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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. My name is Mike Decker. I'm a licensed financial adviser who can even file your taxes. Now that said, please remember, this is just a show. Everything you hear should be considered informational as in not financial advice.
Mike:If you want financial advice, you can contact our team today by going to www.yourwealthanalysis.com. Joining me is David Franson, my colleague. David, thanks for being here. Hello, Mike. David's gonna read your questions, and I will do my best to answer them.
Mike:Text your questions in right now to (913) 363-1234. Again, that's (913) 363-1234. Let's begin.
David:Hey, Mike. Do I really need $1,260,000 to retire comfortably? Maybe. Does it depend on the plan?
Mike:Yeah. It depends on the plan. I would say that's probably in the threshold that most people could comfortably afford to retire. I wanna know their age. So if they have $1,260,000 and they're 30 years old, you've got longevity risk.
Mike:If you got $1,260,000 and you're 80 years old and haven't retired, that's probably a a surplus. If you're 60 years old, it depends on how much income you need. It depends on where the assets are. It depends on how you're gonna handle health care. So if you're 60 years old, what's the cost gonna be for Affordable Care Act insurance before Medicare, then after Medicare?
Mike:Is the 1,260,000.00 in pretax accounts? Because if it's in pretax accounts, the portfolio will be structured in a certain way. If it's after tax accounts, then you're subject to capital gains. So you've got a whole different tax situation on how it's gonna be affected on your income, the investments, the movements, how quickly you can even move
David:the assets around. Well, just to go off on a little bit of a side tangent, the 1,260,000.00, where do you suppose they come up with that number? Where are they
Mike:sitting at? No idea. What do you think? Did you see a TikTok video about that? There might have been an ad somewhere.
Mike:I do know there's a marketing principle that if you put random numbers in your tag or headline, you're more likely to get clicks. So instead of a million dollars, it's like 1,260,000.00. You're more likely to click on it. Right. So that number could just be a marketing bit.
David:Okay.
Mike:Now let me explain why that's actually really important. Yeah. So the things you read online are often written to get clicks. They're not always written by financial professionals. So be very careful.
Mike:For example, and I've got when I do, like, an event, I've got a whole bit on this, so I'm gonna share it with you right now. The investment advisory space, so the securities, you know, your stocks, whoever sells stocks, your bonds, your mutual funds, your ETFs, all of that, they like the 4% rule. 4% rule says if stocks have averaged, let's say, 9% year over year and bond funds have averaged, I don't know, 4% year over year, you should be able to draw 4% from your portfolio, maintain principal, and retire and stay retired and still keep up with inflation. And in principle, that should be true. Doesn't always work that way, but that's beside the point for today's conversation.
Mike:So that's called the 4% rule. It's a rule of thumb invented by William Bangen many, many years ago. So the industry, the financial services space, or the investment advisory specifically will use this rule, build portfolios around it, and say you can take out 4%, and that's how they sell the stock bond fund portfolio, whether it's a sixty forty split or something else. K? And so you'll read on lines like the Wall Street Journal published, I think it was a year ago, the 4% rule is back.
Mike:This was after the market had recovered from our recent turbulence, and all was well. And then I saw another article that was published on MarketWatch that said, forget the 4% rule. The 6% rule is now the right withdrawal rate. Okay. And they argued that because the last ten plus years, which is true, the markets have grown greater than ever before, that we're in a new time where the markets will grow faster and better and stronger and whatever in perpetuity.
Mike:At least they don't say it they don't come out and say it, but they infer it, and it's not written by the financial adviser. It's written by someone who's intended to get clicks, but it caters towards the individual who wants more money. And then there was a article that I found. It says, Dave Ramsey says, the 4% rule is garbage. The 10% rule is possible, suggesting that you could take out 10% from your portfolio each year.
Mike:Dave Ramsey didn't say that. Dave Ramsey said if your portfolio has grown much more than expected, maybe one year or two years, you take out a 10% withdrawal because you can afford to do so and have an extra fun year taking the kids on a vacation or making memories. I believe Dave Ramsey is correct, but this guy named Steve Burns, wherever he is
David:Yeah.
Mike:Took him out of context and misquoted a headline. He does kind of talk about it in the article, but it's still misleading. None of these people were financial professionals. They're not licensed. They're creating content that creates clicks.
Mike:So whenever you see some weird number or some arbitrary thing, just remember that most content I have found that's online, I don't believe is sound financial advice. Well, off, it's not financial advice. It's informational only, but it's also intended to get you clicks. Yeah. Because that's how they get paid.
Mike:So proceed with caution with the stuff you read online, talk with a professional financial adviser who is a fiduciary that's legally bound in their contract. It has to say legally bound to put your interest out of their own, that also is holistic and can talk to you about insurance products and can talk to you about your taxes. So for example, here at Kedrick, we can even file your taxes. We are the full service shop, and we do it all at a fixed rate, which a lot of people don't realize until they go to our website. But we have a CPA like model.
Mike:You pay us for the service, and if you have extra money, we don't charge you more. This 1% rule I think is garbage. 1% of your assets, so we will give you the same amount of money regardless of or we'll charge you more for the same service. It's just kind of a sham in my opinion. So we charge anywhere from 400 to $600 a month for a full surface retirement plan.
Mike:Anyway, the point being is be careful what you read online. Know that a lot of it's intended to get clicks, and many things can be taken out of context. 1,260,000.00 might be enough. It might not be enough. That's why you gotta put together a plan then you gotta explore the strategy to understand how all of it works, and then you gotta put together the portfolio that then would support the plan.
Mike:And the portfolio, if you're willing to take more risk, maybe you've got more growth potential and more income potential, but maybe you're not comfortable taking that risk. That's going to decrease in your cash flow. So it's not just an arbitrary withdrawal rate. The investments have to line up. I've known people that put everything in cash, assuming they could take 4% out.
Mike:Like, well, yeah, high yield savings might get you 4% roughly now. True. But what happens when it goes down to 1%? You're kind of stuck. Proceed with caution, understand what you're reading, and ask yourself, what's the risk that they're not disclosing or explaining?
Mike: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. 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. Is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to wwyourwealthanalysis.com today to learn more and get started.