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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 everyone to How to Retire On Time, a show that answers your retirement questions. I'm Michael Decker here with David Franson. We're gonna be diving into the nitty gritty as always. As always, submit your questions to retireontime.com/ask, and we'll be taking them one by one throughout the show. Just remember this is a show.
Mike:It's not financial advice. That's our disclosure. Because we don't know you and we haven't done a one on one assessment of what's going on. But we do wanna talk about strategies. We do wanna dive into the details.
Mike:That's kind of important when it comes to retirement planning. So, we've got our polls in. If you're in the chat, if you're on our private Zoom, join this call. Also enjoy submitting them in the chat. I can see everything that you sent to us.
Mike:And we're gonna dive right in. So for today's conversation, we're really gonna start with really the idea of paralysis by analysis. Every retiree seems to go through this at one point or the other. And just let me just set a a backstop on all this. This.
Mike:Kind of a backdrop of our conversation today. Alright. So David, you're you're a doctor. Congratulations.
David:Oh.
Mike:Alright. You're a doctor. You've spent the last, you know, you spent twenty years or whatever, like ten to twenty years becoming a doctor. And then you spent thirty years practicing your doctor skills.
David:Okay. So about fifty years now?
Mike:Yeah. Fifty, sixty years.
David:Alright.
Mike:You know, you wanna retire.
David:Yeah.
Mike:Great. Now you gotta be a finance professional.
David:Oh, I've gotta switch careers is what you're saying. Yeah. Just on a dime.
Mike:That's kinda what it feels like. And it doesn't mean you're dumb. You're not. You're doctor. Yeah.
Mike:You save lives. You open people up and and perform miracles on them.
David:K.
Mike:But now you have to learn the difference between ordinary income and long term capital gains and how that stacks and how you read into a ten forty and how it shows up in your tax form. Oh, yeah. Now you gotta learn the difference between this income strategy and that income strategy. And the problem is retirement today isn't planned for, it's sold.
David:Yeah. What do you mean by that?
Mike:Yeah. It's sold because it's a bunch of products that are are pushed in your face over and over and over again. We've talked about it before. We'll talk about it many many other times. And that is just the simple idea that everyone wants to sell you a product.
David:Mhmm.
Mike:Go on social media. What is it? Product pitch. Product pitch. Product pitch.
Mike:If you're this is what the wealthy do. If you're not doing it, boy, you're behind the times. I can't stand it. It's so manipulative, but that's what it is. And so like the last one I I and we've talked about this before, but I saw one that said, don't buy an annuity.
Mike:They're scams. Buy this instead. And then he quotes a payout rate that's higher than an annuity rate. And I went, That's very interesting. Mhmm.
Mike:So I I click it. And I'm like, oh, it's distressed real estate that's leveraged with the possibility of more development that's paying a higher rate until it either goes bankrupt, is called, or is done. It's like annuities were never trying to do that. It's fine if you don't buy annuities. It's fine if you don't buy this real estate thing.
Mike:But stop assuming that they're apples to apples comparison because all it does is causes people to freeze up when they're doing retirement planning. And it all boils down to one problem. The order is wrong.
David:Okay.
Mike:It doesn't mean that this real estate thing is a bad idea. It's an investment and you're being paid out based the risk you're taking. It has benefits and it has detriments. That's it. It's like a sledgehammer.
Mike:The benefit? It's heavier. Yeah. And man, you can get through some walls. The detriment?
Mike:You drop it on your foot, your foot's gonna hurt worse.
David:Oh, yeah.
Mike:It's gonna hurt more. Yes. So so I wanted to just talk about how retirement planning is often done today. I see we got 40% or so with us are already retired according to the poll we just did. And 30% are within two years of retirement.
Mike:So this is very applicable because the markets have only gone up, really, I mean, for the last fifteen years. Most people I don't feel actually understand the risk that they're taking as what markets could be looking like moving forward. So this is so important. If you did not go through this sequence, consider redoing your retirement plan. It's that important.
Mike:Okay? So let's go through typical retirement planning strategies. Okay?
David:Alright.
Mike:So, okay. You're five years away from retirement, and you're like, ah, I should probably start learning about this stuff. Yeah. Very normal. So what do you do?
Mike:You start going to the dinner events because everyone, fifty, fifty five years, you're getting mailed events to steak houses and Italian restaurants and the local bistro, whatever it is, to learn about retirement planning. And it's income planning, it's tax planning, and so on. Let me give you a hot tip on that, by the way.
David:Alright.
Mike:Those aren't really planning events. Those are how to sell a high commissioned product. Doesn't make the product right or wrong. It's that the only person that can afford that kind of business model is one that can make their money back fast enough, which is only possible through high commission products. Delaware statutory trust, qualified opportunity zones, private placement in real estate, like real estate investment trusts, annuities.
Mike:Doesn't make any of these tools right or wrong, but it means there's a conflict of interest because the expensive dinner requires a nice payout. You're never gonna hear someone spend a ton of money on a dinner event and say, and the secret is this passive portfolio of low cost ETFs. Yeah. It's that's never gonna happen. It's not economically possible.
Mike:I've put in the chat for everyone that's live with us. I'm curious. Have you ever been to a dinner event where they didn't pitch you a high commission real estate product or a high commission insurance product? I I can't believe that's ever happened. Yeah.
Mike:Unless they already have an established book and they're taking the friends of their clients out to dinner for like a referral event. That's the only exception to the rule.
David:Okay.
Mike:And then you've got workshops. Workshops are also really really nice. But they're not really workshops where you're learning how to, you know, do this, that, or the other. Like sometimes they're there, but there's a lot of smoke and mirrors, and there's a lot of non profits out there, quote unquote non profits. Well, hey, let's let's go in here.
Mike:That's non profit. They're only education only. Well, they have this clever disclosure that once you meet with them one on one, that they're now in a sales position. And they'll often sell products. It doesn't make it right or wrong.
Mike:But notice, people dangle the we're talking about planning, we're talking about strategies, but really we're gonna sell you a product. I write about this in the book. And what I mean by that is, if you're sitting down, however you got there, through a dinner event, through a workshop event, through a a referral, whatever it is, if what they sell is an annuity, your your answers are probably solved by annuities. Mhmm. If what they sell is, let's say, a stock bond fund portfolio, Your solution to your problems is probably a blend of that stock bond fund portfolio.
Mike:Now I'm being very harsh. Not to be negative, but to critically analyse the problem with the sequence. A lot of these situations are products first, and then you plan around how the product is there. So Mhmm. Let's say David, you've you're not you're not a doctor now, you're a home builder.
David:Alright.
Mike:K? And I give you a bunch of hammers.
David:K.
Mike:Now you have to build a house out of hammers. That's the only tool I have? That's all you got. Hammers and nails. You're probably gonna build it a little bit differently than had you had different tools.
Mike:Like it's that's kind of a weird analogy, but do you see where I'm going with
David:Yeah. I'm limited, basically. I can't maybe the design of the house has to change because I only have hammers and nails. Yeah. I can't make any cuts.
David:I can't maybe my No.
Mike:Yeah. So you're you're taking fallen logs and you're put you're stacking them and you're hammering them together and like it just kind of is what it is.
David:Right.
Mike:So the the point I'm bringing and AI is another problematic situation because AI is gonna share with you what's popular. Mhmm. So you might get recommendations. They're not legal recommendations, but research based on what your neighbor's doing, but that might not be what's right for you. Now, I'm not being critical for the sake of being critical of an entire industry that is legitimately trying to help people.
Mike:Mhmm. But I am being critical about sequence because the sequence is fundamentally wrong. Mhmm. The sequence is product first, plan second.
David:And and that's what most people are doing, you're saying, in the in this in this business.
Mike:Mhmm. Yeah. Oh, yeah. I've I've been on national stages. I've been a part of panels.
Mike:I've coached financial advisers all across the country. And the conversation is, okay. Well, what do you sell? Great. And then how do you sell that in two or three appointments?
Mike:Oh, yeah. Now you've seen our planning process here. Yeah. We've done steak dinners. Like, we've done these things.
David:Yeah.
Mike:Doesn't make them wrong, but the numbers are on our side because we're charging a a flat fee for the planning cost So that everything works out. So we're not having to be biased. Quick aside. But I do wanna acknowledge, like we've done these types of marketing events too. It's not wrong.
Mike:It's just Right. You have to start asking questions. So so here's what I wanna go with it. Okay? All of these product pitches I mean, there's actually a book you can buy that tells you how to get your dinner paid for for an entire month if you move to Florida.
Mike:Because you can go to retirement dinner event after retirement dinner event over and over and over again and have your free month of food.
David:Right.
Mike:And you're gonna learn a lot. It's not necessarily bad. I think there's a moral issue here of going to events like that without any intention, but they technically invited you so you can take them up on it. Yeah. But you can go to these events.
Mike:You can go to these workshop. And what you're gonna do is you're gonna learn a lot of ingredients. You're gonna learn a lot about ingredients, a lot about products, a lot about investments and how they work, but there's no context. And so then you end up with a very difficult situation of, okay, I've got all these ingredients. How do I use them?
Mike:I mean David, if I if I gave you 50 different ingredients Mhmm. Put them on the table, and then I said, alright, I want you to cook Thai food for me. Would you have any clue how to put that together? Thai food's kinda tricky. Yeah.
Mike:You got weird ingredients.
David:There might be a couple of ingredients where, like, oh, I recognize, yeah, that that chili sauce or whatever. But, I mean, what am I what am I doing after that? I don't know.
Mike:No. And for those who don't cook Thai food, by the way, I'm not very good at it, but I I try. Yeah. There's like weird ingredients like oyster sauce Yeah. Which smells terrible.
Mike:But when you put it in there correctly Mhmm. With the right balance, like, it's that that flavor you can't get without it. Yeah. But it seems weird. K?
Mike:This is what retirement planning is really like. And so the reason why I wanted to broach the subject today, the reason why I wanted to point out, point fingers to all the different things. I got so many different yeah. That's this this company. They they do training and education, and it's actually sales pitch.
Mike:Yeah. Most quote unquote advisers, these are the comments we're seeing right now. Most quote advisers give you a tidbit of information
David:Mhmm.
Mike:And then pull you into sell. It's exactly what's happening here. Mhmm. So now you've got all these ingredients, and you've gotta sort it on your own because it's hard to walk into an adviser's office and trust that they're actually gonna sell you a plan or put a proper plan together. Here's how you solve that.
Mike:This is the sequence, and it's how you get rid of FOMO. It's how you get rid of paralysis by analysis. It's how you get rid of product pitches on there. Because the sequence is in order, and the sequence will answer all the questions in the proper order. Let's start with the very beginning.
David:Okay.
Mike:The first one is called defining your lifestyle. Do that first. One of the biggest misconceptions I see often is, I'll say, well, how much do you want as income in retirement? They say, well, I currently bring about this much. Maybe I'll maybe a little bit more, little bit less.
Mike:And it's that assumption, like, no, pump the brakes. We can't put a plan together yet until you figure out what do you want to spend your time in retirement. Yeah. Are you gonna travel? Okay.
Mike:What's the cost of the travel and the extent of that travel? Are you renting a U Haul and going around the country? Are you gonna go abroad over and over for the first five years? What's the typical cost for that? What's the expected inflation or the increase of travel costs if certain things happen?
Mike:We need to know these things because your job is to live your life in retirement. It is not to say, well, here's my budget and I'm just gonna work around that.
David:Mhmm. Very limiting.
Mike:You're defining your lifestyle. And if you don't know what your lifestyle is really supposed to look like, you cannot put a plan together. Now how many times do you hear that in the first appointment? Hey, we can't plan yet. Yeah.
Mike:Because you haven't figured out what you want your retirement to look like. Now there's some things you could do, like maybe start to derisk your portfolio a little bit. You probably shouldn't be a 100% in equities when you retire. That's equities is the fancy word for stocks.
David:Right.
Mike:Right? You don't wanna be all in the S and P 500 probably the day you retire or even five years before you wanna retire. So there's some things you can start to adjust without context. Mhmm. Unless you define like, okay, well, the first five years, here's exactly what we wanna do in retirement.
Mike:We wanna go to these places. It's gonna cost roughly this much. Okay. Now we're putting context into the result that you want.
David:Mhmm.
Mike:What's your family history look like? Are you healthy? Are you not healthy? Were your siblings are your siblings healthy? Are they not healthy?
Mike:What do your parents look like? The you have to have this before you can even start the plan. Then, you run the plan. Only after.
David:Yeah. So you you can someone could come in and say, yep. This is what I wanna do, and I've run the numbers, and I think it'll cost me I need, like, $6,000 a month. Yeah. And then you can work with that.
Mike:I can work with that if you can explain why you want that number. Mhmm. I'm not the gatekeeper here. But like, if you walked into a doctor's office and they said, I hurt, and they said, here's some I mind saying Ozempic. All these GLP ones.
Mike:OxyContin. Here you go. Here's some OxyContin. The pain will go away. Yeah.
Mike:You might not trust the doctor unless you're an addict. Yeah. The doctor should probably say, where does it hurt first? Yeah. That's the first question.
Mike:When did it start hurting? How long has it been hurting? Maybe it's not you need some sort of opioid. Mhmm. Maybe you need to do some stretching.
Mike:Or I don't know, maybe take some anti inflammatory medication or maybe it's a massage. Not to, you know, put a Seinfeld joke subtly in there.
David:Yeah. Right.
Mike:But this is so important. It's not the budget of your working years. It's the cash flow plan that you want to support the life you want later on. I can't tell you how many times or conversations we've had about when I I asked, you know, what do you want to do in retirement? Well, we want to travel.
Mike:Okay. What's that look like? How much more do you need to make that happen? And they're like, we can we can do that? Yeah.
Mike:You've got your travel years and your casual years. You can front load. You can adjust your income partway through the plan. It's on your terms. Yeah.
Mike:But you have to do the research first. Then you have a lot of fun. That's when you go into the plan mode. A plan starts as a broad based plan. It's a series of projections.
Mike:Notice, it's just math. It's a simulation. That's it. Here's how much you have. Here's how much you want in your travel years.
Mike:Here's when we pull back for the casual years, if you pull back at all. Do the numbers work out? Great. Do you want to adjust this? Do you want to adjust that?
Mike:And then you go into strategies. So if you want to simplify it, you're going to go into how much do you have in your pre tax accounts. So think IRAs, four zero one k's, and so on. You're gonna look at how much do you have in your after tax accounts. So think of Roth.
Mike:Mhmm. If you have cash value life insurance, you can lump that in there as well. After tax in your four zero one k. Okay? And then you have your brokerage account.
Mike:Those are your three buckets. And if you put them at least into our planning software, which you get if you download the book, How to Retire on Time, we give it to you. We want you to run your projections. We want you to play with these numbers. It's so fun.
Mike:Because you're seeing your life come together in the future. You can start to look at and say, hold on. You want $67,000. You're gonna retire at 62 years old. Got it.
Mike:And you had a $500,000 in your brokerage account. There's an opportunity there. See, now you're exploring the efficiencies. Oh, yeah. If you had you started with products, and let's say bought real estate, and you're getting real estate income from it, that that's a product first approach.
Mike:You can't do tax planning around that. Now real estate has some tax advantages. That is true. You put real estate into a self directed IRA, you might lose out those tax advantages, which kind of defeats a lot of the purpose. But also, you could have R and D issues later on because the real estate asset might be less liquid.
Mike:See, you can't put products first because if you put products first, you've already backed yourself into a corner of any strategies you could implement. But if you start first with just your flow, we call it the asset flow analysis. That's the first thing we do. Where does the money flow? What does it look like?
Mike:Then, hey, we could do some tax efficiency this year, and this, and this year. So let's earmark that for sequencing the withdrawal strategy. K? If we filed for Social Security at 62, or 64, or 67, or 70 years old, How does that affect your portfolio? Okay, let's take note of that.
Mike:What's your lifestyle goal? What's your legacy goal? What's the income look like? Which one's run right for you? It's not about getting the most out of the government.
Mike:It's about elevating your overall quality of life. K? If we were to assume that the markets went flat, how does that affect your projections? Do you see how it's how do you get more out of your money first? That's what needs to be asked.
Mike:Yeah. Have we talked about any products yet? No.
David:None. We're talking about what you wanna do.
Mike:And how do you get more out of it?
David:Yeah. And maybe legacy. Do you wanna leave something to to an organization, to kids, to whomever, church?
Mike:Yeah. Steve put up a really nice point in here in the chat. Most people look at what they have and budget their travel around that constraint. This is what they have been doing for forty plus years. Now that's a very interesting point, Steve, because on a psychological lever level, our experiences shape our behaviour.
Mike:Our behaviour shapes our results. We have been conditioned to operate off of financial rigidity. So challenging the behaviour you've been that's rewarded you your entire life. This is why you're able to retire. It's because you've saved.
Mike:Yeah. That rewarding behavior is now holding you back.
David:Yeah. Like, so, I mean, you have to get into the mindset of instead of save, save, save, like, oh, it's okay to spend this now.
Mike:It's okay to spend it on your terms, but it's not okay to spend it without the proper strategies.
David:Oh, yeah.
Mike:You have to understand then where's the money gonna come from, what's the tax consequence, What's the market risk? And what's the inflationary risk? If there are three things to look at, market risk, inflation risk, and then tax risk or tax efficiencies.
David:Okay.
Mike:It's kind of the first level. But once you run the plan and the numbers check out, then you look at how to get more out of your money, the tax efficiencies, the health care efficiencies. So I talked about, for example, how you could structure your withdrawals in '62, 63, and 64 years old before Medicare started. That saves you taxes, if you do it right with your long term capital gains. And that also helps you with your health care premiums.
Mike:Affordable Care Act, because there are still subsidies available if implemented correctly. And this is, for all of you, the 30 or so percent that are still two years away from retirement, this is why you do a plan earlier. It's not because you're ready to retire. It's because you need to make sure you're saving in the right places so that you're able to implement these strategies when it makes sense.
David:Uh-huh.
Mike:People miss that because they don't read the tax code. And who would read the tax code? I mean, really.
David:There's a lot and it keeps changing.
Mike:I don't love like, okay. I love reading the tax code for strategy. Uh-huh. It's not a page turner. No.
Mike:It's Yeah. But but you wouldn't know this is the Dunning Kruger effect. Dunning Kruger effect. Which is? Simply put, the less experience you have, the over overestimating your abilities you will do.
Mike:So that's a really weird way of saying it. But those who lack experience overestimate their abilities or confidence because they don't know what they don't know. You cannot curb it unless you bring in a mentor, a coach, or a professional to start asking better questions.
David:Alright.
Mike:And AI won't tell you unless you ask the right questions. Mhmm. That's not a criticism of AI. That's AI literally can't, like, just give you stream of conscience for ten years. Like, it's it's just gonna give you a quick response based on what it thinks you want to hear.
Mike:Yeah. These are problems. So notice the sequence. Okay? Define what you want.
Mike:Put your plan together. Projections first, broad based. Then explore how to get more out of your money, which mostly is a tax and health care conundrum. Then you want to stress test it in these strategies because part of your strategies is how to make these numbers actually work. Then you start picking out very specifically the correct investments and or products based on the strategies that you wanna implement.
Mike:Okay. Because there's no such thing or you you can't implement a strategy if you never were able to in the first place. If you, let's say, and I'm harping on annuities a little bit rather. I'm gonna be kind to them later, but I try to balance things out. But let's say you're 60 years old and you bought a bunch of annuities.
Mike:You turn on income from and if it came from your IRA, so it's all pre tax income. You have some brokerage funds. You've missed several layers of efficiencies that could could lead to potentially, depending on your account size, 7 figures of legacy difference.
David:Yeah. So in that case, in that example, you just cited they they're gonna take money out of their their pretax, you know, IRA for income when maybe they could have used brokerage instead?
Mike:Yeah. And and and another way of saying that is you could if you retired early. I'm using that as the kind of the example for today. There are so many different other examples. We don't have time to go through the infinite amount of variability.
David:Mhmm.
Mike:But in that example, what if you just put less money into the income annuity from your IRA, and that you turn that on with Social Security? So now you're blending an income stream based on the standard deduction, and then Social Security is a tax efficient income stream, and that solves the R and D issues that you were concerned about, and that you layer in then less that then you layer in capital gains, withdrawals, or sequencing from your brokerage account to lower your taxes. So if you lower your taxes, there's more money in your accounts, which means more money to legacy. And then the leftover assets, because there's less down your IRA, you can convert those from IRA to Roth strategically, slowly over a long term period of time. Now you've got a lot more money in Roth that you're passing to your kids.
Mike:And that's just one example of so many others. But notice, the first thing was the plan, second was strategy, then the right investments and products. So you can say, okay, we want to implement this strategy. That means, like, if you're doing brokerage, you can't use annuities. Because even if you laddered out annuities, it's taxed as ordinary income.
Mike:Yeah. Which kinda defeats the purpose of long term capital gains sequencing.
David:Yeah.
Mike:You'd have to use buffered ETFs. So do you see how the plan and the strategies start to pick the products? Oh, I need a $100,000, 62, 63, 64 years old. That's all my income. Great.
Mike:You can't have it all at risk. Great. So we ladder out maybe a little bit of a MYGA or CD or Treasury, which is gonna have some ordinary income. But not all. We know the standard deduction's there.
Mike:And then we add in long term capital gains of buffer ETFs. Which if you're married filing jointly, you've got a 100,000 of gains. K. You're paying you're tax free.
David:Mhmm.
Mike:And then maybe, because you have some room in your standard deduction, you're doing 20,000 to 25,000 of IRA to Roth conversions. Maybe you do 30,000. You're still within the threshold of the 0% long term capital gains bracket. You're strategically moving IRA assets to Roth, and you've got a fixed component underneath that. That's three layers of strategies.
Mike:And it was the strategies that picked the investments or products. Because nothing else could do what that what needs to be done.
David:Yeah. And so how would people know to do all this?
Mike:No. There's no way. Yeah. You can retire and keep things simple, or you can retire and go through this sequence of planning first, strategy second, and then the portfolio third. And if you do that and you start asking, okay, what's the opportunity here?
Mike:The process picks out the tools. It assigns the job for you. Mhmm. You can do it on your own. It is possible.
Mike:I mean, you use our calculator and say, alright. Here's here. Chat GPT. Hey, Claude. Hey, Grock.
Mike:Hey, Gemini. Mhmm. What are the different ways I could take income out or strategies from these three different buckets? Like, you could try to do that. It's a lot of work.
Mike:Mhmm. And that assumes you're still gonna get the right questions. Like, a blind squirrel finds a nut. So I I am sympathetic to people who get frustrated and overwhelmed with retirement planning because there's an infinite amount of variability.
David:Right.
Mike:And it's unfair to a lot of people because, you know, the four zero one k basically replaced the pension and put all the responsibility on the individual to sort this all out, to figure it out. Right. Very tricky. Everyone, one last note. We're in the final stages of launching publicly our model that's been only available to our private clients.
Mike:If you wanna be a part of that launch, the public launch, subscribe to us. Subscribe to us, retireontime.com. You can get that and so much more.