Welcome to how to retire on time, the show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire On Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. 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, your money, all of the above, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want financial advice, you can request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is David Franson. David, thanks for being here. Yep.

Glad to be here. David's gonna read your questions, and I'm gonna do my best to answer them. You can text your questions in to (913) 363-1234, or you can email us at heyMike@howtoretireontime.com. Let's begin.

Hey, Mike. Does the $60.40 work in retirement?

It it could. So we have

an expression on the show that says you put the plan together first, then you put together the strategies, the efficiencies, how do you get the most out of your money, and then you put together the portfolio. Yeah. So the question is going to be, are we talking about $60.40 for your entire portfolio? I would say no, because there's no context as to how much risk you should or should not be taking. If it's how to grow your assets, and that's a portion of the portfolio, so let's say 70% of your portfolio is meant for longer term growth, then it could make sense.

So let's take this into two parts here.

Okay.

Okay, so if you wanted to retire at 60 years old, and you intended to file for Social Security at 67 years old, and you wanted a certain amount of income Yeah. You might need to take out six, seven percent of your portfolio for those first seven years of retirement, and then once you turn on Social Security, it's like 3% of your portfolio. Uh-huh. So you're going to take more risk in retirement for those first seven years if you want to retire on time and receive a certain amount of income net of tax.

Mhmm.

That means for those seven years, you're taking more risk, which means the investments within your portfolio ought to be something like laddered out CDs, treasuries, or fixed annuities, which are basically fixed products. There's a fixed rate for a certain duration of time, so maybe you're laddering out, so, you put in x amount of money to pay out your income in year one, x amount of money that will then mature and pay out in year two, and so on and so forth. You could do a more dynamic portfolio to a portion of your assets are in something like a buffered ETF. So every year it renews, but maybe you get up to 7% of the upside of the S and P, but no downside. So you're structuring your portfolio around these first seven years that you need to really solve.

Maybe you do a SPIA, a single premium instant annuity, so you get income for the first five years guaranteed. It's like a that was easy button that you're pushing for a CD ladder, but from its insurance company. It's guaranteed. It's fixed. There's no variability with it, but it's guaranteed by the insurance company.

There's a lot of ways you solve that. But if you're gonna take out 7% from your portfolio in the first couple of years, and the markets crash at any point in those first seven years, you could completely destroy your retirement right out of the gate. Here's what I mean. If the markets only went up those seven years, no problem, you're fine. Yep.

But no one knows if that will happen. And statistically speaking, there's a low probability that will actually happen. So if your accounts let's say you're in the sixty forty split.

Okay.

Okay? Which by the way can go down, and let's say the sixty forty split, you go down 30%. Your accounts are down 30%.

Alright.

Not the end of the world, but you would need to have a 43% return just to break even.

How often does that happen?

Every seven or eight years.

Okay. Okay.

Depending on the portfolio, a lot of variability here. But let's say you're down 30%, and then you take out 4%, you're now down 34%. Are you with me?

Yeah.

That would require a 50% return just to break even. So do you see how the further you go, the harder it is to recover? Yeah. Now it might take several years. So I wrote a Kiplinger article some time ago.

It was last year, I think, where I I show this, and I say, if you were to have a basic portfolio, let's say you're trying to match the S and P 500, and you experienced a flat market cycle, so you're not getting many returns for the first ten years or so, It shows in these situations what would happen, and people are going downhill. They're running out of money within ten, fifteen years. And so this arbitrary sixty forty split is a great rule of thumb for when you're growing assets.

Okay.

The growth side of your portfolio. But when you incorporate income, distribution, cash flow, and cash flow and income are two different things, by the way, you need to be more deliberate about how you structure the portfolio, and you can't know if an investment or product is right for you or a strategy until you put together the plan first. What gaps are you trying to bridge? What tax efficiency are you trying to implement? When do you wanna retire?

When do you wanna file for Social Security? When does the pension come on if you have a pension? All of these factors will influence how your portfolio should be structured. And there's an inherent conflict of interest in putting these things together. So if I'm an investment adviser that only gets paid if your assets are in the market, I'm gonna look at stocks, mutual funds, ETFs, maybe a bond or a CD that's offered through the brokerage firm that I work at, and try and force it to work with that.

Well, there's a lot of other tools in the toolbox. I mean, would you prefer to build a house with just hammers, nails, and drills, or do you want a few saws and maybe a ladder, maybe some scaffolding?

It'd be helpful.

Yes. Those things help. Right? Very much so. Do you wanna build a house based on architectural plans, or do you wanna kinda just figure it out as you go?

These things matter. And so understanding what tools are available by the person giving you the advice is going to make a difference. Understanding their limitations will make a difference in the feedback that you get. And so does the sixtyforty split work? It's a fine strategy if you're just trying to grow your assets, but should all of your assets be in there?

I don't believe so. I think we need to get more deliberate about the portfolio structure. Now one last thing on the sixty forty split. Yeah. The idea of it is that stocks have the most growth potential over the long term, which is true.

For asset classes, it's a wonderful thing. The 40% in bond funds is because when stocks go down, typically interest rates will also go down. And if interest rates go down, bond funds increase in value. If you don't understand that, submit a question. We could do a whole segment on that.

Mhmm. But it helps offset. So you lower your overall growth potential, but you're lowering your downside risk. Milton Friedman, the guy who invented this, I think it was Milton Friedman, he won a Nobel Prize for the concept. It was an academic research study.

But what's interesting is he didn't actually follow it himself. He said we were just trying to figure out how to find more consistent, dependable returns. That was it. Yeah. It was research.

Uh-huh. He didn't follow it himself because he understood plan first, portfolio second. Yeah. So that's an important feature to understand. And then JPMorgan did an interesting study on this.

They challenged it, and they said, what if we took the sixty forty split? Not just sixty forty. Let's say 80% stocks, 20% bonds, 60% stocks, 40% bonds, 60% bonds, 40% stocks. Okay. They'd created different versions of this.

Uh-huh. And they've looked at the performance over the last thirty years, and then did the same kind of portfolio, but took out 30% with an equal proportion, and they put in alternative investments, like real estate.

Okay.

And what they found was that your overall volatility, the roller coaster, the Wall Street roller coaster went down, but the overall growth in the portfolio increased.

When there was alternatives in it. Okay? Why do we think that

is Private equity, private debt. It's an alternative market.

Okay.

So you've got the bond market, you've got the stock market or the equities market, you've got your cash and cash equivalents market, you've got your real estate market, you've got your alternative markets, which aren't really like the stock market. Like, the publicly traded market acts differently than the privately traded market, so private equity, private credit. You've got oil and gas partnerships, you've got limited partnership, you've got Delaware statutory trusts, privately held REITs, you've got all of these other asset classes that are independently correlated one with the other.

Okay.

What's the purpose of your money? For most people, it's to grow and do something else.

To grow.

Yeah. And in retirement, you still need some growth aspect. So you can ride the roller coaster, and, yeah, stocks over the long term period of might be the best overall if you can stomach it. Most people can't. So how do we create a portfolio that people can stomach, but also has reasonable, if not competitive, growth potential?

JPMorgan found that including alternatives in the portfolio may actually be better. Again, an academic study that challenged a tried and tested strategy came out right, came out in a very interesting way. When did

they do this study? Do you remember?

Couple of years ago is when the study finished.

Oh, okay. Yeah. So it's new information.

It's new information, but how many people are talking with their financial professionals, calling up on the phone? First off, if if your person's not even calling you and being proactive about this, I would question the relationship. We call our clients and sit down with them at least twice a year and go over their taxes, go over their ten forty, go and we're saying, hey. The markets are shifting this way. We wanna make these adjustments to your portfolio.

How do you feel about that?

Right.

So if your person's not proactively sitting down with you, that's a problem, in my opinion. Depends on the relationship you signed up for, I guess. But it's the exploration, it's the research of what's what's out there, what's competitive, what's not competitive, and how do you wanna shape the conversation.

And we should fully disclose that my number here at Kedrick, my phone number, ends in 6040. Yeah. So I I don't know if the the gods just wanted

us to have I picked that out because it was funny. You know, when you when you set up for a new phone number, you say, what's your what what number do you want? I said, well, that's hilarious. 6040. It is funny.

We need to find a number that says +1 040 as well. Oh.

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