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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, the show that answers your retirement questions. I'm Michael Decker, author of the book How to Retire On Time. I'm joined by my associate David Franson, who's always here asking your questions that you submit. As always, you can submit those questions to retireontime.com/ask. Or if you're joining us live on Zoom, you can also submit them in the chat and they're right in front of me.
Mike:We're gonna take all of your questions. So bring them, load them all up, and we'll answer them one at a time. Before we get started though, I I guess today's topic that I promised to talk about to everyone on the newsletter is an extension or a more comprehensive conversation of one of the biggest risks that I think retirees face, and almost no one's talking about it. I have only seen this in two other circles in the financial conversations, And one is Michael Burry's private chat on his Substack. If you subscribe to that, most people probably don't.
David:Do people know who he is?
Mike:Michael Burry is the guy that was made famous by shorting the housing market. He literally created the instrument that allowed him to short the housing market. Okay. And so he talks about it. I've been talking about it, and that's like maybe two or three other people at best.
Mike:I mean, everyone knows the the flat market of 2,000 to 2,010, but it happens every 20 or so. This is not a new phenomena, and people are investing right right before they retire as if what has happened the last fifteen years will continue to happen. And the the research, the data of the last 100 is a complete argument against what everyone seems to be doing. And I think it's people are at grave risk financially speaking. So I wanna dive into that today.
Mike:I want to not only just talk about the pattern that you need to know if you're within 10 of retirement, because the next ten years are going to shape if you can afford to retire on time or not. They're gonna shape if you have to delay your retirement, they're gonna shape your income strategies. It's going to fundamentally shape your even your tax planning strategies. I mean, the shift, the regime shift we are going through right now is palpable. If you can feel it.
Mike:And some people don't even look and that's okay. It's okay to not watch the markets every single day. Probably better for your health. But you need to know what's going on. You need to be an informed buyer as they say, or making informed decisions, not blind trust or buy and hope.
Mike:Mhmm. So I wanna break that down, not only just about flat markets and how they work, but I also wanna break down in greater detail the the other markets. The stock market's just one market you can make your money. That's it. There's the bond market.
Mike:There's the insurance market. There's the real estate market. There's the fed market. I call it the fed market. It's like your money market.
Mike:So cash and cash equivalents, the Fed affects those rates more than anything else.
David:Like bank savings account?
Mike:Mhmm. Okay. Private credit, private equity. Those are markets that more and more people are going into. They have their benefits and detriments associated with it.
Mike:But those they're they're kind of independent of the stock market because the private and the public market can operate similarly. They can rhyme, they also can be uncorrelated depending on you approach them. You've got commodities. You've got I mean, there's precious metals. You have so many uncorrelated markets.
Mike:And what I mean by that, uncorrelated means they don't rise and fall together. Sometimes they rise and fall together. Sometimes they go opposite. They're just independent.
David:What about art? Like fine art. Could I buy some art? Can that fund my retirement? Is that a wise thing?
Mike:A nice Van Gogh? Yeah. If you have the money for Van Gogh, great. That would fall under the the alternative Alright. So you think collectibles, you think rare coins.
Mike:I am not gonna pretend to be a specialist in any of that.
David:Okay. Alright.
Mike:Like I wear a garment watch. So I like to pretend that I'm healthy. Not worth anything. I just bought it. It's going down in value.
Mike:The more it gets beat up, like that's fine. But like Rolexes or Tudors, maybe that's a part of your hedge as an alternative market space. But you gotta know what you're getting into now, I'll do this as point of fact. A lot of people have purchased gold and secretly hide it in like cookie jars and safes and under mattresses and so on. Mhmm.
Mike:Right? We laugh but people do it. Alright. Have you ever looked into how difficult it is to sell gold or the commission, you sell the gold and the markups and the commissions and the spreads, and and what it looks like to exit that. A lot of people, they know what it cost to get in.
Mike:Mhmm. They don't know what it cost to get out. And that you have to know that full picture before you get into any sort of investment. So what I'm what I'm saying is, the stock market historically over the last fifteen, twenty years or so has gone gangbusters. And there's a reason for it.
Mike:And we can explain that. But the last fifteen years are probably not going to be what the next fifteen years look like. That's what I'm gonna dive into. Alright? So let's just do a fun little, case study here.
Mike:I got the poll. Looks like the people joining us live. By the way, we've got 27% already retired. Thank you for joining us. Hopefully, today feels like Saturday.
Mike:Every day should feel like Saturday in retirement. Most people though, over 50% joining us are they're gonna retire within the next two years. So this is mission critical what I'm about to say for all of you that have pulled in on the audience. If I say anything you want me to expand on, always feel free to put that in the chat, and we will keep going. Alright?
Mike:Alright. So the article that I wrote here, I'm just pulling it up quickly. It's called you can look this up on Kiplinger. It's been on the front page all week. The Boy Who Cried Bubble, What If He's Right This Time?
Mike:What Investors Need to Consider? And the the idea is simple, and I this is slightly redundant from what we just spoke about last week, but it's it's important to mention. And that is, the price of the stocks you paid for are overvalued. I'll just briefly review this one more time. We're buying businesses.
Mike:And the if you if you were to say, hey, there's a business, you know, whatever x y z business down the store. Let's say you're gonna buy it from Monpah. The first two things you're gonna look at is one, how much do they want for the business? And two, what's the revenue look like for the business? If the cost is high and the revenue is low, you're less likely to buy the business.
Mike:If the cost is low and the revenues are very appealing Mhmm. You're more likely to buy the business. That same construct is how you look at stocks and how you buy them. You're literally buying a share of the business.
David:Oh, yeah. You're not
Mike:buying the whole thing, but you're buying a part of a business. So when we get rid of the noise, the ups, the downs, the volatility, the popularity contest, the voting machine, all of that noise that distracts us from what we're actually buying. You can distill it down to saying, does the price make sense for the earnings of the business? Now, doctor Schiller of Yale has a more sophisticated way of looking at this. He calls it the cape ratio and it's an inflation adjust inflation adjusted price earnings ratio basically.
Mike:That looks back historically and then based on that price will predict the next ten years. Is something you can do with it. Okay? Based on the price today, it's basically saying, hey, we want these companies. These are high quality companies.
Mike:The next decade is going to be incredible as we revolutionize how our economy works. AI is a big part of it. But the problem is we've purchased them with the expectation that future revenue will rationalize the price today. The revenues have to increase as in the price will probably not increase. The revenues have to increase.
Mike:And if the revenues don't increase, the price has to decrease to find that harmony. This is investing $1.00 1.
David:Mhmm.
Mike:K? Based on the price today or the cape ratio and a hundred plus years of data, it is expected that the next ten years will average around point 3% average returns.
David:That sounds low.
Mike:So everyone that has listened to the TikTokers of buy the S and P 500, it outperforms all money managers blah blah blah. You have to say, okay, why is it that an entire industry is recommending things like bond funds or real estate exposure or alternative assets? Why are the more expansive advisors trying to blend in maybe annuities as either a buffered ETF alternative or some way to hedge against it with the cash growth or maybe they're doing lifetime income. Why are we trying to pull money out of the market and diversify it? It's not this arbitrary concept of diversify diversify diversify.
Mike:Frankly, broad diversification's madness. Charlie Munger's famous of saying that because it's mediocre. Okay. That's true. But broad diversification or even the S and P 500 in the stock market is a very difficult task to do when the markets are overpriced.
Mike:Think of the little engine that could. Mhmm. He still was barely going up that hill. He tried, he tried, he tried, but it it there's a certain point where you start running out of steam. That's where we are in the markets today.
Mike:Had this great conference I attended a few few weeks ago. A well known national economist is up there. He consults with Washington. He's the the the chief economist of a very large financial institution. I just don't wanna know, I'm just going to keep his name out of it just for a second.
Mike:Yeah. He's saying the model is simple. Markets are overvalued. This is unsustainable. And then his CIO, who he works with says, yep, he's right, but markets are expected to keep going up.
Mike:Oh. That might sound like a contradiction, it is not. It is stating the fact that the markets might keep going up, but we don't know how much longer. So all those people that are retired or within two years of retirement, you have to ask yourself, how much longer is the gravy train gonna keep going?
David:Yeah. Nobody knows, do they?
Mike:No one knows. And if you look at the volatility as in like the the moves of the market, right now isn't as bad as it was in 1999. I mean, were some big shifts in the market in 1999 compared to what we've experienced today. Now, maybe a big part of that is also because technology, there's a lot of propaganda. And I'm not saying propaganda in a negative way.
Mike:It's just easier for CEOs to sell their vision. It's easier for politicians to sell their comfort proposal on the economy and how things are gonna get solved. Also can help smooth things out, but also can make things more volatile. Now, David, I wanna pause real quick and just ask you something here. Your retirement had a leak.
Mike:Okay. So let's say money was quietly draining out through fees or tax inefficiencies. Maybe the social security time was gonna put an unnecessary burden on the plan for one way or the other. Maybe you're just paying more in health care premiums because you didn't know how to optimize all of this. I mean, honestly, how would you know?
Mike:And how would your AI even know? You have to have the right questions to ask. It's a whole problem. And the truth is, these leaks, they're often silent. Many people miss them.
Mike:So here's what I wanna do. Everyone right now in Kansas City area, they're listening in right now. We're gonna offer you something real real cool. Look, if you're within five years of retirement and you've saved at least $500,000 or more, I would invite you to book your retirement leak test. It's a 47 inspection on your retirement.
Mike:Two visits with my team, won't cost you a dime. The first visit is gonna be finding the leaks. The second visit, we're gonna show you how to plug them. You walk out with that leak report, every leak that we found, dollars, all of it right in your lap. It costs you nothing.
Mike:There's no obligation. We're doing this because we are genuinely concerned about some of the stuff that we've seen lately and the risks and the market conditions that are out there. So we're gonna be offering this report at no cost. The report is yours to keep regardless of if you work with us from that point on or not. Now if you decide you wanna work with us, we can we can do a one time written plan that we teach how to fish.
Mike:We're gonna teach you how to fish step by step, plug in the different leaks, so you can manage your plan on your own and potentially save yourself a lot of money and fees. I mean, heck. You got a million dollars in retirement, that's like $10,000 in fees you could be saving your saving for that. That's like a leak unto itself. Now if you want maybe a little bit more help, we also have ongoing services at a flat fee, but it's okay either way.
Mike:The point is we wanna help you find the leaks, plug them up, and then if you wanna keep talking, give you a plan that's kinda like a recipe. If you can follow recipe, you can follow the plan even if you don't have a financial background. That's it. Nice and simple. Now fair warning.
Mike:Some of you may have one of the biggest leaks is that advisor fee. So if you're open to a nice conversation about finding leaks in your system, trying to get more out of your money, here you go. We've only got room for five this week. That's it. So in order to get the leak test, the retirement leak test, here's what you gotta do.
Mike:What you're gonna is you're gonna text radio to (913) 363-1234. Text radio right now to (913) 363-1234. That's keyword radio. (913) 363-1234. And then what we'll do is we'll text you back.
Mike:If you're one of the five, we'll give you a link to schedule the thirty minute call. Just gotta schedule the call within the next two weeks, very limited times, but we do have some slots open for us right now. Text radio to (913) 363-1234. The first five people to text us. You'll get those two sessions.
Mike:No cost. No obligation. We're gonna help raise your awareness towards your retirement preparation. Again, you must have 500,000 or more to qualify for this specific offer. But let's let's find the leaks.
Mike:Let's expose them. Let's have some fun plugging them up and help you get more out of your money and be better prepared for your retirement. All that said, let me just pull back and explain the comparison here. I've got the numbers in preparation for today's conversation. Not too many numbers, just some simple ones.
David:Okay.
Mike:When markets get to this point, there's a high probability that the next ten years don't make much money. What does that mean? It doesn't mean small returns. It means large drops with then eventual recoveries, and then large drops again with eventual recoveries.
David:So you're kind of back to zero then. Right? I mean
Mike:It's a flat market, but it's a roller coaster that ends up flat.
David:Yeah. Roller coasters aren't always fun emotionally, probably. Depends on
Mike:the ride you want. Yeah. So I mean, you go to Six Flags. Imagine you go on this roller coaster and you expect to be at the bottom of the mountain
David:Uh-huh.
Mike:And you expect to have this fun roller coaster going to the top of the mountain. But you end up in that the same place.
David:Oh, yeah.
Mike:Expectations don't meet reality. And this is how retirees destroy their retirement. So if you look at the S and P May, for example, from 2000 to 2010, basically in 2000, it lost about 8%. You're not panicked. You're like, okay, that might But then it keeps going.
Mike:It's down net another 11 the next year, and then it's down another 20 some percent in 2002. If you look at the entire time frame of the S and P 500 between top to bottom two thousand top to its lowest point of the .com bubble, it lost around 5050%. Five zero. But it was a slow and painful burn, and what do you keep telling yourself? Back.
Mike:Oh, it'll bounce back. What do you do for income when that happens? A negative 10% drop probably isn't gonna destroy your retirement. Yeah. You're locking in some losses, but if the markets go down 10%, you need an 11% return just to recover.
Mike:It's fine. Mhmm. But if markets go down 30%, you need a 43% return to recover. If markets go down 50%, you need a 100% return to recover. So these things matter.
Mike:Now what's interesting is past performance from a behavioral standpoint influences future expectations. We always have that disclosure.
David:Mhmm.
Mike:Past performance isn't indicative of future returns. And people say, yeah, yeah, I know. But wink wink, nudge nudge like, but but we should. Right? Because we want to keep enjoying what we've already enjoyed.