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.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want financial advice, personalized financial advice, then go to www.yourwealthanalysis.com. You can request your wealth analysis from my team and me today. With me in the show today is mister David Fransen. David, thanks for being here.

Well, I'm glad to be here.

Yeah. Yeah. David's job is gonna be reading your questions that you submitted, and I'm gonna do my best to answer them. You can submit your questions right now by texting us at (913) 363-1234. Again, that number is (913) 363-1234, or you can email them to us at heymike@howtoretireontime.com.

Let's begin.

Hey, Mike. I'm three years away from when I want to retire. My portfolio is 100% equities. How should my portfolio change as I approach retirement?

Yeah. So equities, by and large, is one of the best markets or marketplaces that you can invest in, especially when you're growing your money. Mhmm. It's just equities. Stocks is the the more common term.

Basically, you're buying shares of a company. K? Wonderful growth strategy. I'm not saying it's the only way to grow your money, but it's it's a wonderful growth strategy. But around five years before you retire is what's called the red zone as it's as it's been kind of unofficially named in the industry.

The red zone is basically when you say, hey. If the market's crashed in these five years before you wanna retire, could really hurt you. So if you're all in equities and there, let's say, is a market crash over the next three years, no one can guarantee that you're gonna have a full recovery by the time you retire. Maybe it's six months before. So this is five years before you wanna retire is when you start moving more assets into principal protected accounts.

It's what we call the reservoir. So just like a city has a reservoir of water in case of a a drought, we believe that a part of the portfolio should be protected as in it can't go backwards. Mhmm. It can't you can't lose money so that if the markets were to crash, you're preserving just enough as you enter into retirement. So three years out, in my mind, probably not buying CDs or anything like that, but he's buying some longer maturity principle protected investments or products that would just kind of hedge against the possibility of the markets crash.

So Kiplinger magazine, some people have heard it, it's the number one magazine in the country when it comes to personal finance, took my research on market crashes, flat markets and all of this. And I'll explain that in just a second. Yeah. And they're sending it out right now. They're republishing it to all the financial professionals who they're trying to educate, which is really fun.

Mhmm. A huge compliment here. But here's the stuff that they're trying to explain to finance professionals about the equities market that I'm gonna share with you right now. Okay? The markets have a history of crashing every seven or eight years.

Doesn't mean it's every seven to eight years. So, you know, last couple of years, twenty twenty, then 2022, '20 '3, the markets didn't cooperate. They recovered. Thank goodness. But there were some some nervous moments where the markets were going down.

That wasn't every seventy years. That was a closer time frame. Alright. Nineteen eighty seven, black, October, it was a black Monday. The markets just tanked heavily in one day.

Thankfully, they recovered. Three years later, a geopolitical event happens. Iraq invades Kuwait. So the reason why I bring this up is that true story. I had someone come to my office years ago and said, look.

We're here to plan her retirement. We manage our finances separately. I don't want a financial adviser. I said, oh, pray tell. He says, because I just keep my assets all in equities.

And then in the seventh or the sixth and a half year, somewhere around there, he goes all the cash and just waits for the markets to crash. Mhmm. And then after they crash, he goes all in. It's not that simple. Yeah.

It's an average, not an exact pattern. That's my point here. But the other one is that markets can go flat for ten plus years. This is the equities market specifically. And many people think that that was a one off situation from February to 2010 that if you would have invested basically in the S and P 500 or, you know, large companies that you would have made no returns over a ten year period of time.

That's scary. Yeah. Especially when you're retired and you're maybe trying to live off of the growth of your portfolio, whatever your plan is. I can hear the dividend investor saying that's why we do dividends. Not that simple, but that's another conversation for another time.

But my point being is markets can go flat for ten plus years, and that's very suffocating to a retiree in their portfolio and their plan. This is not a one off thing. It happened in 1965, happened in 1929, happened in nineteen o six, and Goldman Sachs has come out and said it could happen in the near future. There's a reasonable probability that we make basically no returns in the equities market on average for the next ten years. We just don't know when it would start and what that exactly would look like.

Yeah. So this is like a period of time where maybe there's some little ups and downs, but the overall average is just like

Yep. Ten years later, you're at where you started.

Oh, yeah. Yeah.

So, again, equities market. There's four places you can shop really for where your money is. You've got the, you got the bank marketplace. K. You've got the insurance marketplace.

Then you have your public marketplace. That's your stocks and your bonds. Right. So your ETFs, your mutual funds, all that. Then you have the private marketplace, the restricted marketplace.

That's where you've got private credit, private debt. You've got, I mean, all sorts of things here. So you need to understand, first off, where are you shopping? Are you not shopping at the full store? Secondly, are you diversifying the strategies?

So equities for growth is a strategy. Equities for dividends is another strategy. ETFs for growth is one strategy. ETFs for income is another strategy, and they're more diversified. So that means less growth, but less risk in some sense.

You've got ETFs that will pay you a yield, not a dividend, but a yield because they're doing covered calls. And and I'm just starting out on this Narnia of exploration of all the different ways you could diversify your strategies so you're not totally at risk of a flat market cycle. There are ways to hedge against it. But back to the the reservoir comment, as you're approaching retirement, you wanna put more money into the protected accounts. So if we are in a flat market or the markets do crash, that you can't go backwards.

Mhmm.

K? And there's there's really five, maybe seven options here. You've got CDs. You've got treasuries. You've got fixed or fixed index annuities.

As long as they're used as a bond or CD alternative, There are no fees associated with it, and you did your due diligence. That may be a reasonable way to grow your money with that with protection. You've also got, cash value life insurance or index universal life specifically that is a viable option if you're young enough and healthy enough and you fund it with a lower death benefit.

Okay.

Very complicated insurance product. It's one of the marketplaces you can shop to hedge against a flat market cycle or to hedge against a market crash, but you gotta fund it. Right? And there's this is the nuance of it too. Things like, if you have a higher death benefit, there's a higher commission.

Mhmm.

I hate that kind of stuff. It disincentivizes, in my opinion, the proper exploration of how to use a tool in the toolbox. Yeah. Because if you lower the death benefit, then there's less fees to the insurance company. If there's less fees to the insurance company, then your money has more room for growth in that

Makes sense.

Definition. You could also look into structured notes or buffer ETFs. Structured notes, though, if the markets grow, the you get you can have some growth. You can have % protection. Not all structured notes are protected, but there are 3% fees for a lot of these, so they're high fees.

Gotta be aware of that. Buffered ETFs, they can be good. And maybe for a season, they're protected. But a buffered ETF that renews for you, you might think, oh, it's just gonna keep renewing at that % protection or a % buffer rate. No.

They're trying to get a certain yield. So they could say, well, hey. Look. I know we had a % buffer, a % protection.

Okay.

But to get that cap that we're trying to get, the renewal now you've got some risk. So you've got to understand the complexities of these different investments and products. You've got to understand how you're hedging against them, and it gets complicated. But for this person going into retirement that in my opinion, the day you retire is the day you have the least amount of risk, as in you have the largest reservoir. Because when the markets crash, that's when you tap into the reservoir.

And when you're 60 years old, you might have thirty years left of life. So you've got three to four major market crashes to get through. When you're 80 years old, you might have one or two significant market crashes to get through. You don't need as big of a reservoir. So that's why I say, as you're getting close to retirement, start protecting that principle, find the right balance.

And then as you go through retirement, you can loosen up a little bit on that reservoir, maybe spend it down a little bit, and so on. 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. 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.