Why No One Can Claim to Have a Riskless Retirement

“Hey Mike, how do you plan so you don’t run out of money?” Discover the reality of retirement planning and how you can’t not take risks. This episode covers various ways to approach your retirement in an effort to decrease risk while maintaining lifestyle flexibility for the future. 

Text your questions to 913-363-1234.

Request Your Wealth Analysis by going to www.yourwealthanalysis.com.

What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, 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.

This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.

Mike: 00:05

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. 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.how to retire on time.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 financial topics, we can pretty much talk about it all. So that said, please remember, this is just a show.

Mike: 00:36

Alright? Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, thanks for joining me.

David: 00:54

Hey. Thanks for having me.

Mike: 00:55

Now David's gonna be reading your questions, and I'm gonna do my best to answer them. Please send in your questions right now or anytime during the week. Just save this number, 913-363-1234. That's 913-363-1234. Or you can email questions to hey mike at how to retire on time.com.

Mike: 01:15

Let's begin.

David: 01:17

Hey, Mike. How do you plan so you don't run out of money?

Mike: 01:21

How do you plan to not run out of money? Bit of a loaded question. And the answer is you just buy a bunch of annuities and you're guaranteed income for life. But the catch with that and I I say that jokingly because that's the sales pitch that's given to sell an annuity. Doesn't make it wrong or right.

Mike: 01:39

It's just that's the sales pitch.

David: 01:42

Fairly convincing too. I mean, it sounds good to the ears. Like, oh, I

Mike: 01:45

We like simple.

David: 01:46

Yeah. That's easy.

Mike: 01:47

Yeah. So here is how I'm gonna answer the question. Are you willing to pay the premiums associated with that guarantee?

David: 01:57

Uh-huh.

Mike: 01:57

And are you willing to also accept that you might be in fixed income and if inflation gets out of control, if taxes get out of control, if your lifestyle significantly changes, your life may not be as comfortable as you would expect. So the inflationary cost over a 30 year retirement is more drastic than many people realize. Think about what you were paying for in the eighties nineties. How cheap things were.

David: 02:24

Mhmm.

Mike: 02:25

Now think about how expensive things are today.

David: 02:28

When I was in high school and, I would go to McDonald's and you'd get the value meal for, like, $5 or something, and it was like the quarter pounder. It was the fries. It was the

Mike: 02:37

The whole meal

David: 02:38

deal. Yeah. And now no. Now you can't go to any, like, fast food

Mike: 02:41

place for Back in the day, Arby's. This isn't even back in the day. This is just, like, a decade ago. Yeah. Back in the day, you could get 5 Arby's sandwiches.

Mike: 02:49

Right? The the beef or beef and

David: 02:51

cheddar for $5. Yeah. I

Mike: 02:52

mean, growing up as someone that didn't grow up wealthy

David: 02:54

Yeah.

Mike: 02:55

That was a treat for us. I mean, that was Arby's with that horsey sauce or whatever.

David: 02:59

Love the horsey sauce. Right?

Mike: 03:01

Now I've changed my dietary habits. Oh, man. People are the healthiest. Yeah. But inflation is an issue.

Mike: 03:08

So how do you plan to not run out of money? There's a couple of things that I wanna highlight here. First off, there are no guarantees in life. We don't know when we're gonna die. We don't know the future.

Mike: 03:19

We can't control the markets. So how do you address that? You can buy guaranteed income for life income streams through annuities or you can put together a comprehensive plan. Most people seem to not understand what this could look like. So let me try and articulate it.

Mike: 03:36

A comprehensive plan, at least our version, looks at your overall assets right now, organizes your income stream. So social security, if you've got a pension, we can put that in there as well. If you have rental income. Right? Your landlord, you can put that in there as well.

Mike: 03:50

And then we simulate or model what it would look like. Let's say if the assets were to average a 6% growth, could you maintain your overall quality of life to age 100 or 110 or 90 or whatever the time is? And you want to maintain your principle, in my opinion, until full life expectancy or a few years after. Why is why do I say a few years after? Because AI keeps getting really advanced.

Mike: 04:17

Because AI is advancing the medical community even faster than we expected. What I mean by that is simple. The medical industry might keep you alive longer than you realize whether you like it or not.

David: 04:29

Yeah.

Mike: 04:30

So maintaining your principal until full life expectancy is probably a good idea. And then having a little bit extra in case you end up in a long term care facility. So you've got around maybe a 6% overall growth portfolio is the target. You've simulated this. Can you afford to retire or not?

Mike: 04:48

That's the first part. K? The second part is then how do you put together strategies that help you get more out of your money? This is tax efficiency, social security optimization, understanding how your portfolio is affected if you delay your social security or if you take it earlier on. That affects your portfolio.

Mike: 05:07

That affects your taxes. That affects your income strategies. So as you explore your strategies, your health care costs, and what plans you could be looking into, your your tax minimization strategies, your income strategies. Where are you gonna pull income if the markets are up? Where do you pull income if markets are gonna go down and so on?

Mike: 05:26

Then you can start to build a portfolio with all of the assets seeking to hit that 6% or more. Now CDs and treasuries aren't gonna hit that. So you're gonna have some assets where you're trying to get a little bit more. Some assets you have to accept what a CD is or what a treasury is. K?

Mike: 05:45

But you've deliberately planned with a conservative projected rate, the various strategies in a spreadsheet. You've written it down. Then here's what you're gonna do. You're gonna start looking at your portfolio and divide it up. Not by the ambiguous.

Mike: 06:05

Oh, you know, let's buy and I'm gonna use the jargon playfully here because most people don't actually know what these terms mean. Okay? Advisors talk over people all day long. Drives me crazy. But, oh, yeah.

Mike: 06:16

We're gonna buy your large cap, small cap, mid cap, and diversify among there. We're gonna have some fixed investment products as well, you know, your bonds and and all of that.

David: 06:23

And Yeah.

Mike: 06:23

And we'll have it be in some a and double a and triple a and maybe a couple of triple b's, but never the the junk bonds. We would never do that. And then we're also going to incorporate maybe some emerging markets and be a nice, well diversified portfolio. And we'll make sure to have a little bit in the tech sector a little bit Whatever.

David: 06:41

Right.

Mike: 06:41

K. It's investment ambiguity. It's milk toast. That's not what we're looking for here. What we're looking for is diversification by timelines.

Mike: 06:52

So a part of your portfolio will be used as income in year 1, 2, 3, 4, and 5. Then take a part of your portfolio and invest it in investments or products that can satisfy your lifestyle needs in that time frame. So in year 1, maybe you buy a 6 month CD and use it for income after 6 months. It's guaranteed, not going anywhere. FDIC insured, you're good to go.

Mike: 07:19

And then maybe in 2 years, you buy a a 2 year treasury. So a treasury that matures in 2 years. And that's just ready to go. So you might ladder out your income for the 1st 5 years from principal guaranteed sources. Why?

Mike: 07:32

Because you're gonna take risk in other parts of your portfolio. But if you don't need to touch it for 5 years, there's a good chance that if the market crashed in the 1st 5 years, you have time to recover. You see how this is playing out? Mhmm. Then maybe take another part of your portfolio and you section that off to say, okay.

Mike: 07:48

In this part of the portfolio, we know we need x amount of money in case the markets were to crash. We don't know if it's gonna be in year 6, 7, 8, or 9, or 10. But we'll put enough in there to maybe cover 2 years of the 5 years of a crash that's principal protected. And the rest of it is invested in long term growth strategies. Not with the ambiguity of, oh, we'll buy a little bit of everything.

Mike: 08:09

But maybe you just focus on growth. Up to you. But do you see how we're getting more detail here? Now imagine you take another portion of your assets that you don't need to touch for 10 years. And if you don't need to touch it for 10 years, how much more growth could you potentially get out of that part of the portfolio?

Mike: 08:28

Because you didn't do the milk toast strategy of buy a little bit of everything but it's really conservative. So it might not grow as much but it won't lose as much. No. Put a portion of your portfolio they don't need to touch for 10 years. Let that sucker grow.

Mike: 08:42

By getting more deliberate with your portfolio based on the needs of your plan, I believe that you're setting yourself up for more success than being scared and and buying a bunch of fixed income products, whether it's annuities or you're living off of CD interests or bond interests. But you don't need to keep all of your assets at risk. Then if the markets go down, you can still draw income from a principal guaranteed source. We call this the reservoir. Why reservoir?

Mike: 09:08

Well, why does a city need a reservoir of water when there's a drought? Why do you need a reservoir in your portfolio of principal protected products? For when the markets go down. You don't need to find the perfect investment, product or strategy. You need to have a series of strategies and an array of products and investments within the portfolio based on the timelines of your lifestyle and legacy plan and intentions.

Mike: 09:34

And what's interesting is when I talk about this, so many people say, you know, that makes sense. It's weird to say that this train of thought is unconventional. But in summary, how do you plan so you don't mind on money? You create a proper plan with proper projections. You then explore the strategies that are gonna help you get more out of your hard earned money.

Mike: 09:54

Then you look for how to design a portfolio to support those strategies and that plan. I don't think I could say it simpler than that. That's as straightforward as it gets. Now, there are some nuances with this. Do you want long term care or not?

Mike: 10:08

You're paying a premium for long term care but that might be a factor in there. Many of my clients self insure, so they choose not to have long term care. They're gonna pay for it out of pocket if they need it. When you file for Social Security, what's your legacy intention? All of that does play a factor in here.

Mike: 10:23

And so the plans can get really detailed. But the point is, what risk do you want? Do would do you wanna guarantee income for life and assume the inflationary risks and tax risks associated with it? Or do you wanna assume maybe a longevity risk, But you've got more control over the growth and flexibility to offset those risks. Or do you want a hybrid approach?

Mike: 10:48

There is no right solution here. But it is important that you're putting a plan together that operates within your emotional and economic limits. 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: 11:05

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.