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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.
Hello, and 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.how to retire on time.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 advisor, insurance agent, and tax professional, Which means when it comes to financial topics, we can pretty much discuss whatever is on your mind. 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 by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, thank you for being here today.
David:Hello. Thank you.
Mike:This is gonna be a fun show. And now just for the newcomers, David will be reading your questions, the questions you have submitted, and I'll do my best to answer them. You can send your questions in now or anytime during the week by either texting them in to 913-363-1234. That's 913-363-1234 or email them to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. I know I am taking too much risk, but I can't seem to get myself to be okay with anything that is illiquid. Are there ways that I can fund a reservoir without losing my liquidity?
Mike:Sure. So for all that don't understand what the reservoir is, the reservoir is a portion of your portfolio that has principal protection with growth potential, in theory, that you can tap into whenever the markets go down, when something tragic happens. You know, something happens and you don't want to accentuate your losses. Just like a city has a reservoir of water in case of drought or water issues, the reservoir in a portfolio as we define it is principal guaranteed accounts, so they can't go down, that have growth potential because you need growth for future flexibility, future lifestyle needs, that you can tap into during market difficulties, during tax difficulties, whatever it might be. You want that flexibility and that ability to draw income from a principal guaranteed source.
Mike:So the problem is there are 3 things that all investments pretty much could do. It's growth, it's protection, and it's liquidity. And any investment or product can offer you 2. You can have your cake and eat it too. So you can have liquidity and protection, like a checkings or savings account, like a high yield money market, for example.
Mike:You could have growth with liquidity, like your stocks. You can sell it and get the money within a couple of days, or mutual funds and and so on, ETFs, anything in the fund category, for example. So it's got more growth potential than probably any other category, but it's liquid. It's not protected. There's risk associated with it.
Mike:And then there are pretty much five investments or products that would work in the growth potential with protection category. So they lack liquidity. People do have a hard time with this sometimes. There are CDs, which typically do well for short term protection needs. You've got treasuries or bonds, so not bond funds, but bonds.
Mike:And they typically do well from a growth standpoint and liquidity scheduling, so laddering things out for your needs in maybe 2, 3, 4, 5 years. And then you've got fixed annuities. So if as long as you're 59 and a half or older, because this is a retirement insurance product, you can basically get a CD from an insurance company. Just make sure there's no fees associated with it. You're not turning on the income.
Mike:You're just using it strictly as a vehicle to grow your cash value at a fixed guaranteed rate. That's what a fixed annuity is. Many people don't know that you could do that, that you can basically get a CD from an insurance company. And they offer more competitive pricing for the 4, 5, 6 time frame than a CD would from a bank, because banks are fundamentally structured differently than insurance companies, and so their offers are different than each other. And then you've got fixed indexed annuities, which do, in my opinion, offer more cash growth potential if you're using it as a CD or bond alternative.
Mike:But you can't touch it for 5, 6, 7, 8, 9 years depending on which product you buy. So that's a conundrum. Do you need access to all of your money today? No. You're not gonna spend everything today.
Mike:So being able to protect some of your assets, even though they're illiquid for a certain period of time, also protects you from market crashes during that period of time. That's kind of why you would do a bucket or laddered out reservoir approach because the market might crash next year and you can have enough liquidity then. The market might crash in 7 years. You need enough liquidity then and and so on. So this is where the complexity of the reservoir comes in.
Mike:And that's why I say in my book often when implemented correctly, because I meet people that say, well, I've got 1 year of cash ready to go for my reservoir. Well, markets can crash 3 years consecutively. So 1929, 1930, 1931, 1932, those I believe it was 1930, 19 so it started crashing 1929, but that was technically a positive year. But 1930, 31, 32 were 3 horrible years in a row, more famously and recently, 2000, 2001, 2002, 3 years going down. And there are other examples of multiple years going down.
Mike:And then you need time to be able to recover. So there there's a lot of misunderstood concepts about implementing all of this. So now that that baseline is covered, let's answer the question. David, can can you read the Yeah. One more time?
David:So this person, they can't seem to get themselves to be okay with anything that is illiquid. Are there ways that they can fund a reservoir without losing liquidity?
Mike:Yeah. So to answer this question, you're gonna put a larger amount of money in a high yield savings account or money market account. The cost of that is your losing growth potential to hold on to your liquidity. So financially, there is a cost to it. It's opportunity cost.
Mike:But if the markets go down, you can draw income from those sources whenever you want. It's liquid. It's very easy to implement. But at what cost? How how much are you willing to get for your future self?
Mike:Because in some sense, you could be robbing your future growth, your future lifestyle flexibility, or more assets that would be available for lifestyle changes, for health care costs, for legacy purposes, and the list goes on. So the answer is yes. You can do it. You're mostly looking at high yield savings or money market accounts, and you would have to have a smaller reservoir overall. And then whatever the next market crash happens, maybe it's got 3 years or so, and this is not financial advice.
Mike:I don't know your situation. But you got a couple of years that's available, and maybe you start drawing income from other sources even when they're still not fully recovered, but you're you're just taking more risk. You've got less growth potential. And when whenever the markets recover, and hopefully they do recover, at some point they they recover. We have a 100% recovery rate at some point in the markets.
Mike:But then you have to refill your reservoir in those high yield savings, and so it becomes tedious. It is not efficient, but if that's what you need to live within your emotional limits, then so be it. That's that's kind of how that would work out. And if you wanna explore more about that or understand more about how to move in and out of the principal protected options, the the Kedrick reservoir, the reservoir as we call it, then you can always text analysis to 913-363-1234, and just see what's out there. Learn.
Mike:It doesn't cost you much to learn, just your time. But if you can learn, then you can make better decisions. Humans can change. Our emotional competence can change. Our coping mechanisms for when accounts go down can change.
Mike:Understanding what to do when the markets go up or down, what to do in different phases of your retirement, brings peace. It brings calmness. Because there's context, there's understanding, there's clarity into a strategy that even people without a financial background can articulate and understand. Text analysis to 913-363-1234, or go to www.yourwealthanalysis.com to learn more and request an analysis, and discover what could be done. And just real quick too, I I also thought of this.
Mike:You could go into bonds themselves, buy some treasuries, but they're not technically principal protected if you sell them early. So you may do a a treasury ladder or a bond ladder, knowing that if you needed to liquidate early, you could, but you could be selling at a loss or at a gain. It just depends on interest rates and how the bond market is doing. That is another way. Just just thinking off the top of my head here.
Mike:If you want more context and understanding about how this all works, focusing on growth, focusing on efficiency to get more out of your hard earned money, then text analysis right now to 913-363-1234. That's keyword analysis. To 913-363-1234, or go to your wealth analysis.com to learn more and get started. Doesn't cost you a dime, but it could significantly help you improve your overall quality of life. That's all the time we've got for the show today.
Mike: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.
Mike: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.