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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 a 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 do you know when your plan is perfect or at least good enough?
Mike:I like the end good enough. Yeah. No plan is perfect. And the reason why is perfect means you don't need to change it, and that's just ridiculous. We don't know what the future has in store.
Mike:And so this might get people to say, well, I'm just gonna try and outgrow my problems, put it all in the market, and just hope that things work out, and just adjust along the way. I appreciate the adjust along the way sentiment, but it throws caution to the wind and looks for hope. Hope that things will just magically work out. I get that the equities market, for example, has had more growth than almost any other market. You've got the bond market, the real estate market.
Mike:You've got the insurance marketplace. You've got the alternative marketplace, the private marketplace. There's a lot of marketplaces that are all uncorrelated. But the equity market has had more growth than probably anywhere else I can think of over the long term. But the sequence of the return matters, and the equities market can go flat for ten plus years.
Mike:You're not investing with the intention of touching the money in thirty years. You need the money now. So going all into heavy growth with a lot of risk, I don't think is appropriate, but the ability to adjust along the way is. That's the flexibility that I think people need to have when it comes to how they approach retirement, because you don't know if inflation's gonna get out of control. No one knows.
Mike:If you look in the seventies, you had inflation that rear its ugly head three times before Volker gets in and gets it under control. So that could happen again. We don't know. Then you've got tax law. How do you adjust with tax law?
Mike:That flexibility to adjust. You maybe have a life event. You get really, really sick, now you'd access to more of your money faster because you might have one or two years left. Maybe you miraculously got healthy, but you've gotta get through these think of it this way. You're a you're a cyclist.
Mike:Are you hitting every trail at the same speed?
David:No. No. And some, won't even like, no. I don't I'm gonna walk around this section. I'm gonna go really fast through that, and I don't care for that one.
David:So I'm picking and choosing.
Mike:Yeah. So there's a Funny Trail. I shouldn't say Funny Trail. 1 of the most prestigious trails in America is in Utah on the Wasatch Mountain. Have you heard of this?
Mike:The Crest?
David:Yes. I think I have. Yes.
Mike:Okay. So you go up this canyon, you pass Snowbird Ski Resort, you're going all the way up, and then you've got 200 yards of a climb, and then you start going down. And it's the most beautiful thing you've ever done. I've done it twice now. I mean, talk about bucket list kind of items.
Mike:But there's a part where you're going down, and then you've gotta switch into a different kind of canyon. You're going to the different side of the crest. Okay. When I say the crest, it's literally the tops of these mountains.
David:Wow.
Mike:And they call it Puke Hill. Because most people can't ride up it, they have to walk up it. You know, it's so exerting that you puke. The reason why I say that is, you've gotta be able to adjust your speed, your dynamics, your willingness, like, you know, I'm gonna walk around this. You've got to be able to do that in retirement.
Mike:Life's not as simple as you're gonna get a 6% return year over year and call it good. Right. You're gonna have some great years, you're gonna have some horrible years, and anything otherwise is an oversimplification, and maybe slightly erring on ignorance. And I get ignorance is bliss until reality slaps you in the face, and you've gotta sober up. Right.
Mike:Now on on the other side of things, what was the question again? Yeah. We're we're The perfect plan. So a lot of people think the perfect plan, they'll buy a bunch of annuities, turn on lifetime income. They don't have to worry about it anymore.
Mike:It's perfect. Perfect. Again, you've got no flexibility. Yeah. Gotta have flexibility.
Mike:Gotta have stability. Too many people are going to rigidity or chaos. There's a beautiful balance here when it comes to equilibrium of protection, growth, and liquidity. We all want all three, but nothing does all three, so you blend the growth and liquidity category with the growth and protection category and the liquid and protection category.
David:Mhmm.
Mike:You put a little bit in all those, and that portfolio needs to support the strategies you wanna implement so you can get more out of your money, which also is intended to support the plan. The plan guides it all. So the perfect plan, if I'm to re explain this, is that you have a plan that gives you a pretty specific direction you wanna go, but the portfolio is flexible enough to dynamically adjust along the way. Okay.
David:Yeah. Tell me what you mean by that.
Mike:So some clients in their first year annual review, because we meet with our clients twice a year every year. First one is taxes. The second one is then portfolio adjustments and income planning for the next year. And they'll say, hey. We had a great year, and we made 20% and everything.
Mike:And this is a hypothetical example.
David:Okay. Yes. K?
Mike:By 20%, that was incredible growth. Let's increase our income. No. You've gotta have it for a five year stint, because the next year, the market's might crash by 30%. So you you're gonna have your portfolio balance go above the projections at some point, and then it could dip below the projections at some point.
Mike:That's okay. Because the income where you're pulling from, all that was planned, and you're just adjusting along the way, but you have a guiding light. You have a general direction that you're going. So you know, yeah, the market's just tanked 40%. That's okay, because you've got your reservoir, your protected assets that you can take income from in case of turbulent times, while your other accounts recover, and they recover, let's say, in two years.
Mike:Now we're back to a good situation. Now you're taking income from both. You see that that dynamic flexibility that's so important? Yeah. And the problem that I have found in this balance is if you're securities only.
Mike:K, that means you can only sell stocks, bonds, bond funds, buffered ETF structure notes, then you're gonna try and force a plan based around those investments that you can offer. And that's not enough, in my opinion, to put together a properly put together plan. You need other components to your plan, in my opinion. Then you've got the insurance industry who wants to sell you the annuity and talk about all these things. And it's like, well, hold on.
Mike:You need some more flexibility. You need maybe some more growth, and these products are a little bit too rigid. So both sides are basically dead on arrival in my opinion on what they can offer. Now you've got some advisers like us who are licensed in both, which is great, but then you make mistakes like, hey. You need some protection.
Mike:Let's say you need 40% of your assets to be protected. I I don't see how you'd put, let's say, 40% of your assets into ten year annuities that only have 10% penalty free withdrawals because let's say that the first three years are rough in the markets, and you've taken out 10%, ten %, ten %. Each year, you're able to take out less because you're drawing down your amount, so you might have less money to work with. You don't wanna be tightening your belt at the beginning of your retirement. Mhmm.
Mike:And so you've gotta blend things together. And yes, a three or a five year fixed index annuity is going to pay less than a ten year product. So it's not financially in the best interest of people to do that, but do you need liquidity in five years? Yes.
David:Yeah.
Mike:Do you need liquidity in three years? Yes. You do. So blending things like buffered ETFs or structured notes, and maybe some fixed index annuities based on timelines and liquidity schedules to support your lifestyle and legacy needs is essential. I honestly believe that you need a little bit of everything based on the plan's guidance to put together a comprehensive plan, and I would call that a more perfect plan because perfection's impossible, but it would at least set you up to where you've got options.
Mike:Mhmm. You always wanna have options, not option contracts.
David:Oh, yeah.
Mike:Yeah. You wanna have different strategies that you can implement in different times. The way to do that is to really explore the various marketplaces, the various different ways that money can grow, and growth with protection or grow with liquidity.
David:Yeah. Because your plan's gotta be able to account for what if the tax rates change, what if inflation gets out of control again, markets go up and down, all of those.
Mike:Yeah. And the reason also why I think they need to be blended is a lot of people think that liquidity is king. It's not. Your whole life, your four zero one k was saved with a 10% penalty. It was technically, in some sense, illiquid.
Mike:Right. That probably helped you keep it in there. Yeah. So when you look at illiquidity from an investment standpoint, look at the illiquid assets. Look at a privately traded REIT versus a publicly traded REIT.
Mike:Privately traded REITs keep less cash on hand, so they have more money invested and working for you. Publicly traded REITs don't. They have to keep more cash on hand in case there's a run on the investment or product. They have to keep that liquidity, so it has, by its very nature, less liquidity. Think about how a buffered ETF is structured.
Mike:They're one year option contracts, so there's reinvestment risk in the second, third, or fourth year. K? So the offering could be less competitive in year two or three. But when you buy a ten year fixed indexed annuity, the insurance company knows there's a good chance your money's gonna stay in there for its ten years. So they can invest with longer term option contracts and other underlining fixed securities to maintain the integrity of it.
Mike:Not all FIAs or fixed index, those are built the same. Most of them, think, just are crappy, but again, my opinion. But some of them are built in a very sustainable way that they can maintain their current rates. And in those situations, then, yeah, they might have more cash growth potential than a buffered ETF that has, let's say, a 7% cap. So it's all of these nuances of balancing the illiquidity, but your money is working for a better period of time, and the entity, whether it's a bank or insurance company or brokerage house, whoever's supporting the product, if they know your money's gonna be in there, they can treat it differently.
David:Okay.
Mike:So illiquidity is actually your friend if it's a portion of your assets with a very specific purpose. And people misunderstand this because they're scared of buyer's remorse. They're scared of, I wanna have complete control and flexibility over all of my assets at any given time for any given reason. Well, to have that kind of control, you've gotta give up something, and that is stability Yeah. In this situation.
David:I get that.
Mike:So if you needed access to spend all of your money in any given time, that's also a problem, because if you spent all of your money this year, then you've got nothing to support yourself next year. So again, seasons, or phases, or different parts of your plan is really how you can build quote unquote the perfect plan, though it's not perfect. It's built in a high probability sustainable manner, and you're using the benefits accordingly, and you're offsetting the detriments with other investments that have enough liquidity, enough growth potential, enough flexibility in the future. Football, baseball, pick any sport that's a team sport, they all have their own assigned purposes. That's what a portfolio should be.
Mike:Uh-huh. I like that. Did I miss anything on that?
David:I think we covered just about everything, and yeah, we churn out a lot of nearly perfect plans. Is that right here?
Mike:It's principle based. It's understanding the direction, and it's giving yourself the flexibility. I mean, really, our thesis when it comes to a portfolio in retirement is simple. Growth helps you prepare for future expenses and the unknown with enough protection that you can sail through the market turbulence.
David:So everything that's happening in the markets right now, we should be able to just sleep well at night.
Mike:Yeah. Don't lose sleep at all. Yeah. And I don't have clients calling me worried about their assets, because they know that. They have that reservoir.
Mike:They know that if markets were to go down, they have this principal protected resource that's liquid enough Yeah. They can take income from that source, and let their other accounts recover. 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.
Mike: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. 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.