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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.
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 get a free digital copy today by going to www.howtoretireontime.com, or you can grab a physical copy on Amazon. Just search for How to Retire On Time. 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, insurance agent, and tax professional, which means when it comes to finance, we can pretty much talk about it all.
Mike:Now that said, please remember this is just a show. Everything you hear should be considered informational as not financial advice. If you want personalized financial advice, you can request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Franson. David, thanks for being here.
David:Yes. Always happy to be here.
Mike:David's gonna read your questions, and I'm gonna do my best to answer them. You can always text your questions in to (913) 363-1234. Again, that number (913) 363-1234, or you can email us at HeyMike@howtoretireontime.com. Let's begin.
David:Hey, Mike. How can I know if I am on track to retire on time?
Mike:Yeah. That's a very thoughtful question because it's gonna depend on where you are and where you want to end up. There's different moments in life. And when I say moments in life, I think we misunderstand the very word of retirement. It doesn't mean the absence of work.
David:Okay, right. Good So,
Mike:we're gonna use the common version of not working for a needed paycheck, because you don't wanna retire and do nothing, that's actually bad for your health.
David:Oh, yeah. I can see that. Yeah. Right, coach Potato.
Mike:There's only so much news in sports, TV, and golf that should keep you
David:Right.
Mike:Keep you going. So so let's take it from more of a transition from accumulating wealth, and are you on track to eventually get to a point where you can then own your time, you can own how you spend your time, you can something to that effect. Yeah. You redefine your life, your purpose, and what you're gonna be doing. So, I don't know, David, should we start from the beginning?
David:Let's start from the beginning. Typically people, if they People are born. Yeah, they're born. So a lot of their needs are taken care of at that point.
Mike:Yeah. So let's let's go 16 to 18. Just try to figure out who you are. Yeah. Okay?
Mike:Great. Then at some point in your twenties, you don't need to go to college right away, but college, or technical school, or coding camps, that's really where you don't need to be concerned, in my opinion, about saving. You need to be concerned about getting a skill that's gonna increase your earning potential. People don't pay people because they like them.
David:Not very often.
Mike:Just because you're amicable doesn't mean you're gonna make a lot of All money is gained through service. So you did a skill, you provided the service, based on that value, you're gonna get it. So if you can develop a skill that is either highly desired, or is very replicatable, so like to the masses
David:Mhmm.
Mike:Then you can earn more money. But that's kind of how you start to shift into a career focused mindset. A skill that you can be good at. And by the way, if there's any young people listening to this show, let's just address the passion bit. Uh-huh.
Mike:Don't follow your passion, because you don't know what you're passionate about unless you become good at it. You're only passionate about things you're good at.
David:Oh, true.
Mike:So I mean, I don't know many CPAs that were like, yeah, in fourth grade, I wanna be a CPA when I grow up. Some do. Sure. And that's great, but I never thought I'd be in finance at all. But once I took a financial internship, and realized, oh, I actually can get really good at this, then I became passionate about it.
Mike:So don't follow your passions, figure out who you are, and what you could be good at from a behavioral standpoint, and then start to shape it from that stuff. Okay. Rant over.
David:Okay.
Mike:In your thirties, in my opinion, now you're starting to get your finances in order, so student debt should be gone. I mean, really just pay down that debt and any other high yield debts. You wanna get your finances in order. You probably have term life insurance at that point, but you're really not saving abundantly for most situations. Keep in mind, earning, we're in the silent depression right now.
Mike:Wages have not kept up with inflation, so it is harder to get ahead in life than ever. Maybe you got a tech job, maybe there's a high income, great. Most people aren't gonna be above average, that's the point of it being an average. And so you wanna just get your basics down by the time you hit thirties.
David:Okay.
Mike:That makes sense.
David:Yeah. Yeah. It does.
Mike:So don't take on too much debt. Maybe you got married, maybe you're having a couple of kids. Term life insurance is really there in case you die that the surviving spouse or your kids aren't in a very tight spot. Yeah. Okay?
Mike:So once that happens, from 30 to 40, you should be transitioning to a greater ability to save money. That's your maxing out your four zero one k, you're doing your Roth contributions, and I would say towards the end of your thirties, early forties, you're now getting more abundant in your saving abilities. If you can prevent lifestyle creep from coming in, then you're doing great. Now the reason why I give you this whole precursor is because a lot of people in their thirties and forties are freaking out because they don't have much saved. I wanna let you know it's normal.
David:Okay. Okay.
Mike:That's a normal situation. But once you start getting into your forties, late thirties, early forties, you need to be able to save a good amount of money. As in 15 plus percent probably from every paycheck, going to a four zero one k, or you know, whatever your situation is. By the time you're done with your forties, you're gonna wanna have a couple hundred thousand saved, if possible. So by the time you're 50 years old, that's the ideal situation.
Mike:Now it depends on how much income you want in retirement. It depends on, I mean, what does your lifestyle look like? Some people can live off of $45,000 a month, and be totally happy. Mhmm. Some people, they need 20,000, chatted with people, that need 40,000 a month, 50,000 a month.
Mike:The record was $800,000 a month that I've ever chatted with.
David:No way. Yeah. Wow. Okay. It was
Mike:it was hundreds of thousands of dollars. Now, he was a very eccentric billionaire, but
David:Okay. Sure.
Mike:We didn't work with him. We were just having a conversation. Okay. Just full disclosure. Yes.
Mike:But I've had some fun conversations. Yeah. But okay, back to this. So in the forties, you should be having assets that you're accumulating. In your fifties, that's when your highest earning income years should be happening.
David:Right.
Mike:You've developed a skill, and you're now a senior level in that position or career path. So that's where it needs to be up, not just saving, but where are you saving? If you just save in a pretax account, like a four zero one k, and you're not paying the taxes, that may be appropriate. It may not be appropriate because it depends on the income you're earning now and the income that you're looking for later on in retirement. Yeah.
Mike:I've had people call me and say, well, hey, Mike, everyone says I should do IRA to Roth conversions, or I should put money in my Roth. I'm making 300,000, and when I retire, I just want a hundred and 20,000. In that situation, no. You you wanna use the pretax savings situation and then start doing tax minimization later. For someone that maybe is earning a hundred and 20,000 a year salary, and that's kind of what they want in retirement, then maybe you are putting money into the after tax part of the four zero one k.
Mike:Maybe you're doing the Roth contributions. You're focused on that side of things. Yeah. Any questions on I went through a lot of that really quick.
David:Yeah. Yeah. So I guess just to make sure we all understand the difference between like a pretax four zero one k and a Roth contribution. Is that after tax money?
Mike:Yeah. So regardless of where money goes, you're gonna pay FICA tax. Uh-huh. Okay? That's the social security tax, unemployment or whatever.
Mike:And then you're either gonna not pay income tax and put it into a pretax part of your four zero one k. Uh-huh. So you'll pay taxes later, or you can pay taxes now, and then it grows tax free, and then you could take it out tax free.
David:Seems like an advantage.
Mike:Yeah. When I say grow tax free, it means that if you're buying and selling stuff, you're not paying capital gains.
David:Okay.
Mike:So those are huge advantages, but you need to understand where you're putting the money into and why. Now there's a third component to this that's important. Okay? Now before I say it, because we're gonna talk about insurance for a second.
David:Okay.
Mike:Insurance is not an investment. I cannot say that emphatically enough, because it is often positioned as a strategic investment, it is not. Insurance is a way to transfer risk to an insurance company. In your late thirties or forties, though, I do believe that people can start transitioning from term life insurance to where if you die, get a lump sum, and that's it.
David:Mhmm.
Mike:To a more permanent life insurance like indexed universal life insurance.
David:Okay.
Mike:Because you can put money into a policy, and that if you were to die in your forties or fifties, there's enough of a death benefit to cover your surviving spouse, and get the kids through the different phases, and just kind of bridge the gap to retirement. Right. That make sense? Yeah. Absolutely.
Mike:And if you fund the policy right, and you do all this correctly, the cash value can grow at a reasonable rate as well, so it's like a Roth alternative. Does it have as much growth potential as a Roth? No.
David:Okay.
Mike:Let's not think that this thing's better than it is. It's not. Could it be better than a bond fund alternative? Yeah. I think that's a more appropriate category.
Mike:Not gonna beat the stock market probably, but would be competitive as a bond fund alternative that has a death benefit component to it. So the reason why I say that is if you were to pass in your forties or fifties, that could be detrimental to the living heirs of the estate, the surviving Yes. If you were 60 years old, and you decided to file for social security at 70 years old, there's a gap there. The death benefit can bridge the gap of lost income. So I do think having some death benefit that's permanent life insurance could be appropriate for when the unexpected could happen.
Mike:Yeah. Because no one knows the future. Insurance, it is in the insurance company's favor. It's just you don't wanna be the exception to the rule, because that means it's an unfortunate situation for you and your family. And so this is where those landmarks so again, 30 years old, just trying to get a skill set and start saving.
David:Right.
Mike:40 years old, the saving becomes more abundant, and you're transferring from term life insurance to more of a permanent life insurance. I prefer typically in these situations, universal life or index universal life over whole life, because you can be more efficient from the cash component standpoint. And then in the fifties, you're then getting more deliberate about where you're putting your money, and you should be gaining the growth and really focusing on the savings at that point, so that you can have a smooth transition if you wanna retire at 60 years old, 65, or whatever that time is that you're like, hey, I'm done working this job. I wanna do something else. Yeah.
Mike:Think I missed anything?
David:I don't think so. This is like your recommended blueprint, shall we say. Yeah. And there there could be some curve balls in everyone's life. Right?
David:Someone could have
Mike:a major health thing and Divorce, a sick child. Yeah. There are many times that a sick child can get rid of all of your retirement savings. Look, life happens. Yeah.
Mike:Don't focus on the issues that have happened. I don't know. This is my opinion. I'd rather have a living child than be able to retire early. And I think most people listening would agree with that statement.
Mike:Many people have come to us and said, hey, life has been rough, I'm 50 years old, I don't have anything safe for retirement. Don't get upset about that. Okay. Don't beat yourself up over it. Now it's just having a more deliberate conversation about your cash flow, and what's going where, and how you're investing, make it tax efficient, and then you can glide into retirement.
Mike:And maybe you're not retiring at 60 years old, maybe you're retiring at 65 or 67 years old, but you wanna accept where you are now. Maybe you're behind, maybe you're ahead. Yeah. But just understand where you are and where you want to go, and then make decisions based on what you have control over. You're gonna have hard conversations.
Mike:Maybe at the beginning, you're having to give up a few lifestyle things that you've enjoyed. Sure. But at the end of the day, it's time Yeah. And how you wanna spend it. And part of that cash flow negotiation is putting money away so that you can buy your future.
Mike:Because that's really what retirement savings is, is buying time in the future. Yeah. That makes sense. So bottom line, just don't panic. Don't panic.
Mike:Don't beat yourself up. There are certain thresholds, but this is why people call, this is why people wanna work with us. Whether it's an analysis, whether it's a plan, whether it's an ongoing relationship, it's up to you. But getting a financial coach is maybe an appropriate thing. Mean, we've had times where people, we have to go through their cash flow, and we have them go on our app, cash flow on capital, get on an iPhone, Android's coming soon, and they just have to monitor all their cash flow.
Mike:And then we say, alright. Where are you spending your money? Hey. Maybe you should spend a little bit less in this category. Maybe we make these shifts, and now you have a better chance of being able to save for retirement.
Mike:The devil's in the details. 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. 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.
Mike: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. 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.