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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, including income taxes, Social Security, health care, and more. The 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, 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 cover it all. Now that said, please remember this is just a show.
Mike:It's not financial advice. If you want personalized financial advice, you can request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today, mister David Franson. David, thanks for being here.
David:Yep. Happy to be here. Thank you.
Mike:Yeah. David's gonna read your questions, and I am going to do my best to answer them. You can submit your questions at any time during the week by texting (913) 363-1234. That number one more time, (913) 363-1234, or you can email us at hey, Mike@howtoretireontime.com. Let's begin.
David:Hey, Mike. Which is worse in retirement, taxes or inflation? Inflation.
Mike:So inflation is the silent killer. People don't quantify.
Mike:Everyone knows taxes. Everyone hates taxes. Yeah. And here's why I say inflation's a bigger concern. When we look and sit down at how we're gonna generate income, we're just kind of used to what we're spending today.
Mike:We spent from 2010 to 2020 with basically no inflation. So we got used to basically no inflation, and then we had some rough inflation, but we're chalking it off to this, oh, that was kind of a one time thing, COVID, that'll never happen again. Uh-huh.
David:No. You sure about that?
Mike:Yeah. So when you think about the difference of what inflation makes, think about the price of eggs, gas, general expenses, how much you were spending a month in the eighties. Now think about that number in the nineties. Now think about that in 2010. If you compare the eighties and nineties to today, it's a very different number.
Mike:Yeah. Inflation is back into a very normal two to 3% rate. If tariffs don't destroy things, and I'm not pro or against tariffs, It's just I'm gonna skip that conversation today, if that's okay, because it's there's so much political polarization on it. Sure. People are saying half truths.
Mike:Maybe we'll talk about that another time. Yeah. But we also have the Fed, and how they're controlling inflation, or working with inflation. You have our economy. There's lot of inflationary factors, but the reason why I'm more concerned about inflation than anything else is, yeah, if taxes go up or down, you can still maneuver even in higher tax brackets to explore tax efficiencies.
Mike:You can still do IRA to Roth conversions. You can still figure out, hey. This year, we're gonna pull some income from these sources so we can have some tax efficiencies. You can blend from different tax buckets. You can have a lot of control when it comes to taxes.
Mike:Inflation, how much bartering power do you have when you go to the grocery store? Really?
David:None. I see a sticker, and then like, that's what I'm paying, I guess.
Mike:It is completely reactionary. So because of that, I've had calls, people say, hey, how do I increase my social security? Well, you're 75 years old, there's nothing you can do about that. Like your benefits, your benefit. Yeah.
Mike:Well, it's not enough. I hate getting those calls. Their lifestyle is based on a fixed income, and it's almost always one of three. I say almost always, not always, almost always one of three situations. One, they're just on Social Security, which does have an inflationary rate, but it doesn't always keep up with inflation, because the Social Security increases based on CPIW.
Mike:That's the inflationary rate of workers' compensation. And if you look back at workers' compensation over the last thirty, forty years Uh-huh. It's been the silent depression. Wages have not kept up with inflation, and Social Security is tied to a rate that has not kept up with actual inflation. So don't just say, oh, well, Social Security keeps up.
Mike:It doesn't actually always keep up. Then you've got people that will buy an annuity, and again, I have nothing against annuities, I just don't think they're explained correctly. You're transferring longevity risk to an insurance company, and usually they'll buy a flat rate annuity. So what is that? That's where they're gonna give you let's say you put a million dollars in there, and you get 6% or $60,000 a year.
Mike:Okay. That's annuitized income. Annuitized income, that's either pretax, after tax, whatever. Yeah. And I'm using an arbitrary rate.
Mike:Sure. These rates will change. Maybe you're listening right now, and it's 5%. Maybe it's 4%. It's going to change.
Mike:So please don't hold me to that rate.
David:Okay.
Mike:Okay? And all products offer different things, but I digress. Mhmm. Well, the next year it's 60,000, and the next year it's 60,000. As in your income is getting 3% less effective every single year for the rest of your life.
Mike:So after, I think it's like ten, fifteen years, it's one third less valuable.
David:Yeah. Imagine the income that you got with your first job out of college, and then the income you have now. What if you still had that first annual income from your first job out of college?
Mike:Yeah. It'd be rough. Twenty, thirty years later. Yeah. You're making more money now, but, like, still, it's just it's tough.
Mike:Inflation's the silent killer for retirees. Mhmm. And then the third option is people that will say, well, I don't want any risk, so everything is in CDs or money markets, or basically cash or cash equivalent accounts. You've got reinvestment risk. So not only are you only getting like three or 4%, so you're just keeping your head above water when it comes to inflation, But if the markets crash, and the Fed drops rates, the Fed dropping rates will affect those accounts.
Mike:The ten year treasury affects debt and other things like that, but the Fed's rate will affect those accounts. The Fed can drop rates whenever it wants, technically. So if you drop rates, then you're making less money. You either have to just tighten the belt and hope it comes back, or I don't know, have a hard conversation with your budget. Yeah.
Mike:Inflation is rough. I don't think people appropriately account for it because they'll say things like, well, here's the here's your portfolio projection, and it's great, and here's your income, and and you know, this is adjusted for inflation, but they don't really see that like, hey, I need let's say, I don't know, $10,000 a month now, but you might need 20,000 at some point in the near future. Yeah. Right. So inflation, don't think it's totally understood.
Mike:I think people say, well, I'm not gonna live that long. You don't know how long you're gonna live. Right. You might end up living a very long life.
David:Now you're gonna pay for it.
Mike:Yeah. It's an unnecessary squeeze, which is why I'm so emphatic on the importance of growth. Yeah. And so we talk about our bear market portfolio and our bull market portfolios. They both have growth potential to offset inflation, so that in the future, as your lifestyle evolves, as prices evolve, as healthcare evolves, whatever it is, that you have more flexibility on the decisions you're making.
Mike:Mhmm.
David:Yeah. So that's why it's important then, as you've talked previously about those two different portfolios, your your sort of bear market portfolio might be invested in things that don't have much of a return, but
Mike:are safer. It's better than cash and cash equivalents, it's got more growth potential. Yeah. It's keeping up with inflation.
David:But it's not.
Mike:It's beating inflation. If you could have a protected account that let's say gave you 4%, okay, it's good for emergency funds. Mhmm. But if you could put some money into something that maybe is averaging 6%, that's a pretty okay situation for a protected account. Oh, yeah.
Mike:And maybe every now and then you get a good year. Yeah. Maybe once in a while you get like an eight to 10% growth on that year. Wow. That's pretty cool.
Mike:Yeah. But we don't want to shoot for the stars. Yeah. Yeah. Yeah.
Mike:So it's just understanding about what's what and how things operate. 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 that you may not even know exist.
Mike: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.