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 adviser, insurance agent, and tax professional, which which means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not specific financial advice. If you want personalized financial advice, then request Your Wealth Analysis today from my team by going to www.yourwealthanalysis.com. With me in the studio today is my colleague, mister David Fransen. David, thank you for being here.

Yes. Thank you for having me.

David's gonna be reading your questions, and I'm gonna do my best to answer them. You can submit your questions at any time by texting them to 913-363-1234, or you can email them to hey mike@howtoreontime.com. Let's begin.

Hey, Mike. If you were 50 years old and plan to retire at 65, what would you do?

1st and foremost, make sure to maximize my 401k contribution.

Alright.

Now as a general rule, if you are earning your highest income that you've ever earned, like you're a pilot. K? You're a pilot. You're in your higher earning years. Maybe you're an engineer, software engineer, civil engineer, whatever.

And you're earning your big bucks significantly more than you were previously, you might consider putting money into the pretax side of things. That would assume that when you retire you you need less income than you're currently earning. But for most people throwing the money into a Roth or the after tax side of your 401 k or 403 b or whatever the employer plan is. That's probably the first thing is make sure you're maxing that out. These are called qualified accounts.

Qualified in that you can buy, trade, adjust, and there's no capital gains issues. So pretax qualified, you can grow the assets, but you have to pay tax when you take the distribution out. That's like your traditional IRA. After tax within your 401 k is like a Roth. It can grow without the capital gains issues and then you take it out and you don't pay any taxes.

K?

Sounds nice.

So Yeah. That's the first thing. You're limited on how much you can put in these accounts. So you can save as much as you want for retirement, but there's only so much each year you can put into your 41 k.

There's a cap every year. And I think if correct me if I'm wrong, once you reach a certain age, 55, are there catch up contributions? Yeah.

There there are catch up contributions. So you just get a little bit greater of

a window or threshold. But the first one is maximizing it. And if your employer's contributing to your contributions, and that's just free money.

That'd be nice.

Just take it all day long. Now make sure you check with your 41 k or HR department. Sometimes they might say, well, we'll contribute to your pretax, but not your after tax. By default, take the free money if you have the option and maybe you're not earning exponentially more money than you would have earlier on or you're earning more money than what you want in retirement. Maybe you'd be put some in the pretax.

It's just the the tax part's a little bit complicated. But, yeah, max that sucker out. Alright. The next one is track your cash flow. Lifestyle creep is a very interesting thing.

As you earn more money, you tend to spend more money because you feel like you're making more money you deserve to, maybe a little bit more enjoyably. Watch out for lifestyle creep because it really can hurt your ability to save money. Once you retire, you're done saving. You're now in the spending and preservation mode. And I think it was Dave Ramsey that had said, when people are more aware of what they're spending, they spend around 10, 12% less just by being aware of their spending.

Yeah. So track your cash flow. I mean, really look at every dollar that you're spending for two reasons. 1, that you're not unnecessarily spending on things that maybe are just not that meaningful. But 2, so you could understand what to expect when you retired, how much money you would spend.

Because if you know how much you'd wanna spend if you were to retire, you can then start to back in the numbers of how much do you need to save each year to then hit certain thresholds, to hit a certain lifestyle that you wanna expect. Now let's talk about if we're 50 years old, what will we do next? There are too many people in my opinion that are putting money into annuities. If you're gonna go down the income route, maybe like 5 years before maybe.

Okay.

If you're 10 years or more away from retirement, you're in growth mode. Keep the liquidity. Grow, grow, grow, grow, grow. K. Now I'm not saying, you know, buy a bunch of Bitcoin risky stocks, you know, mindfully grow.

Yes.

But you wanna be able to grow your assets. So here's an example. I believe that a part of a portfolio, if you're healthy enough, should mostly include index universal life insurance policy. Why? So when it comes to permanent life insurance, the kind that you'd pay for so many years and then you stop paying but you keep the benefit, you've got whole life or universal life.

What's the difference? The whole life is kind of your steady Eddie. It just it grows at this arbitrary rate that's set by the insurance company and you would fund it enough over a certain period of time that the cash value associated with it, though it's not great, should be able to self sustain the cost of insurance for the death benefit so that when you die, you get the money. Who cares about what happens when you die? You wanna live your best life.

Yeah. Universal life, specifically indexed universal life, is a way that you could transition out of term life insurance.

Okay.

Which you might not even need at 50 years old. Maybe you do it just it depends on your situation how much you've already saved, but you can maintain a death benefits for the surviving spouse while you're able to grow a cash value associated with it. Here's kind of how index universal life works. All of the cost of insurance is really intended to focus on the 1st 10 years. These policies from a cash growth standpoint, they're terrible when it comes to growth for the 1st 10 years.

That's the burden of funding these policies. But after 10 years, if it's structured correctly, if you funded it correctly, it can grow and outpace most other, if not all principal protected accounts, which is nice. It has principal protection. It can't lose money. And there's a death benefit associated with it to help the surviving spouse out.

So let's say you were to fund 1 as a part of your portfolio that has more growth than bond funds, more growth potential at least than bond funds, yet there's no downside risk associated with it. Right? You with me so far? Yep. K.

And let's say you were to pass at 62 years old, right when you retired. Mhmm. There's a death benefit that can then go to the surviving spouse to offset things like maybe a missed opportunity with Social Security income that they're not gonna get anymore.

Okay.

And now that they're single, they have a higher tax situation. Insurance gets a funny name because either people love it or they hate it. It's very polarizing.

Yeah.

Well, why wouldn't you have a part of your of the cash value of your portfolio with a associated death benefit to help kind of hedge against certain risks that you can't plan for and has no downside because it can't lose money like bond funds can lose money. Right? But has basically a little bit more growth potential than a bond fund would. So you're lowering your risk. You're transitioning out of term life insurance into a more dynamic version of life insurance.

The problem is you have to be healthy. You have to have 10 years of funding it before it really makes sense. And then you have to structure the policy correctly. So for those that are 65 years or 70 years old, like this doesn't make any sense in the world. Maybe if you're 60, this would make sense.

But for those who start funding it early enough, it can be a very dynamic and cool tool to use in retirement as income or as a way to absorb tax issues. So if taxes go up, maybe you're paying your taxes through your index universal life insurance policy to help offset some of that. Because in index universal life insurance, you can make money on money you've spent. I know that sounds weird. But it's you don't actually take cash out.

You take a loan against the policy out. And if the money the cash value grows greater than the loan against the policy, it's called positive arbitrage. You can read about it in, my Kiplinger article. Retirement planning with life insurance I think is what it was called. Anyway, but there's a lot you can do but you have to get started early on this.

And so many people miss the belt and they say well what about that that life insurance thing? Sorry. You have to start earlier on. And these are things you don't think about when you're 30 years old, 40 years old.

Right.

Even 50 years old. The window is closing. But if you start earlier on and you fund it correctly with some extra cash flow that you have, it can really be a nice compliment to your reservoir strategy, to your ability to plan for social survivorship and much much more. Especially the fact that index universal life insurance is a great way to hedge against that flat market cycle. Because in a flat market, some years are up, some years are down, but overall, you don't make any money.

Right?

Mhmm.

Well, with index universal life, it resets if you set it up correctly every year. So if the markets go up, you make money and then the next year the markets go down because it's a flat market cycle. You don't lose any money. You stay at that that higher position. Again, it's a very misunderstood, very complicated, but dynamic thing that I think a lot of people miss the boat on, but it only works in my opinion if you get started early.

And this is especially true, by the way, for those that wanna retire before 59 and a half. You gotta generate income from somewhere other than your qualified accounts because there's a 10% penalty. Yeah. Well, what do you do if you retire at, let's say, 54 years old and the markets are down and all of your assets were in the market? You're just gonna accentuate your losses?

No. You draw income from something like this. So for all those that wanna retire earlier than expected, for all those that wanna hedge against a flat market cycle, for all those that want to prepare for potentially unexpected death earlier on, to offset missed social security income and and, you know, go down the list, this is a way to hedge against that. Life insurance is not an investment. Right?

It's not a get rich situation. It's a way to hedge against risks as you approach retirement. You don't want all your money in here. You don't want half of your money into a single thing. That doesn't make sense to me, but a portion of your portfolio, it may make sense.

And then other things just to consider in this up to 50 or if I was 50 years old is I wouldn't start funding my reservoir seriously until maybe 5 to 7 years away from retirement, then I'd start really taking that seriously. But 50 years old, if you wanna retire at 60 or 65, I I wouldn't really start seriously funding the reservoir or principal protected accounts until I got closer. The the reality is like 5 years away is when you really start taking that seriously. Diversified by strategies and make sure that you're growing. That's all the time we've got for the show today.

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