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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.
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 you can go 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 advisor, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just a show.
Mike: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 at Kedrec today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. Dave, thanks for being here today. Welcome.
Mike:Yeah. David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting them to (913) 363-1234. Again, that number is (913) 363-1234, or you can email them to heyMike@howtoretireontime.com. Let's begin.
David:Hey, Mike. When should you create your retirement plan?
Mike:Yeah. This there's layers to this question because is it the plan they're talking about or your preparation? So recently, I I did a whole bit on how I think retirement preparation should start when you're 16 years old. Those first couple of years when you're basically getting your tax free income, depending on what state you're in Yeah. That you're putting some money in the Roth and just set it and forget it because it it can take care of a substantial amount of your retirement before you even graduated college.
Mike:Now that said, not everyone has that kind of cash flow or the extra income or whatever it might be. So I get that, but you really can't plan your retirement when you're in your twenties, thirties, or forties. There are too many variables. I mean, is the market gonna go up? Is it gonna go down?
Mike:Is it gonna go sideways? What kind of tax rates are gonna change? So there are so many variables. The idea really is if you're taking a part of your income, let's say 15% of your total income, and you're moving it into some sort of investment account, then when you get closer to retirement, then you can start to fine tune in your fifties. So, like, right now, I'm turning 37 years old.
Mike:Happy birthday to me. Right? February is a great month. Same birthday as Steve Jobs.
David:Oh, I didn't know that.
Mike:But I can't get my plan, my personal plan down to the the dollars and cents that I might like, that I would do for a client.
David:Okay.
Mike:It's just there are too many variables. I know that if I can save 10 to 15%, I should be able to save enough to basically maintain my current lifestyle or maybe even do a little bit better than that. There's this weird relationship between if you can save around 10% and you get used to a certain lifestyle that you're gonna be able to maintain that lifestyle, hopefully, when you retire. It's not like you live as a popper. You're in your twenties, thirties, forties, and fifties.
Mike:And then in your sixties, you're now this incredible multimillionaire living on, you know, whatever, having yachts and caviar and champagne or whatever. We become comfortable and familiar with certain lifestyles. So it's actually quite common that the multimillionaire, the 10 to 20 millionaire, they actually lived a very frugal life, and they're uncomfortable spending their money.
David:Okay.
Mike:It actually is a problem we have to emotionally work through. And then you've got the person who didn't save money because they got used to spending everything. Now they can't retire. So do you see how there's this beautiful balance that if you just are kind of putting away some money Uh-huh. Maxing your wealth, all that, you're just maintaining certain systems.
Mike:Then when you get to I think 50 years old is when you start really planning for retirement.
David:Okay.
Mike:I think that's the magic number.
David:Is that because most of your sort of major life events have or maybe behind you and you're sort of maybe settled on more of a groove? Or is there what else could be happening, I guess, between 50 and retirement?
Mike:So you can speed up savings, or you can slow down savings and live more of your life.
David:Oh, okay.
Mike:So, like, time is your most precious commodity. Right? Yeah. You're probably gonna be healthier at 50 years old than you are at 60 years old. Uh-huh.
Mike:So why would you stock more money away than you need to for retirement if maybe you just wanna take a couple of extra vacations? So because at 50 is when you can start really solidifying retirement. That's what I think the answer to the question is when you're 50 years old, then you start to put together a more deliberate plan. And another reason for that too is if the markets go flat for a ten plus period of time, you can start to account for that and prepare for that. You can be more deliberate about how you fund your reservoir.
Mike:So the reservoir, for all those who haven't heard of it, is our philosophy that a part of your assets are principle protected so that if the markets go down, basically, you draw income from your reservoir, your principal protected accounts, while your other accounts have enough time to recover.
David:Mhmm.
Mike:It's a really simple idea, hard to implement, but the concept is simple. You know, just like a city has a reservoir of water Right. In case of a drought, how do you maintain your income without accentuating losses? You fund a reservoir. Many people say, hey, I retired or I'm retiring next year.
Mike:It's harder to fund a dynamic reservoir in that timeframe. But if you have more time, like 50 years old or so, then you can be a little bit more proactive than that. Plus you can do do other things too. Like, let's say you wanna retire at 55. Many people delay their retirement to 60 because they don't think they can touch their four zero one ks until they're 60 years old.
Mike:Yeah. Right. You know, that's the whole 10% penalty. So the world's your oyster, but 50 years old is roughly what I recommend people to start planning for retirement. Yeah.
Mike:I mean, do you think I missed anything on this one?
David:What what are some elements that we should consider when we're thinking about a retirement plan? Like, what what are, like, a few bullet points of
Mike:So income is one of the main pillars you're gonna have to plan for, and there's about 10 different ways you can generate income in retirement. They all work, but you need to put the reservoir with them. So for example, you could take around 4% from your growth portfolio each year, year over year. But if the markets go down, you don't wanna take income from those the accounts that have lost money. That makes it more difficult to recover.
David:Alright.
Mike:So you have a growth portfolio and you have some assets that are protected. So if the markets go down, you draw income from the reservoir, but you can maintain that 4% rule growth portfolio Mhmm. And you're just taking income out of the growth. You could do a dividend portfolio. You You know, dividend portfolios can be fantastic.
Mike:Maintain principle. You're, enjoying retirement off of your income, but dividends aren't guaranteed income. So then you need to kind of you gotta plan for if the dividends dried up or they were paused for a period of time, but you have another source that's protected because dividends only really dry up when the markets go down. So then you have that protected account, the reservoir to draw income from. Rental income.
Mike:Love rental real estate. Love, love, love rental real estate. But sometimes things can happen to your houses. Maybe there's a long spell of no tenants, whatever it might be. Usually, there are tenant issues in times of economic uncertainty.
Mike:Okay. Do you see how the reservoir complements all of the other strategies that you may want to implement? It's just Right. People don't realize when crap hits the fan, what do you do? We don't wanna face those things.
Mike:We don't wanna acknowledge those things. And so that's why this is so fun, is we don't have to be right on the best strategy. What's the best strategy for you? And then how do we prepare for income in the flat markets, the up markets, the down markets? When taxes go up, taxes go down, and all of that.
Mike:That's income. The other part of the retirement plan that you'd want to consider is your tax minimization.
David:K.
Mike:So for example, if you're 50 years old, what's your income expected to be in retirement, and what's your current income right now?
David:Okay.
Mike:You may want to move more of your savings into your after tax, your Roth equivalent of your four zero one k because you don't wanna create a tax problem in the future. This is with RMDs. This is with, you know, if tax rates go up and and all sorts of things that could happen.
David:Mhmm.
Mike:So you can prepare for that. A lot of people don't realize you can do IRA to Roth conversions before you're 59. Mhmm.
David:You
Mike:just need to pay out of pocket the taxes, but then you're keeping more money into your qualified accounts. So that that helps too. If you wanna retire early, then it's understanding, okay, we're gonna keep so much money in your four zero one k. There's something called the rule of 55 that allows you to bridge the gap from 55 to 60 years old for income and tax. The list goes on and on and on.
Mike:But Yeah. To get out of that rabbit hole real quick, you've got income taxes, when to file for social security, got healthcare planning, which by the way, healthcare planning, if you need long term care insurance, you probably, if you can afford it, you probably don't need it. And if you need it, you probably can't afford it. Yeah. Kind of a conundrum.
Mike:It's evolved over time and it doesn't make a lot of sense unless you want to pay for that peace of mind for the the few situations where it might work out in your favor. It's insurance. It's not an investment. And then what else? Getting your estate plan in order is another huge one.
Mike:And then also the last one, understanding life insurance. A lot of people have whole life that I think was improperly funded or index universal life or just universal life in general, or they have term life in their later years. What's it actually doing? We're just so used to having a policy. Was it structured correctly?
Mike:Is it being used correctly? Does it need to be updated? Do we need to rerun an illustration so that we can lower the cost of insurance so that if there's a cash value that's able to grow at a I mean, do you see how the complexities dive in? But it's like, we get upset when Netflix increases their their monthly subscription from $10 to $15, and they add some ads in there. Yet we're completely missing the fact that we have hundreds of dollars, if not thousands of dollars of inefficiencies that we're just letting snowball in our our financial situations because we're just unaware of all of these different strategies that can help us get more out of our hard earned money.
Mike:So, I mean, at the end of the day, why do you hire a finance professional to get more out of your money than had you done it on your own? That's it. If your finance professional is someone that's just keeping you diversified in some portfolio that doesn't get shifted around a lot, You could probably do that on your own. Right. But when you dive into the tax planning, when you dive into the health care planning, when you dive into the all these different risks, that's where it may make sense to work with a professional, someone that can answer questions that you don't know to ask.
Mike:It's not what you don't know that can hurt you, though that I guess that in some sense is true. But for many people, it's what you know that isn't so that really messes you up. 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.