Subscribe
Share
Share
Embed
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 retirement questions. Say goodbye to that oversimplified advice you've heard hundreds of times. This show is all about getting into the nitty gritty. Now that said, remember, this is just a show. It should not be considered financial advice.
Mike:As always, text your questions to (913) 363-1234, and we'll feature them on the show. Let's begin. Hey, Mike. I've managed my four zero one k my entire life. I just buy and hold index funds.
Mike:Is retirement any different? Oh, boy. Alright. So let's dive into this one. First thing to understand is when you are growing your assets, whether it's in the four zero one k and the market on your own, in an IRA, or whatever it is, it is so much easier to grow money than it is to distribute or take income in retirement.
Mike:Here's why. When markets are tough, it's to your advantage. Because you're taking income, you're able to buy the dips, and that grows, it enhances your growth. It's a beautiful thing. But when you retire, the game changes.
Mike:The sequence of the return is going to matter, and the market cycles are going to matter. And so you have to ask yourself, I think the fundamental question is, what don't I know that if I did, would change my mind about this? K? So first off, let's just introduce something called a flat market cycle. You may or may not know this exists, but a flat market cycle is when the equities market goes flat for over ten years.
Mike:Now just imagine, my entire life, I buy and hold index funds. That's code typically for stock focused funds or equity funds. Is retirement any different? Well, what if you retired during a flat market cycle and your equity or your index funds made nothing for over ten years? You're probably planning on taking income off of the growth.
Mike:So if there's no growth for over ten years, one third of your retirement or more, you're dipping into your principal. You're sinking your ship. Just because the last ten to fifteen years, the markets have only gone up, doesn't mean they will continue to go up. You need to be aware of the flat market cycle. The flat market cycle, for example, 2,000 for over ten years, no actual returns point to point, start to end.
Mike:1965, 1966, depending on when you start, over ten years, no growth in the equities market, which is code for the stock market. 1929, for over I think that was, like, twenty years of a flat market cycle. That was the Great Depression. Very difficult situation. Nineteen o six, market was flat for over ten years.
Mike:They called that the rich man crash, because most people weren't invested in the market at that point. You need to understand that's just one of I don't know if you have real estate in your portfolio too. It's around 62 risks that you will have to manage and adjust along the way. Are you okay with that? Did you know, by the way, that you can have a sequence of returns as in the sequence of the performance of the portfolio at, let's say, around 5% versus seven and a half percent.
Mike:And you can actually get more money and have a more successful retirement with a portfolio averaging 5% instead of seven and a half percent. And the reason is the volatility or the swings, the ups and downs, are going to also affect your overall return. Even though the averages look nice, they may not be as nice as you would think. So understanding how to navigate that. The reason why I bring this up is if you're not really an investor, if you're not really a trader, if most of your life you just bought things and kind of ignored it and it worked out, That's a wonderful thing.
Mike:But once you retire, you're playing a completely different game. Do not assume that because you grew your money well, that you're able to manage money in retirement well. Those are two totally separate skills. Think of it this way. I know many heart surgeons.
Mike:For whatever reason, I just happen to meet a lot of heart surgeons. They're brilliant individuals. But I would never have them do surgery on my foot, because my foot is a completely different series of muscles, and bones, and mechanisms, whatever the foot has. It doesn't make one person smarter than the other. It just means they're different, and they need to be managed differently.
Mike:And the reason why I say this, I'll give you a quick story. So we had someone that he said he was enthusiastic with the market. He enjoyed the market, and all was well. We said, great. We put together a portfolio, all was well, and one of the stocks was basically a soft monopoly.
Mike:It was a very consistent long term tried and true position. Until one day, there was an announcement, they lost their competitive advantage, and it tanked like 15% in a day. And he said, I know I could be doing this, but that's just too much. You guys were already there. You had already sold out of it.
Mike:You had already adjusted it. I didn't. I was enjoying my retirement, and then I came back, and it was too late. I don't want to be in this every single day. He then had the foresight, the wisdom, to say, look, can you just manage it for us?
Mike:Now, let's do the opposite of that. I've met many people where their purpose in retirement, where they're connected, where they're challenged intellectually, really comes from their ability to wake up, and hit the market, hit the news, and really make informed decisions. And sometimes they don't make a trade. Right? They're investors or traders.
Mike:And by the way, the difference in investors long term, a trader is short term as a general rule, but still investors need to be ready to make a decision at any moment in case something changes. My point being is there's an emotional toll that will be had if you decide to manage your retirement on your own. For some, that emotional toll is a positive. It's a beneficial experience because they enjoy it, And for others, it's very nasty. It's terrible.
Mike:So be weary of that. Are you aware of what you're saying yes to and all the responsibilities, and are you not? Because the reality is a growth portfolio in your twenties, thirties, and forties should look very different than your retirement portfolio, and then how you manage it from an income plan standpoint, from a tax planning standpoint, from social security optimization, all these different things. It's a lot more difficult to just line it all up and then go. Now some people, to their disadvantage, have saved up so much money that they don't need to be prudent with their investments.
Mike:But the problem with that, I have found, is they're basically saying, I just wanna turn off my brain, and we'll just let things happen. That's kinda like saying, I've got a good metabolism, so I don't need to be concerned about my health. You ever met someone that's skinny but very unhealthy? You can't get out of these economic principles. You can't control the market.
Mike:You can't control tax code. And so if you're a good steward, someone needs to be trained up and aware of how to manage the portfolio, how to manage the taxes, how to manage all these different nuances, whether it's you or someone else, but someone needs to be overseeing it, and they need to have previous experience, because retirement is not the time to start learning while maintaining full responsibility. It's a great time if you're unaware to start learning. Maybe five, six, seven years into it, you're trained up enough that you understand the responsibilities, and you're comfortable with it. But don't fall into the Dunning Kruger effect, which the Dunning Kruger effect, it basically illustrates, and and look this up on YouTube.
Mike:Very clever. It's why those who lack experience overestimate their abilities. Too often, I've had people say, I wanna DIY my retirement. I have no problem with that until I say, what's your investment history like? Are you in the markets?
Mike:Are you aware of how this works? How does this work? How does that work? I just kind of poke a little bit and figure out what's their investment competence. And when they say, I'm really interested in it.
Mike:I wanna start learning now. That's a red flag. Please, pride and greed are the downfall for many people, especially when it comes to retirement planning. Find a system or a mentor, someone that can help you get started at least for the first couple of years, so that as you understand how the systems work and what to do, then great. You can go off and manage it yourself, and heck, I support that.
Mike:I was the one that wrote that article, you may have seen it in on Business Insider, that said how a comprehensive plan could replace your adviser and save you money and fees. That is a true statement, but you need to acknowledge the competence that's needed to do this correctly. That's all I ask. Whether you work with us or someone else, don't take on more than you can handle. Don't bite more than you can chew.
Mike:Ask yourself, what don't I know that if I did would change my decision? That kind of humility is what saves people from themselves making dumb decisions, especially right now as it seems like we're headed towards a market top. And if we are, and it's similar to a 2,000 situation, just imagine you're managing your retirement, and the markets go down for the first three years. It's down top to bottom 50%. You've lost half your savings because you bought index funds and said, well, I'm just gonna hold it for long term.
Mike:It's not that simple. That's an oversimplified portfolio. You need to have other strategies ready to go in place in case, not if, but when that kind of thing happens. 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 podcasts.
Mike: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. 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 ww.yourwealthanalysis.com today to learn more and get started.