You start with a plan, but you have two or three backup plans that you can implement at any given time as things shift. Welcome to the Retire On Time podcast, the show that answers your retirement questions. This show is not about oversimplified advice you've heard hundreds of times. It's all about the nitty gritty. Now that said, remember this is just a show, not financial advice.

Keep doing your research. As always, text your questions to (913) 363-1234, and we'll feature them on the show. David, what do we got today?

Hey, Mike. How does a financial plan work? Can you give realistic expectations?

Yeah. This is important. I've noticed there are two camps of do it yourself financial plans. Okay? So do it yourself means they either don't trust financial advisers, they're actively avoiding fees, or they have control issues.

So let's address each of those. The first one is they just they wanna do it themselves. They want the the control. I get that. Okay?

I should that was the third one. Whatever. One of them is control issues. So when you have control issues, it's hard to help people like that, but what what will typically happen is they want to work with investments that they have control over. The market, you don't have as much control over.

A twenty year bond ladder, you know exactly what you're gonna get. You've got control over that, and you can reconstruct it. Anyone can do it in Excel. AI could probably build this out for you very easily. There's a lot of online literature that would support this idea.

Okay? When I say bond ladder, I mean, you could use CDs, but CDs don't really go past six months to a year. Bonds, you can get them for five years, ten years, twenty years. Depending on the maturity, you can buy it partway through, so you can ladder things out that way.

So this is like a single bond that that matures in whatever, five, ten, fifteen years?

Yeah. So think of it as like you're gonna buy this bond, it's gonna grow for two years, it's gonna mature, pays out. That's your income in two years. Then you buy another bond that's gonna grow for three years. It matures.

That's your income in the third year.

Okay.

So you can ladder this out for I've I've seen I've seen over twenty years

Wow.

Of people doing it. The benefits of that is you know exactly the income you're gonna get. You know, like, assuming nothing defaults, you know exactly you've got complete control over the situation.

So you get your initial, like, principal plus whatever the bond paid and you use all of that. That's what the coupon is. And you use all that for your income.

Yeah. I mean, that you there's there's some, you know, it's paying out. So what do you do with the extra money? You can dive really deep into the the complexities of the cash flow negotiation. But basically, I'm giving the simple definition for argument's sake.

Okay? Now, here's what they're missing, and this is not talked about enough. A bond ladder will tell you how much you're going to get. What it doesn't tell you is how much you need to get. Oh.

How much you need is buying power. Buying power is dictated by your lifestyle and inflation. Oh, right. I saw a funny meme on X the other day that said, I bought this $100 bill. Now it's only worth $50.

What a rip off. Yeah. And the point was the value of the currency over this period of time was devalued by 50% because of inflation. It will buy half as much as it used to. So if you do a twenty year bond ladder, it might work for today's dollars, but are you factoring in inflation?

And maybe you are. But let's say you factored in inflation at a two or 3% rate, and then we experience another round of hyperinflation, which can happen from deregulation, which is kind of Trump's MO right now is deregulating things. You've got if the tariffs don't work out I mean, I know they're working out now. It's to find the experts' predictions, but it might not be a now that it might be negative inflationary consequence later. We don't know.

This is kind of new territory. We don't know if Trump lowers interest rates. I shouldn't say Trump's person who would go in as the Fed chair lowers interest rates. If you lower interest rates too fast, you could experience hyperinflation again. If you experience hyperinflation, this is like the sixties and seventies where it it inflation went up, they solved it, went down, and then it jumped back up again.

They did it three times. Yeah. We just will experience one. So if you do something that you have complete control over, you know what you're going to get, you don't know how much you need to get. You're giving up the dynamic nature or the flexibility needed to adjust along the way.

So it's a word of caution. If you want control, understand that the control has a cost or a price or a risk associated with it. In this situation, it's inflation. And the same goes to kind of the other the other person. I don't wanna work with advisers.

It's fine. But they'll find an adviser that will give them a confirmation bias, sell them a bunch of annuities, and say, hey. Here's your annuities. When you retire, turn on your income, you're good to go. It's basically a pension.

And in some sense, that's true. Pensions don't solve all of your issues. Many pensions, they do not have a cost of living adjustment.

So it's like a static amount that you get Flat.

Yeah. Great now. Not as good later. And at a 3% rate, you lose, like, 25% of buying power after ten years. So and then they buy a bunch of annuities, turn on lifetime income.

All their money's tied up into these income streams. Now in ten to twenty years, they could be the the elderly individual who's struggling to make ends meet on a fixed income. It's not that pensions are bad or annuities are bad or that, you know, lifetime payments is a sham. It's not a sham. It's a tool that may act as a part of your overall portfolio, not the whole thing.

And then the person that says, well, I don't wanna work with advisers. That's fine. I have no problem with that. But you need to understand there are certain investments and products you can't get on your own.

Alright. For example, list a couple of those.

Yeah. If you're if you're a real estate investor and you want out a Delaware statutory trust, you can't get on your own. That's a way you can do a tenth or an exchange into investment grade. Like, think like multifamily, apartment complexes, these major real estate investments. You're not the landlord anymore.

You're getting a reasonable cash flow.

Right.

And you've deferred all of your capital gains tax and depreciation recapture tax when you sell your your current properties. You can't get that on your own. Privately traded REITs, which is a good way to diversify for some people their portfolio. It's out of the stock market. It's out of the bond market.

So you're you're better diversified. You can cash flow that way. All of that's brilliant. Can't get it on your own. Have to go through a licensed professional.

If you wanna do the insurance products, you can't get a MIGA on your own. Let's say CDs are offering a a 4% rate, a treasury is around 4% rate, but a MIGA, you can get 5%. That 1% difference, it's it's real money. But you can't go to the insurance company and say, I want this. You have to go through a licensed agent, and hopefully, it's someone that, like, is trustworthy, that does their due diligence, that's product agnostic.

And there's no fee associated with these MYGAs, multi year guaranteed annuities. It's just it's a CD from an insurance company, but you get a better rate. Sometimes. It's not always a better rate. Right?

Rates will change. Some will be better than other times. Nothing's perfect out there. But do you see how it's almost like I I I don't wanna work with someone out of pride or ego, so I'm willing to cut off half of the products or tools I may have. Understand a lot of it is people don't wanna get sold.

Yeah. I want this thing. Don't give me the hassle. It's like when you walk to buy a car. Don't talk to me about this car or that car.

This is the car I want. Here's the price I'm willing to pay. Yes or no?

Right.

That's that's a that should be a simple conversation, yet salespeople will complicate things. So you have to kind of find someone that's willing to be product agnostic, do the research, show you here are your options. Do you want it or not? Great. And then move on.

Yeah. You know, the so I I get that of fixed index annuities, cash value life insurance. You've got private equity. You got private credit. You there's all sorts of investments or products you can't get on your own.

So the do it yourselfer, who's gonna be limited to publicly traded stocks, ETFs, mutual funds, bonds, bond funds, CDs, they have a very limited toolbox. Don't know. Find an adviser, someone that can get you access to the good stuff, that doesn't compel you to have a a codependent relationship in perpetuity at 1%. There are advisers like us at Kedric Wealth that are willing to put a one time plan together and then send you on your way and you're set. Yeah.

That makes sense?

Yeah. It does. Yeah. And how do we find those people? Is it a lot of trial and error?

Can you

If I mean, they say it on their website if they're a flat fee advisor or not.

Yeah. Okay.

So but so the question was

How do you how does a financial plan work? Can you give realistic expectations? So they are they Yeah.

This is part two of the question. Thank you for kind of resetting the question. So we have all these products, all these investments, all these tools that can support a plan. Many people, the do it yourselfers typically will want a rigid plan with predictability of what to expect while not acknowledging the other risk factors. It's not just stock market risk.

It's stock market risk. It's tax risk. It's inflation risk. It's health care risk. It's liquidity risk.

There's a lot of other risks. In our workbook, there's over 60 risks that we mentioned. So with that said, in my opinion, a plan is one plus one equals two. Does the plan suggest that you have sufficient money to retire and stay retired? Pick an an arbitrary but reasonable percentage of your growth in the portfolio, let's say 6%.

Put a reasonable effective tax rate. So whether it's 15%, 18%, 22%, everyone's gonna be in a different situation. And then do the numbers work out? Because you don't realize how if you get 1% more or less than your average, the numbers have a huge sway, and you can't really plan to get down to the the the exact number. What you can do is you can put a general plan together with reasonable projections and then look at the strategies you wanna implement.

And then every year, you assess which strategies are you gonna implement and which ones are you gonna kick out till next year. Here's an example. Okay. So right now, as of the time of this recording, the Affordable Care Act subsidies don't exist anymore. They're gone.

Yeah. That sucks. Yeah. Okay? So if you are 60 years old and you just retired, there isn't much of an incentive to look like you're in the 0% tax bracket.

And maybe you've got some IRA assets. So maybe this year at the age of 60 and 61 that you just take your income out of your IRA. Maybe you do some IRA to Roth conversions. Not all of them, but just some of them. You're kind of working down that.

And then at the age of 63, you're still on affordable care act. You're still on health insurance in the public market, which is expensive. The midterms finish, the one party wins or the other party, whatever happens, and now subsidies are back on the table. Now at the age of 63 and 64, what are you gonna do? You're going to switch the plan or the strategy you've been implementing with the alternative income strategy, and now you're gonna take income, let's say, from some buffered ETFs.

Okay.

You've held them for three two, three years. They're now taxed as long term capital gains, And now your your income is a 100,000, let's say, but you're only there's only 20,000 of gains of the 100,000. So you put in fifth or 20,000 as long term capital gains. You haven't filed for Social Security yet. That's all the income you want.

Guess what? You're tax free. Okay. In other words and you can go to free it's a freetaxcalculator.com. It's one of our calculators.

You can have fun. Play with the tax returns for free. Mhmm. But, yeah, if you just put in, let's say, $20,000 of capital gains tax, if if you look then consider the standard deductions and everything, you're basically not paying taxes. You're gonna qualify through the modified adjusted gross income calculation for an incredible amount of subsidies if in this hypothetical situation they came back.

Sure. Because now you look at you're at the federal poverty line Oh. Or close to it. Right. So you've got the income that you want.

You strategically implemented a backup or alternative plan because your plan was dynamic, not a twenty year bond ladder that can't adjust based on the things that happen. You're not turning on lifetime income from an IRA annuity that you purchased because there's no flexibility with that once your income's turned on. Having the ability to have one plus one equals two, here's the plan, and then each year, you're adjusting or picking out which plan, which income strategy, which tax minimization strategy you're going to implement. So you have multiple things you can implement in any given year is how you can be more strategic and still follow the plan. It's like any game you go into, whether it's Settlers of Catan, chess, checkers, whatever.

You start with a plan, but you have two or three backup plans or alternative methodologies that you can implement at any given time as things shift.

And things do shift. That's one thing we can say for certain. Things will shift out there. Right?

Yeah. And in 2024, the primary messaging was taxes are going up. Get aggressive with your IRA to Roth conversions. The one big beautiful passes. And now I'm going, You don't really need to do the conversion.

Actually, you did the conversion, I could argue in in a couple of situations I've seen recently that you're paying $10,000 in unnecessary taxes. Mhmm. There's no sunset to this. Mhmm. The income you want is already baked into the standard deduction, so why?

Sure. So opinions evolve as the environment evolves. You want to not fall into the rigidity of the control or the these are the only tools I have to work with, and I don't want market risk. So I'm gonna those things are kind of what prevent people from building a plan they can adjust along the way. You want to have a dynamic functionality with your plan.

You want to have a good direction. You want the goals. You want to know, generally speaking, the portfolio needs to hit these marks at these at these moments or these years, but you can adjust and tweak along the way.

That seems like sort of the thesis statement to me then from our discussion here is it has to be able to there there needs to be we we have to pay attention to it at least annually and then be ready to adjust.

Yeah. What's that expression? The only thing certain is that nothing's certain or the only thing predictable is that nothing's predictable. There's something there.

Right.

But it is very true with the markets. We don't know what will happen for market returns. We don't know tax laws that will come up. We don't know how inflation's going to unfold over the next five to ten years. Mhmm.

We don't know. So to assume that you can build a rigid plan that will tell you what you're going to get, you need to you need to make sure you acknowledge it doesn't tell you what you need to get. It tells you what you're gonna get, and you're hoping that all these other factors that you can't control will not rear their ugly heads and that things will just work out. You need to have a couple of backup plans, a couple of alternate strategies. Be cautious about rigidity with, with retirement planning because it really can bite you in the butt if things go sideways.

Thank you for watching. If you enjoy the show, make sure you like and subscribe. Also, to retireontime.com to buy the book, the workbook, and all the resources to help you prepare for retirement. Last but not least, if you want help with your retirement plan on retireontime.com, you can click the button that says discover what's possible, and then schedule a call with one of our advisers to help you prepare to retire on time. I'm Mac Decker with David France, and that's all the time we've got for today's show.

We'll see you in the next episode.