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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. This show is all about the nitty gritty so you can determine what is right for you. My name is Mike Decker. I'm a financial adviser and fiduciary alongside David Fransen here, my colleague.
Mike:As always, text your questions to (913) 363-1234, and we'll feature them on the show. Just remember, this is a show, not financial advice. David, what have we got today?
David:Hey, Mike. What's one mistake you see many people make when they approach retirement?
Mike:I think the biggest mistake among the many, the infinite possibilities Uh-huh. Is going to be the assumption that what got them to retirement is what's going to sustain them in retirement.
David:Okay.
Mike:So over the last ten to fifteen years, the markets have just grown. We've become accustomed to this incredible growth. And so if we left that system, that growth system, the fear is we would miss out of of growth. We've missed out of future legacy opportunities, or more money on the table, or whatever it is. And it's a very big misconception on a couple of levels.
Mike:Let's do the first one.
David:Okay.
Mike:So the first one is protection means no growth. That's not true. K? Alright. There's three things we all want in an investment.
Mike:You want growth, liquidity, and principal protection. Can't lose money. No investment does all three. So you've got your protection and liquidity. That's like your money market, your savings account.
Mike:Right? Not gonna grow. So, yeah, putting a significant portion of your assets to a cash or cash equivalent account, maybe not the best interest, maybe not the best idea, but that is something that you could do. Is it right? No.
Mike:The other one is protection with growth potential. You have to give up liquidity, and here are some options. You've got CDs, treasuries, as long as you hold them to maturity. You've got buffered ETF structured notes, fixed or fixed indexed annuities, not variable annuities, fixed or fixed indexed annuities, cash value life insurance if you also need the death benefit. Maybe you don't want the death benefit, then it doesn't make sense.
Mike:But you've got these other options that do give you growth potential, no downside risk, that can help sustain yourself through the market turbulence. And what people think is, well, I can just tighten the belt and and when the markets crash and I'll be fine, I'll let it recover. A real market crash takes a couple of years to recover, and I think we've forgotten that.
David:When's the last time we had, like, a, quote, unquote, real market crash?
Mike:I would say the last real crash was 02/2008. Through quantitative easing in 2015, we got our way through that that flash crash really quickly. In 2020, the market was really crashing prematurely because of an unexpected black swan event. The market crashed because we shut the economy down. We opened it back up quickly.
Mike:So it had a quicker recovery, and we printed a ton of money into it. And then 2022, we had a a crash that was about twenty, thirty percent down. But, again, it wasn't as significant, and it came back within a year. So the last three, quote, unquote, crashes really is more, in my opinion, kinda like practice. Uh-huh.
Mike:It wasn't really the major leagues. It was kinda like, oh, you know, this we're good. Real market crashes are like 02/2008, where the markets crash 50% in a year if you include the first couple months of 02/2009, and it takes, like, five years to recover. A real market crash is like 02/2001 and o two where it's three years going down. That's a rough situation.
Mike:Now did all markets crash? No. It's the stock market we're talking about. The real estate market actually did well. But for the people who have oversimplified plans or approaches, they wouldn't know that, or they wouldn't know how to incorporate the other markets in there.
Mike:A real crash is when you look at the late nineteen sixties and the seventies, when the market was just going nowhere for over a ten year period of time. A real market crash is like a 1929 situation, and people will say, oh, well, that'll never happen again. Well
David:Mhmm.
Mike:It could. There are similar market patterns today that were similar to 1929 or just before where it it could be that rough. I hope it's not. But what I'm saying is we have kind of crossed off this. Well, we're now smarter than we were years ago, and we can manipulate the economy better than years ago.
Mike:And all of that's true, but no one actually controls the economy. The economy is its own living and breathing entity. And so when I see about these these assumptions that people make, it leaves them very much exposed to the, well, I can just have a generic portfolio, you know, 60% in stocks, 40% in bond funds. And it's not bonds, by the way. It's bond funds.
Mike:If you haven't noticed, your bond funds have been losing money over the last couple of years and probably haven't recovered. How's that for a good strategy? Oh, well, why why'd you buy bond funds? Oh, it's to go up when the markets go down. That's not true.
Mike:It's these simple ideas of, well, this is how I grew my money, so I should keep doing it in retirement because it kind of worked out. Growing your money when you don't need to touch it is a very different situation than needing your money to take income. Now I kind of talked about the protection and growth standpoint. You've gotta give up liquidity. There's no other way economically or financially within the laws of money to offer you growth, protection, and liquidity.
Mike:So to have growth potential that's better than a cash account, you've gotta give up some liquidity. You can ladder that out. You can do different things with it. You don't need access to all of your money at one point, but you do need to protect some of your assets from these market crashes, at least some of your assets. Because if you put all of your assets into that third category, the most growth potential with liquidity, you've got no protection.
David:Yeah. That's where you're talking about stocks or equities. Right? And there's Yeah. You have the liquidity, you have the growth potential, but a tremendous amount of risk.
Mike:Yeah. What did Charlie Munger say? It was that Morgan Stanley report the guy quoted.
David:He was saying that if if you don't want any risk, then you have to accept, like, the mediocre returns that come along with it. Right?
Mike:Yeah. If you can't handle a 50% crash with your equities, you are not suited to be a common stockholder. Yeah. And you are gonna get the mediocre returns. And if you do a proper study of the S and P 500, as some people would suggest, it's like people treat it as if it's like God's gift to mankind, these 500 stocks.
Mike:Most of them are mediocre companies that give mediocre returns.
David:Yeah. I think that report mentioned that most, like, 60% of all those companies in the 500 didn't do as well as, like, our treasury bond or something. Right?
Mike:Yeah.
David:That's sobering, like, eye opening. Like, woah. Where did that come from?
Mike:Yeah. So what I have found, and this is not the antagonistic position, is someone say, well, I've got a good portfolio. Okay. What do you have in your portfolio? And they'll say, well, we've got our blend of large cap, mid cap, small cap.
Mike:We got the emerging markets over here. We've got some bond funds over here, you know, the high yield, but we're blending it with some corporates, some more, you know, investment grade bonds. So it's it's a nice portfolio. I said, why do you have emerging markets? That's what everyone's talking about.
Mike:Mhmm. Why are they talking about it? Because that's where the money's growing. Why is it growing there? How long is it to keep growing there?
Mike:What's causing the growth in there? At some point, they kinda say, I don't really know. I'm just doing what I hear other people do. At some point, you have to ask yourself, what is right for you? What's the right strategy for you?
Mike:And does it make sense to have bond funds? If you put bond funds in the portfolio, you're probably gonna underperform the S and P. But when the markets crash, you might lose less money. It's kinda like a governor. Mhmm.
Mike:Right? Yeah. If you want stocks in your portfolio, great. Some of those stocks, if the markets crash, may never actually recover. Do you know that?
David:I mean, yeah. Because we always hear that a 100% of the time, and we've said it right, that the the market, after a correction recover. Yes. But not individual
Mike:If you're stock picking, there's no guarantee that that stock will recover.
David:Yeah. It may never
Mike:I mean, there's just story after story after story about these companies that just the markets crashed due to creative destruction. They got caught up in the wind. I mean, how good's Bed Bath and Beyond or Toys R Us today? So if you're stock picking, it's not guaranteed that it will be untouchable. Look at IBM, ATT, and all of these telecommunication companies after the cell phone was invented, and how much they've really recovered or how long it took to really recover.
Mike:And if you're your retirement, it gets more tricky. It gets more technical. And so the growth potential with liquidity really just means you might have more growth potential, but it's not more risk, more reward. It's more risk, more potential reward, but there are no guarantees in the market. And so understanding what you're invested in matters.
Mike:And if you don't wanna do the due diligence, then you could look at the indexes, but accept what the returns are that you're gonna get. If you're gonna go to a cliche portfolio, accept the mediocre returns you're gonna get. I love and hate what Dave Ramsey says on the subject, because he says, correctly, financial advisers underperform the market. What he doesn't explain is the people come to financial advisers saying, I don't want that much risk. I don't want the roller coaster, and they're not connecting the dots of less risk means less growth.
Mike:If someone came to me and said, I wanna beat the S and P every year, I would say, are you okay having huge crashes? Are you okay having large drawdowns? If they said yes, I'd still put up a boundary and say, are you sure and run through a couple of scenarios? And then, okay. Then maybe you buy the S and P 500, you know, SPY or VOO or whatever your ETF is of choice, and then you overweight it with a couple of the stocks.
Mike:That has more risk. There's more growth potential, but it's no guarantee that those stocks will outperform the S and P. You're just hoping that it's the 100 to 150 stocks that seem to be doing better than the S and P, that are lifting the S and P up from all the other baggage that's part of the S and P. It's a very real assumption that people make in the world of psychology. They call it a cognitive distortion.
Mike:It's where reality isn't actually real, that you've created a bias that is distorting your reality to try and create some sort of echo chamber or delusion to prove your bias is correct. I mean, go online. Anything you wanna believe in, there's a group online that's going to support your belief system regardless if it's right or wrong. Right. What was the question again?
David:Yeah. The question. What's one mistake you see many people make when they approach retirement? So we've talked a lot. If we could filter that down just like money, the one big mistake.
Mike:We, as humans, like familiarity. We want to do what we believe already works. Mhmm. So it's very common for someone to want to maintain their portfolio in retirement just like they've maintained their portfolio before retirement, their growth years. Right.
Mike:It's different. It is absolutely different.
David:It's much different when you're accumulating and you can, oh, I need that money in twenty years versus, oh, I need it now.
Mike:Yeah. When you start needing income, the game changes. So for example, when you're growing your assets and you're working, your income is through employment. So you want the markets to crash so that you can buy everything at a discount. When you're retired, you don't want the markets to crash because your assets are providing the income.
Mike:So if the markets crash, you're the one selling your shares at a discount. Right. DCL, you're the opposite side of now the trade. Yeah. Absolutely.
Mike:And so you've got to put on the mindset, now that I am rich, I need to stay rich. Yeah. You're switching from an offense to a defense. And I think that's one of the biggest misconceptions, especially because people have short term memories, and we have forgotten what a significant market crash really looks like. We have forgotten the o eights, the 2000.com bubble.
Mike:We've forgotten what the seventies look like. We've forgotten about these very significant shifts in the market and the idea that, oh, well, we know how to price in AI. We know what the value that really does. No. We don't.
Mike:We are on the precipice of figuring out what this thing is, and just for what it's worth. Just to prove my point, did you notice how Nvidia and AI stocks tumbled when DeepSeek, the Chinese company Oh. Claimed that they did it for a fraction of the cost? I remember that. Yes.
Mike:K. What was one of the contributors to the AI or the the .com bubble? When .coms became cheaper, more affordable to implement, when there was more access to use it, when more people were using it. So the cheaper they make AI let's say AI is now more efficient that it can be done on your standard computer chip, your standard semiconductor, whatever the software is, and NVIDIA isn't the only company that now is producing it. Now there's a lower barrier to entry, and most chip companies can do it.
Mike:What do you think is gonna happen to the world's largest company? The one that everyone's banking on being their, you know, their saving grace and retirement that's gonna keep giving them these incredible returns. See, creative destruction is what equalizes the playing field. Right now, there are few players that have taken advantage of the uneven playing field because they happen to be in the right place at the right time offering the right product. But things equalize at at some point.
Mike:Alright. When will that happen, and how will that affect your portfolio? And these are just among a number of different potential issues that you've got to understand. How do they affect your retirement? And there's just things you can do about it.
Mike:I'm not saying you sell all your Nvidia stock. It's a great company. Ride it until it you know, it's good until it's not.
David:Yeah. Right?
Mike:But maybe putting some assets into protected investments or products would help. Could be a CD ladder that you keep rolling over until you need it. Could be a bond ladder. You could buy a fixed index annuity, which can give a five year period certain payout. So check this out.
Mike:You could buy a fixed index annuity that's growing at what arbitrary rate is. Right? They they've got their own crediting methodology. But it has more growth potential than a CD or a treasury, and then when the markets crash, not if, but when, you could turn on what's called a five year period certain. So whether you're alive or not, someone's going to receive payments for the next five years.
Mike:So it's like a CD ladder that you decide when you turn on, and it has more growth potential than a CD would while you wait to turn that on. That's a kind of cool mechanism that can help you get through the next market crash that I don't think people talk about enough, because they're all like, hey. Let's do lifetime income. That's simple. You wanna be more deliberate about the strategies and what to do when this or that happens.
Mike:So that's kind of the mistake people make is it. Oversimplification. It's assuming you can outgrow your money. It's assuming that what got you here is gonna get you to where you wanna go. It's ignoring the complexities that when you retire, your money has more responsibilities.
Mike:Alright. One last example. Sure. When you were single in college, how difficult was life? I was pretty carefree.
Mike:It was great. Right? Yeah. Low cost, had purpose in school, knew what you were working towards, you could be social, have a good time. Yeah.
Mike:K. You got five kids? I do now. Yeah. Full time job?
Mike:Yep. You're with your church. You're active with your church. I am. You're a mountain biker?
Mike:Yes. How much more responsibility do you have now?
David:As compared to, yeah, those twenty five years ago, I mean, yeah, way more responsibility now, way more things that could keep me
Mike:up at night. That's your money in retirement. 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.
Mike: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.