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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 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. 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 today by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, co host, friend, and mister David Frandsen. David, thank you for joining me today.
David:Hello. Hello.
Mike:Alright. David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in right now to 913-363-1234. Again, that's 913-363-1234, or email them in at hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. I'm in my forties and trying to prepare for retirement. What tips would you give someone in my position?
Mike:Yeah. Let's go through this kind of quickly from a a fun list standpoint. Everyone likes a good list.
David:Yeah. Oh, yeah.
Mike:So when you switch employers, don't roll over your 401 k into another 401 k. And the reason why I say that, you you need to compare fees. You need to compare options and opportunities and all that stuff. Like, do your due diligence. But, overall, if you roll over your 4 one k from your previous employer to an IRA, let's say, you have more options.
Mike:Maybe you put the funds into a self directed IRA and look at some rental real estate property. Can't do that in a 4 one k. Let's say you do some tax planning and you do some IRA to Roth conversions. I guess you could do that in a 4 one k, but you also could do that in an IRA. You could do so much more outside of a 4 one k.
Mike:Plus, if you self manage, you could potentially pay less in fees anyway. So, I mean, you could just buy the same funds, not have the extra 4 one k fees associated with your policy, and just and grow from there. So I I just I believe that when you switch employers, you maybe wanna consider the fact that you can roll it over into an IRA that you can manage yourself or have it professionally managed as well. And that brings me to my second point, is if you want growth, and most people want growth from their qualified assets because you wanna grow up for retirement, consider more active growth models. Like, for example, we use absolute return models.
Mike:They're proprietary models. We really enjoy them. They just people have never heard of this before. Absolute return models. The idea is that you're using an algorithm to look at efficiencies and on what positions, usually stocks, to buy and hold for a certain period of time.
Mike:Absolute return doesn't mean absolute guaranteed return. It means regardless of market conditions, what's the best place for me to put my money in today and hold it in that position for a certain predetermined period of time with a high probability of growth for that period of time. That's what absolute return is. And if you've never heard of it, consider reading the book, what works on Wall Street. One of the largest studies ever done on the market and on investors and Wall Street.
Mike:It's a great book. It talks about these models. Also, the Yale endowment. You think they know what they're doing with their money? One of their largest allocations is to absolute return models, and you've never heard of them before.
Mike:Now you can't do absolute return models in a 4 zero one k. But if you roll it over to an IRA, you could find someone like us that actively manages. Usually, it's qualified money because there's no capital gains issues. But actively manage and grow those assets. You've got time.
Mike:You can afford maybe taking some risk and really try to grow those assets. And then number 3. I'm assuming you have term life insurance.
David:I do. But before we go to that, can I so are we saying just to go back to 401 k, are we saying, like, don't bother with your employer's 401 k? Or do we still want people to use a 401 k? Take advantage of it.
Mike:Oh, yeah. Keep contributing. But it's like once you leave an employer, the handcuffs are off. You can take that chunk of money and move it elsewhere, and then just start over with your new employer and a new 401 k and continue to contribute. Oh, so
David:you could have both going. You could have a new employer, new 4 one k, and your own thing that investment models. Yeah. Simultaneously.
Mike:Yeah. I mean, in some sense, it's a way of diversifying strategies.
David:Yeah. I like it.
Mike:Give yourself options. Yes. If you have more options, you can be more strategic. If you can be more strategic, the odds might be in your favor. Not to sound like hunger games here, but you want the odds in your favor.
David:Always.
Mike:You want options, not options trading like option contracts. You want the ability to have multiple choices on how to proceed with your money and use different strategies to grow your money.
David:Well said.
Mike:Thank you. So term life insurance, most people have term life insurance.
David:I have some, and I get mailers all the time telling me to convert it to whole life or some kind of other life. I'm like, isn't that really expensive?
Mike:Well, so if you're looking from a cash growth standpoint, I don't believe whole life is very competitive. Indexed universal life, which is also under the cash value life insurance or permanent life insurance umbrella. That, in my opinion, has more growth potential so you can grow cash value potentially at a greater rate. And the reason why I think this is important is if you're saving money in retirement, you max out the contributions of your 4 one k. Right?
Mike:The the employer match and maybe a little bit more. And you're strategically putting some funds in pretax or after tax depending on your situation. You've got your slush fund in high yield savings, right, for emergencies. Taking term life insurance and making it permanent life insurance can be advantageous for a couple of reasons. 1, it builds cash value that could have at least more growth potential than a CD or treasury or high yield savings.
Mike:So that's kinda nice. If you were to lose your job, have a major health care crisis or bill. Right? You you get you get sick or whatever it might be. You can borrow against the cash value and help alleviate some of those burdens.
Mike:So there's there's liquidity there when you're funding it. And, also, when you retire, you can use it in so many different ways from a tax standpoint. So as you're converting irate assets to Roth, you can use it to absorb some of the tax consequences through what's called positive arbitrage. You borrow against the policy. And if the policy's cash value grows at a greater rate than the loan amount, then you could make money off of money you've already spent.
Mike:Read my Kiplinger article about this, retirement planning with life insurance. Just Google Kiplinger Mike Decker, and you'll find that article. You can also use it to help tackle beneficiary IRAs if you're expecting inheritance. That can put a burden on you. So you can kinda work through that.
Mike:I mean, there's so many different strategies, but when you're 65 years old thinking, you know, I want cash value life insurance. It might not make sense. If you're 40 or 50 years old and you can fund this correctly, and it does need to be funded and structured correctly, you have more options in retirement. More strategies you can implement that you would not be able to otherwise. And then the last one, just to conclude this section is start developing a relationship with a comprehensive adviser, not a sales adviser.
Mike:So if they only manage money in the market for growth, that might be kind of restrictive. It might work for this time, but at some point, you may want a more comprehensive adviser. Time builds trust. So starting to develop the right relationship with the advisor that you're gonna wanna work with in retirement may make sense for you to start looking at now. People change, I think it's, like, 5 or 6 times their advisor in their lifetime.
Mike:You know, you've got your getting started adviser. Someone who's willing to just work with you when you don't have much money. I have a little bit more money, so I maybe can get better relationship kind of situation. You've got I mean, you got all sorts of different relationships, but the comprehensive relationship is usually where I find people are ending up. And if you can just start working with that relationship now, it could provide additional benefits as you strategically save for retirement and plan to retire on time.
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 podcast. Just search for how to retire on time. 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.
Mike: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.