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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 retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is all about the nitty gritty. Now that said, remember, this is just a show. It's for educational purposes.
Mike:This is not financial advice. If you want financial advice, find a financial adviser like us here at Kedric Wealth. Now that said, let's remember that you can always text your questions to (913) 363-1234, and we will feature them on the show. That's (913) 363-1234. David, what do we got today?
David:Hey, Mike. What's the best way to invest my money once I'm actually retired? Should I get more conservative?
Mike:So there's a rule for everything.
David:Oh, so many rules.
Mike:But there's a rule out there called the rule of thumb rule of 50 or no. Too many rules. Yes. The rule of 100.
David:Okay. Rule of a 100.
Mike:Which says your age is the amount of your assets or the allocation, the percentage of your assets that should be in bond funds.
David:Okay.
Mike:And the idea is the older you get, the less risk you should take. Uh-huh. I think that is ludicrous.
David:So if I'm 70, I shouldn't have 70% of my portfolio in bond funds? Yeah. That's what the rule would say, but
Mike:my You banker says go to your typical strip mall, you know, whatever shop, and they're gonna go, alright. Yep. Put in your information. They fill out a little survey, and here's your portfolio. Check.
Mike:Now get out of here. They're nice people. Yeah. They want the relationship. They they wanna help you.
Mike:But that's kind of how the system is. Yeah. It's built around this idea of the rule of 100. And the intention is that the older you get, the less volatility you should have. I mean, if you're 80 years old and the markets went down 50%, that's a hard pill to swallow.
Mike:Mhmm. So in that situation, I would agree if you're keeping all your assets in the stock market and the bond market, and that's the only place you looked. In my opinion, and I would talk about this in my book, how to retire on time, I believe more in the bear market reservoir concept. So think of like moats or mini portfolios or some sort of protection mechanism. So let's say you're 60 years old, and we know that the market's historically crashed every seven or eight years, and you expect to have a thirty year retirement.
Mike:You've got four market crashes
David:Mhmm.
Mike:Based on those averages.
David:What do we consider a market
Mike:crash? 30% or worse.
David:Okay. Alright.
Mike:Markets go down 25%, kind of in between a crash and a correction.
David:Okay.
Mike:Markets go down 30%, call it a crash.
David:Alright. Alright.
Mike:Markets go down 10%, it's a correction. Should rebound. So a market crash, you've got what? Three, four market crashes probably you'll experience throughout your retirement. So instead of having safer or less risk allocated money in your portfolio, what if when you're 60 years old, you allocate the most to your protected part of your portfolio?
Mike:Because then when the first market crash happens, you take your income for the protected source. You don't accentuate losses. You can sell right through it. And then you've got other assets for the next market crash, and then the third market crash, and then the fourth market crash. And so over time, you're actually lowering your protected allocation, your reserves, if you will.
Mike:But the reserves are really just there for the growth. The extra assets you have, you're not gonna spend. This is not a max retirement income situation. This is a here's how much income I want, so let's protect it from certain crashes that everything else can happen in between. And then when you pass, the rest goes to your kids.
Mike:Well, at some point, a part of your assets really should be invested based on your kid's suitability and not your suitability because you're not planning on spending it.
David:Right. As you get further down in your retirement, you may not be around.
Mike:If you're 90 years old Yeah. And you've got $2,000,000, and you spend 5,000 a month, and Social Security takes care of half of that Yeah. What's the purpose of your money?
David:It's gonna go either to your your heirs or a charity. Right?
Mike:That's what the numbers would suggest. So when you understand what many portfolios might look like as in portfolios within your portfolio, you wanna have context to why the allocation is that way. And maybe you have a portion of your assets that are 90%. So let's say $2,300,000 is your retirement portfolio, because that's all you really need the next five years. Let's just say, and I'm just throwing out random numbers.
Mike:Maybe 90% of those assets are in bond funds, because that's what you're comfortable with. That's the strategy you like. Though I would say buffer ETFs might actually be a better option, but I digress.
David:Mhmm.
Mike:And then the other assets are like, well, I probably will never touch these. Let's invest it. So Bobby, Sally, and Frank get maybe some more money. Yeah. You see the difference there?
Mike:Yeah. I would just say, I believe, and I believe Doctor. Fowl is in harmony with this. His research also suggests that the day you retire is the day you have the least amount of risk, and then over time, you can slowly drain that part of your allocation or that your portfolio, and then your growth assets grow over time, and you end up having a technically a riskier portfolio later in retirement. But you have fewer market crashes to hedge against.
Mike:So it might be okay. It's just it's a different thought process, but they require different investments, products, and strategies to be implemented. Yeah. You don't want one portfolio style, but do a different strategy. They've all got to complement each other.
Mike:Here's a simple strategy. Okay? The easiest version of this in my mind is using fixed index annuities for a five year period certain strategy. Here's what that means, because that sounds like Greek for a lot of people.
David:Yeah.
Mike:So let's say you want to protect yourself against the first two market crashes, and let's say you need a $100,000 a year. Easy math. Yeah. So maybe you put in 450,000 into a fixed indexed annuity, knowing that the markets are either gonna crash next year or in two years or in five years or in seven years. It's still got growth potential.
Mike:So if the markets go up, you make money. If the markets go down, you don't lose money, and you can turn on then a five year structured payout so that gives all your other assets sufficient time to recover.
David:Okay.
Mike:So you've funded at the beginning of your retirement this product that's intended to give you a five year payout. You just don't know when. You're not timing the market. You're saying, well, the market's going down now. Let's turn on the income.
Mike:A significant market crash will take anywhere from three to five years to recover. So you just got five years of structured income that took out most of your needs. Now after the five years are done, it's paid out. That asset is gone. Okay.
Mike:But your other assets had time to recover offsetting it. You've got your second market crash, another fixed index annuity with a five year period certain because only some of these annuities have this clause. Okay. Most do not.
David:Have the clause of of being able to turn on income for five years. Okay.
Mike:Usually, it's like ten years or lifetime. They want lifetime income.
David:The insurance companies do?
Mike:Yeah. That's that's my opinion on what I think they want.
David:Oh, okay.
Mike:Just so we're clear. Yeah. Or maybe that's just what the public has been asking them, so we give them what the public wants. Whatever it is. Sure.
Mike:Not every annuity has protection in there. So a 100% downside protection, reasonable upside growth, and you can turn it into a five year payout. But now you've got the second market crash. You just turn your income. Well, great.
Mike:Your first half of your retirement, the first two market crashes are recovered. Everything else, maybe halfway through, you you buy another annuity for the third one, for the third market crash.
David:Because we're gonna have, like, four maybe roughly. Right?
Mike:Roughly. No one knows. Yeah. But do you see how that concept of you just put some assets into something that if the markets crash, if markets go flat, or all these things that could happen, that you're hedging against it. Now there are so many ways you could do that.
Mike:You don't need to necessarily do a fixed indexed annuity for it. You could do buffered ETFs and be more dynamic. You could do CDs, treasuries, or MYGAs, multiyear guaranteed annuities, if you wanted to grow at a fixed rate. And this is interesting. Amiga, you can have Amiga grow for five, seven years at a fixed rate, let's say 5% as an arbitrary rate.
Mike:We're not quoting any products or offers right now. Just have to put an example out there. Yeah. You know, it grows for five years or so, but maybe you can turn it into a five year payout so that at some point, you then start to pay out. The interest rate it will grow will likely be less.
Mike:But you've given yourself flexibility and protection and structure to hedge against these market crashes.
David:Whereas the opposite would be like 6044% rule or whatever. Right? You just have money in the market, you're taking out 4% a year. The market crashes happen. Now suddenly, you're taking income out.
Mike:Yeah. You don't wanna accentuate your losses. Bond funds are not guaranteed to increase when markets go down. That's not how it works. Sometimes that happens.
Mike:Sometimes it doesn't. And by the way, bond funds will probably struggle. I think most of these products will actually struggle. CDs, bonds, MYGAs, fixed indexed annuities, fixed annuities, all of these categories that have some sort of protection element Mhmm. Will probably get worse mid next year, and here's why.
Mike:Right now, we have this guy named Jerome Powell.
David:Oh, yeah. That guy.
Mike:He's in the Fed.
David:Heard of him.
Mike:He's doing a few things in there. You may have heard, maybe you haven't heard, but president Trump doesn't really like him.
David:Kinda got that impression.
Mike:I don't think I'd say they're BFFs in any They're not getting you to the imagination.
David:Christmas cards? Probably not. Alright.
Mike:So Fed chairman Powell is gonna be done this spring. It's been very clear that Trump wants to replace him. He's not up for renewal.
David:Okay.
Mike:Trump is also saying that Trump wants 1% Fed rate. That's low. If the Fed lowers their rates and the bond market follows suit, then all of these fixed products will become less competitive because it all breaks down to the Fed market, which is cash and cash equivalents, and the bond market, which is not directly correlated, but still influenced by what the Fed does. Okay. So look at how you could plan retirement in 2010 to 2015, and now you got an idea of where we might be going.
David:Because there was a similar environment back in 2010?
Mike:Yep. After the two thousand eight financial crisis, they dropped rates to historic lows. We had great growth.
David:In the stock market, there was great growth.
Mike:In the stock market, but any protection was virtually gone.
David:Because of the low rates.
Mike:Yeah. I I remember someone saying, hey, I want some treasuries. I said, are you sure? They're like 1%. She goes, well, what else do you have?
Mike:Well, I mean, we could do like a CD for one and a half percent. That's the same thing. Yeah. I remember this person specifically. She lived in California.
Mike:The nicest person Uh-huh. But struggled putting money anywhere with protection. And she's like, I just need to risk it. I can't stomach having this low rate. Well, it's all in the same market.
Mike:So you really have to ask yourself, especially for anyone that's gonna retire in five years or sooner, is it worth rating and trying to then buy your protection elements, whether it's bond funds, whether it's buffered ETFs, whether it's fixed index annuities, whether it's CDs, at the potential new rates that would be happening in six months if Trump gets his way or in today's environment?
David:Right. Where they're still decent.
Mike:There's a reason to get a little bit of a giddy up here in getting your retirement plan in order. I'm reading the tea leaves as best I can, but things to be aware
David:of. Yes.
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. 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. 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.