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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, 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.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome everyone 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.howtoretyearontime.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 pretty much cover it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. David, thank you for being here today.
David:Hello. Thank you.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in right now or anytime this week by either texting them to 913-363-1234. Again, that's 913-363 1234, or email them to hey mike@howtoretyme.com. Let's begin.
David:Hey, Mike. Can you explain what timing the market really means, when it's bad, and when it makes sense to make adjustments?
Mike:Yeah. So timing the market by definition, as I've understood it at least, when you're in the market and then you go to cash, and then you're in the market and then you go to cash. K. So that's timing the market as in you're in or you're out or you're in or you're out. It's not selling a position and then moving it over to a different position, and people get that confused.
Mike:Timing the market doesn't mean, hey. Our current portfolio isn't working that well. Let's make some adjustments. That's not timing the market. Uh-huh.
Mike:That's updating your portfolio or rebalancing your portfolio k. Or tax loss harvesting within your portfolio.
David:Alright.
Mike:K? So timing the market is no one can do it. The the research is pretty clear that say, I think the market's going to crash. I'm gonna go to cash. It's rough.
Mike:That doesn't work. I I think about, what, 2 years ago, a 100% of economists said that we're we're gonna enter into a recession, and then it never happened. It's just classic prediction error. No one knows the future. And if you're nervous about it, then that would suggest that you might not have the right plan
David:Mhmm.
Mike:Or the right portfolio. Mhmm. Because if you've implemented, at least what we preach on this show, the reservoir strategy, you would know that if the markets were to crash, you could draw income from a principal guaranteed source, whether it's a CD, Treasury, fixed or fixed index annuity, or maybe it's your cash value life insurance because you funded it correctly. But you can draw income from those sources while your other accounts have recovered. What was the best thing about 2,008's financial crisis?
Mike:It was 2,009's growth and 2,010's growth and 2,011's growth. What was the best part about the dotcom bubble? The growth in 04, 05, 06, 07. What was the best part about the COVID crash? The recovery right afterwards.
Mike:And if you've tried to time the market because you panicked, then you're probably going to miss the rebound or when the market starts to recover. And that's that's how people end up buying high and selling low. So what what is your system? That's the question. What's your system if the markets are up or down?
Mike:Because you can't time the market and no one knows the future of the market. But what's your system? How do you sustain your life or your livelihood in good conditions and in bad conditions? We don't want to do emotional investments. We want to follow systems not sentiment.
Mike:Even the best investment models or systems are going to lose money from time to time. And if they're not losing money because it's principal protected, then you may be losing opportunity because the markets maybe took off that year. You can't have your cake and eat it too, but there are things you need to be aware of. For example, how do you manage your money in the up market? How do you manage your money in the down market?
Mike:How do you manage your money in a flat market, like from 2,000 to 2,010, a 1965 on, 1929 on, 1906 on? These are flat market cycles, and they they can be detrimental. How do you plan for that? You've got to have a strategy. You've got to have a plan that can support multiple strategies that can support that plan in any condition.
Mike:Because you're not going to time, oh, well, it's an up market this year, so I'm going to be good. Or, oh, it's a down market this year. I I know what to do. No one knows how to do that. No one does.
Mike:And this is why we preach the importance of that reservoir so you don't have to worry about timing the market. If the markets are up, you're good. If you're in the market, you you probably did okay. Great. If the markets are down, you draw income from your principal protected accounts, your reservoir, until your other accounts recover.
Mike:The hard part is implementing this reservoir strategy correctly. A lot of people will miss it. They'll say, well, I've got 1 year reservoir. Well, what if it's a 3 year crash? Or I've got 2 years and that's it.
Mike:But what if there's reinvestment risk? So to implement it can be difficult. The concept's simple, but to implement it can be difficult. But here's something else to consider too. Easy example for just for simplistic sake.
Mike:Let's say that you retired today. The day you retire is probably the day you want the least amount of risk. That's the general rule of thumb that's come out. The rule of 100 where the older you get, the more you put in bond funds. That's not really been as true as maybe the the day you retire is the day you want the least amount of risk.
David:And then why is that?
Mike:So if you're 60 years old and you're retired, you've got, let's say, 30 years left to live. Uh-huh. That means you've got 3, 4, maybe 5 market crashes you've gotta survive through. Right? But if you're 80 years old, maybe you've got 10 years left.
Mike:So maybe you have 1, maybe 2 market crashes left.
David:Okay.
Mike:So at that point, part of your portfolio probably ought to be invested based on your legacy intentions. Who's gonna inherit it and what's their risk tolerance or what's their needs based on that? So it kind of evolves over time. Okay. It's based on your lifetime.
Mike:But if you if you take too much risk, they they you retire and the markets crash immediately, you've tripped, and you may never fully recover.
David:So
Mike:that's why the day you retire is probably the day you want the least amount of risk. So let's say that you put 50% of your assets in the market in one way or the other, whether you're doing absolute return strategy, indexing strategy, fundamental analysis, whatever it is. And 50% is in a reservoir. Principle protected with growth potential. K?
Mike:So half of it has the most growth potential with risk. The other has has reasonable growth potential, but it's got protection. Can't go down. And let's say the markets tank 30%. You're only down 15% because half the assets are protected.
Mike:It's a lot easier to recover from 15% than 30%. Do you see how that plays out?
David:Yeah.
Mike:And all of it still is focused on the cash value and the growth of your cash value so you have flexibility moving forward in your retirement. Nothing's locked up for life. There's no, lifetime income streams with this. It's just you've protected enough as you entered into retirement. What's easier to stomach?
Mike:A 15% drop or a 30% drop? But that's how it plays out. That's that's the idea behind it. You are now not in the get rich phase. If you're retiring, you're in the stay rich phase.
Mike:You wanna preserve assets, not try to become the richest man in the graveyard Right. Or woman in the graveyard. Yeah. For all the women listening up, you're planning for you, probably not your husband. You're going to live longer than him in most situations.
Mike:So really this plan, the risk that's being taken, it's probably really in your name, not in his. Something to consider. 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.
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.