spend the money regardless. Like there's as long as you're alive, there's no reason you would not spend that money. But it helps stabilize the portfolio. It takes less pressure off the portfolio.
Mike:The plan first, strategy second, it never gets in the way of any strategy. Therefore, it starts to pick the right investments or products accordingly. We do so many plans where no one gets an annuity, and we do others where we're like, are you sure you understand what you're saying you want? Because you are What you say you want decreases your chances of success. Or do you really wanna swing for the fences knowing that you could trip?
Mike:Or do you want a plan that's gonna increase your stability? Plan first, strategy second, that then picks the right investments and products for you. That's neutrality. It doesn't exist most of the time in this space because everyone's wanting to create a conversation about how to sell you a specific product. Yeah.
Mike:I mean, gosh, I actually this morning I did a plan where they've got all the income they need. They just need five years of laddered income. Guess what I put together? A CD and treasury ladder for five years, they turn on social security, and between that and the real estate, they're good to go. Even if the markets go down, there's not much pressure on the portfolio.
Mike:So a properly constructed portfolio, right, we call it the KDRC. That's what we subscribe to. It's our own proprietary way of of doing a risk dial to to navigate flat markets and so on. That's fine. Mhmm.
Mike:It's not pushing the portfolio too much. Yeah. I don't know. Put in put in the comments here or ask the questions what you think about this. I'm curious.
Mike:And then we're gonna get dive into the questions that you've all submitted on the other topics. But the process, the sequence has to be in that order. You've gotta define what you want first. If you have no definition, then how in the world can they help you? Mhmm.
Mike:If you walk to a personal trainer and they said, train me, they're gonna say how. Do you wanna lean down? Do you wanna be a runner? You Do wanna bulk up? Do you wanna do weight lifting?
Mike:Like, what's your goal?
David:Yeah. Yeah. They need to know that so they can know how to help you.
Mike:Yeah. And and then you'd go into the strategies, how do you get more of your money? And then you pick the right investments and products. Has to be in that order. Mhmm.
Mike:Alright. Let's see. A couple of things. Okay. So here's a fun follow-up question.
Mike:So when would a MYGA make sense to put in a portfolio if you want reliable growth and you do not need the income? So my opinion is use MYGAs like a CD replacement. They're not a good income stream. It's just, I mean, a multi year guaranteed annuity. Technically, all annuities are income products.
Mike:But I like MYGAs for, you know, buy a two or three or four or five year MYGA. It's gonna grow at whatever the rate is. And those rates change often. But typically, because there's a longer duration and insurance companies need money in their general accounts, they'll offer you, at least right now, a slightly better rate than a bank might. Insurance companies have less liquidity, so they can hold it for a longer term period of time.
Mike:And they've got greater surrender penalties than a bank with a CD that if you liquidated it, it's like you give up two, three months of interest. Like, it's negligible. So that's why a run on a bank is of higher risk than a run on an insurance company. Yes. Because these are cash insurance companies, not the ones as subject to natural disasters.
Mike:Now that's not true for all of them, but the ones that typically favor these kinds of products are more focused on cash. It's like some sort of weird hybrid of an investment banking insurance company.
David:But So they offer the MIGA and you you give them your money and then there's because the the penalties are steep or withdrawing, you're incentivized to just leave it there. It grows at a contracted rate, like, the Fixed. Yeah. Fixed.
Mike:Just grows at a fixed rate, and then it's liquidated. It's done, and then you spend it that year.
David:Yes.
Mike:Just like a CD letter or a treasury letter or the bucket strategy, put your plan together, and you say, okay, how much income do I need in three years? Great. This is how much you need to put in the MYGA at this rate, and then that is your income in that particular year. And what the beauty of it is, let's say the market's crashed in two years, and you're just trying to get between now and when you go and file for Social Security. And once you file for Social Security, there's very little pressure on your portfolio.
Mike:Oh, yeah. Well, if the market's crashed, this thing's still growing at a fixed rate. Yeah. So when you get you give up market risk, you are gonna have some inflation risk, but it's not all of your portfolio. It's just enough to solve that one year of income that you need to plan for.
Mike:Mhmm. That's it. Alright. Everything else is invested to offset inflation risk and so on. This is why, again, plan first, strategy second, portfolio third.
Mike:Mhmm. You say, oh gosh, that year is at 8% withdrawal from your portfolio. That's too much. Because if the markets go down, let's say, in half, that's not an 8% withdrawal. That's a 16% withdrawal.
Mike:You've destroyed your retirement. Oh, right. Maybe let's shore that up. You need it in three years. Great.
Mike:Here's a fixed growth product. It's gonna pay that rate and bridge you between now and Social Security. In the book, this is chapter seven, bridge the gap. Mhmm. Or plan for the gap.
Mike:So important. Yeah. The DIY annuity guide talks about MYGAs a little more as well. Some people will use SPIAs. But SPIAs is a single premium instant annuity.
Mike:And as of like today, you might get like a 4% equivalent rate. Again, the rates change frequently. So that's as of today's recording.
David:Okay.
Mike:But that puts money in the account. It's growing at an equivalent of like a 4.5% maybe interest rate like a CD would be, but it gives you monthly checks for five years. So some people like that because they're like, I got five years. I don't wanna deal with laddering things out perfectly every single year and all this. I just want monthly checks.
David:Boom. So it's an instant annuity because you you give the it's a one time, here's my premium insurance company, and then they immediately start the payments?
Mike:Yeah. So it's like give them a $100,000, they're gonna give you 22,000 or whatever in in change every year broken down in monthly payments for the next five years. Wow. Now you've got no market risk. You've got monthly checks, and you've bridged the gap between that point and five or six years or so.
Mike:I don't like more than five years. I think that's that's too much at risk for, like, inflation risk, for example. Alright. But, you know, five years, you could do a five year period certain, put it in there, bridge the gap, you're good to go. Everything else is invested in the market to hedge against inflation.
Mike:You've got flexibility and so on. Yeah. It's about diversifying by strategies, and only the plan can tell you what needs to be in the portfolio.
David:And both SPIAs and MYGAs, you can't just go to an insurance company and get that by yourself. You have to have an agent.
Mike:You have go through an agent. Yeah. There are some websites that will say things like, hey, buy it through us and we're agnostic. But they have a limited inventory.
David:Oh, right.
Mike:So you have to find someone that truly is independent, that has no allegiance to a company, and then says, alright, here's the a rated companies and b rated probably don't want. Maybe you do. Maybe you don't. You're gonna have higher risk if you have a b rated company. Mhmm.
Mike:It's plan first, strategy second. And if you do those two things first, there's no FOMO. Because you're saying, I need this for this time. Yeah. I need this for this part of the plan.
Mike:And so now you know exactly what products, what investments to look for.
David:Right.
Mike:And then shore it all up. That's the beauty of it. Lot less FOMO when you do it that way. Yeah. I can't imagine scrolling thinking, okay.
Mike:How much do I need of that? I guess I'll put 20 by percent of my portfolio in this and and 10% in that, and I'll just diversify, and it will just magically work its way out. Well, if you do that, you've given up tax planning. You've given up social security optimization. You've given up health care planning.
Mike:You've given up all of these other ways to get more of your money, because you've just got a pile of products. Now, David, I wanna pause real quick and just ask you something here. If your retirement had a leak. Okay. So let's say money was quietly draining out through fees or tax inefficiencies.
Mike:Maybe the social security time was gonna put an unnecessary burden on the plan for one way or the other. Maybe you're just paying more in healthcare premiums because he didn't know how optimize all of this. How would you know? And how would your AI even know? You have to have the right questions to ask.
Mike:It's a whole problem, and the truth is, these leaks, they're often silent. Many people miss them. So here's what I wanna do. Everyone right now in Kansas City area, they're listening in right now. We're gonna offer you something real real cool.
Mike:Look, if you're within five years of retirement, and you've saved at least $500,000 or more, I would invite you to book your retirement leak test. It's a 47 inspection on your retirement. Two visits with my team, won't cost you a dime. The first visit is gonna be finding the leaks. The second visit, we're gonna show you how to plug them.
Mike:You walk out with that leak report. Every leak that we found, dollars, all of it, right in your lap. It costs you nothing. There's no obligation. We're doing this because we are genuinely concerned about some of the stuff that we've seen lately and the risks and the market conditions that are out there.
Mike:So we're gonna be offering this report at no cost. The report is yours to keep regardless of if you work with us from that point on or not. Now if you decide you wanna work with us, we can we can do a one time written plan that we teach you how to fish. We're gonna teach you how to fish step by step, plug in the different leaks so you can manage your plan on your own and potentially save yourself a lot of money and fees. I mean, heck.
Mike:You got a million dollars in retirement? That's like $10,000 in fees you could be saving your saving for that. That's like a leak unto itself. Now if you want maybe a little bit more help, we also have ongoing services at a flat fee, but it's okay either way. The point is we wanna help you find the leaks, plug them up, and then if you wanna keep talking, give you a plan that's kinda like a recipe.
Mike:If you can follow recipe, you can follow the plan even if you don't have a financial background. That's it. Nice and simple. Now fair warning, some of you may have one of the biggest leaks is that advisor fee. So if you're open to a nice conversation about finding leaks in your system, trying to get more out of your money, here you go.
Mike:We've only got room for five this week. That's it. So in order to get the leak test, the retirement leak test, here's what you gotta do. What you're gonna is you're gonna text radio to (913) 363-1234. Text radio right now to (913) 363-1234.
Mike:That's keyword radio. (913) 363-1234, And then what we'll do is we'll text you back. If you're one of the five, we'll give you a link to schedule the thirty minute call. Just gotta schedule the call within the next two weeks. Very limited times, but we do have some slots open for us right now.
Mike:Text radio to (913) 363-1234. The first five people to text us. You'll get those two sessions, no cost, no obligation. We're gonna help raise your awareness towards your retirement preparation. Again, you must have 500,000 or more to qualify for this specific offer, But let's find the leaks.
Mike:Let's expose them. Let's have some fun plugging them up and help you get more out of your money and be better prepared for your retirement.