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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.
Okay.
Mike:Alright. Next question.
David:Okay. Yeah. So let's let's look here. How do you know if you are working with someone who is planning? So like an advisor, I guess.
David:How do you know if you're working with someone who is planning versus mostly managing money?
Mike:It's a great question. And I don't wanna be biased. So first off, let's talk about a money manager. Their job is to grow your money. There are some that are really really good at it and they absolutely earn their keep.
David:There
Mike:are some that are just buy a hold, rebalance, they sold you a bunch of funds and that's kind of it. You can kind of tell typically which ones, because you can see where their passion is. If they're getting really into stocks and really into like various investments, they're probably more of a money manager. If they're buy and hold and your portfolio moves very little bit, then they might be more of a holistic person. Now, are they a planner or not?
Mike:Here are some key tells. First off, are they planning on how to do withdrawals based on your different accounts and your income needs and the tax ramifications of your portfolio? Let me give you an example. Have you ever had the conversation with your advisor? We should we should do like the, you know, the Jeff Foxworthy kind of, you know you're redneck.
Mike:You know you're with a planner if your planner says, alright, you wanna retire in two years. You're gonna be 63 years old. Great. You've got affordable care act you're gonna have to pay for. You've got $500,000 in in your brokerage account.
Mike:Let's take your money all from that account. Okay? We're gonna get out of your Apple stock, a little bit of your Nvidia stock, and some of your your your funds here. But because of long term capital gains and you only need so much money that we're going to sequence your withdrawal. That's where your income comes from that year.
Mike:You're gonna probably pay zero percent or maybe $2,000 in taxes total. That's it. And we're gonna drop your affordable care act insurance premium as well. That's a planner. A money manager is gonna say, yeah, we'll take 4%, a little bit from everything and call it
David:good. One
Mike:of them caused you to pay $4.06, maybe $7,000 in taxes. The other one got you to, depending on your state, 2% or less in your taxes because they planned the withdrawal sequence.
David:Yeah. Instead of having a blanket, you know, 4% roll. Oh, you just take four percent out of
Mike:Yeah. We'll just give you the withdrawals and it kind of works. Yeah. Let me give you another one. So you know you're working with a planner if they do a social security optimization and they compare it to your income needs and how it affects the portfolio, your legacy, and the portfolio amount in ten years, twenty years, and in thirty years.
Mike:And then they also look at your Social Security tax efficiency, spousal survivorship risk, and then make a holistic adjustment. Probably not a planner if they say, alright, here's Social Security. Here's how you get the most amount money based on when you say you want to die, and then moves on. Very different. We do that planning.
Mike:We ask those questions. That's why I literally wrote a 100 page workbook to start helping people ask better questions. Yeah. That's why people have the one time plan. Some people have one time plan and they go back to their money manager to manage the growth part of their portfolio.
Mike:I have no problem with that. Why? Because planning is a skill set that's often very different than investment management.
David:Good distinction.
Mike:So it's not that your advisor is bad. It's like, you don't ask a brain surgeon to do foot surgery. You don't ask a foot surgeon to do brain surgery. Like there are different skill sets. There's different portfolio philosophies.
Mike:So I don't wanna disparage anyone. But if the two examples I gave were like, oh yeah, I've never had that conversation. Don't ask your advisor to have it. If they didn't proactively have that conversation, it may not be their specialty. They might try to have it to save face.
Mike:But if they're not proactively happening, then find someone that is wanting to proactively have that conversation with you. Whether it's us and you go to retireontime.com and click the button that says talk to a planner or someone else, that's up to you. Alright. We got time for one more question.
David:Alright. You have it or you want me to take it?
Mike:You got one? I got one. If you got one, I mean, I've got like seven, but we only have time for one more. So I'll let you pick.
David:Okay, here we go. This question came in today. How do you plan for growth and income during a flat market?
Mike:You heavily favor indexed products.
David:Okay.
Mike:So the last thing you wanna do is to put your futures lifestyle on the idea that any model can successfully navigate unknowns. Alright. So in other words, we have that KDRC model. I love it. Like it's what I'm using.
Mike:I I think it's brilliant. I'm biased because I created it, but I I I think it's brilliant and it's designed for flat markets. But you cannot promise performance. You can't do it.
David:It's against the law.
Mike:Right? It's it's literally against the law. So what do you do instead? You start to favor your portfolio so that the index products have growth potential, but no downside risk. So in a flat market, on a flat market is great ups and great downs, but it averages to be nothing over a ten year period of time.
Mike:Mhmm. So if you have, let's say, index annuities and buffered ETFs as a significant part of your portfolio, then you're getting the upside. And as long as using the max buffer on the buffered ETFs, or you're properly getting the cash growth indexed annuities, not the ones for income, but the ones that have uncapped potential. So these are participation rates on indexes that are sustainable and not over promising anything. And there's a lot to over promise by the way.
Mike:So be very careful with that. Then you have that upside potential so the markets lose money, you don't lose money. Then the mark then you lock in, there's no there's no loss. You start at zero again, but then the markets have great growth. So now you're capturing the upside.
Mike:You're not getting the downside. That allows you to stair step forward throughout a flat market cycle and it keeps your portfolio competitively growing. In my opinion, the day that you retire is the day you should have the least amount of risk. That's when you're funding the most amount of your reserves. Whether it's baseline reserves, lifetime income, laddered reserves, which would be fixed accounts or if you wanted more of these indexed accounts for the longer term, that's how you help hedge against it.
Mike:And then you've got the growth. You want a model that could be dynamic for these situations, but you want probably want a little bit of all three. So that if the markets go flat, you're like, markets went down, but these accounts didn't lose money and they've got great growth potential for when they start to recover.
David:And so you get to just keep living your life. Yeah. And you don't have to whatever.
Mike:A prepared reaction, in my opinion, is better than a risky prediction.
David:Mhmm.
Mike:It is better to say if the markets tanked three years in a row, I am prepared to take income without accentuating losses as opposed to I am predicting that AI is gonna continue to increase for the next two years and then I'm gonna sell. Mhmm. That's a risky prediction. Yeah. Now you could still have a part of your portfolio in AI or whatever you want, but you also have a prepared reaction in case you're wrong.
Mike:That is what you're supposed to be doing, at least in my opinion, when you do retirement planning. You want a prepared reaction so you're not betting on if you're right. Wall Street becomes a casino if everything's based on your predictions. Wall Street becomes a wealth creation tool if you have prepared reactions and it doesn't matter what happens next year because you've planned for the good, bad, and the ugly.
David:Pretty good. So how do we know when we What are some tells where we can say, Oh, we're starting a flat market cycle?
Mike:You can't know. You don't even know if it's a flat market until you're halfway through. Because it could just be a crash and then there's great growth. That's a yeah, it's a great question and a fool's errand. You'd never wanna pretend that that's there.
Mike:Now, the only indicator I've ever been able to find is called the CAPE ratio. It's by doctor Schiller of Yale, and it basically says the CAPE which is cyclically the cyclically adjusted price earnings ratio of the market broadly speaking. If it's high, it's an indicator that there's less growth potential for the next ten years. It's been very accurate in predicting flat markets. And right now it's suggesting that the next ten years might average about a point 3% growth year over year for the next ten years.
Mike:Now that's a prediction. Yeah. You don't wanna put your life savings into that prediction, but it's an interesting indicator to say, maybe we should have some in fixed. Maybe we should have some in indexed because I wanna have a prepared reaction, not a risky prediction.
David:Oh, yeah. So we just we we put a little bit in the to use our KDRC. We're we're gonna put some in reserves now just in case. And we're not gonna go all in on reserves. That might be an overreaction.
David:Yeah. But we also don't want everything at risk, especially if we're in early retirement or
Mike:And this is why the sequence is so important.
David:You
Mike:cannot get this out of order. You put your plan together first. If the next ten years if you're 60 years old, in the next ten years, you're taking everything from the portfolio, and then you start your income from social security at 70
David:Mhmm.
Mike:You have additional risk. If you're 70 years old, and you're retiring, and you're already taking you have different sets of risks. So you have to put your plan together first. Look at your projections. Look at the asset flow.
Mike:And then look at tax optimization, asset flow optimization, social security optimization, and so on. Then you start to put together your portfolio based on the appropriate tools that support the plan. Mhmm. It has to be in that order. And the problem is today too many people are on TikTok and Instagram and so on.
Mike:And they're getting so much FOMO based on a specific investment product or strategy that has no context to your specific plan. You have to plan first. Yeah. Then strategies, then products. That's
David:it. Alright.
Mike:Full stop. The planning workbook itself. If we do a one time plan, we give you that workbook. It's a one time fee. If you want our retirement on time workbook, we actually mail it to you.
Mike:The AI prompts, the checklist, you can get that all for sale. It's right now $97. And we ship you everything. That includes shipping and all of that. That's a one time on retireontime.com.
Mike:You can buy that. The subscription model is unrestricted. We're gonna be launched that very soon. And look for our emails on that for just future information. That's a very exciting thing.
Mike:You don't need a plan before you subscribe to it. But it's heavily encouraged that you get a plan first so you're using information or a tool correctly. Too many people are overestimating, in my opinion, market returns in the near future. Alright. That's all the time we've got for today's show.
Mike:If you enjoyed the show, don't forget subscribe to us on YouTube or wherever you get your podcast. That's how you get the replays of the show. YouTube's always going out every Saturday, and then we've got the podcast being broken up into five different episodes during the work week, which is always fun. Subscribe to our newsletter to get more information. Retire ontime.com to subscribe to the newsletter.
Mike:Download our books. Our books are free to download or you can buy them on Amazon if you prefer paperback copy. And if the time is right for you, schedule a call. Thirty minute call is how you get started. It doesn't cost you anything.
Mike:And if it makes sense to proceed, the first two appointments are free to get started in the planning process. So you can really see what a proper retirement planning process looks like. And then you can decide how you want to proceed from that point on. Thank you all for being here. Appreciate it.
Mike:We'll see you next week.