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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 you can go 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 means when it comes to financial topics, we can pretty much discuss it all. Now that said, please remember this is just a show.
Mike:Everything we hear should be considered informational, as in not financial advice. If you want personal 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, how are you doing today?
David:I'm well. How are you?
Mike:I'm doing well too. David's gonna be reading your questions that you've sent in, and I'm gonna do my best to answer them. Now you can send your questions in right now to 913-363-1234. Again, that's 913 363-1234. Save that number in your phone in case you think of a question later on in the week, or you can email us to hey mike@howtoretireontime.com.
Mike:Let's begin.
David:Hey, Mike. So me, David, I want to actually submit a question that I think would be fun for the show.
Mike:Okay.
David:So I'm not sure how I got this, but I got a mailer inviting me and my wife to a nice steak dinner, to talk about retirement.
Mike:That's funny because you're in the industry.
David:Yeah. I'm in it. So it was addressed to her. Well, I got it in the mail. I looked at it.
David:Like, the topic seemed interesting, but then I looked at the disclosure and read, "we do not offer investment tax or legal advice."
Mike:That was on the mailer?
David:It was on the mailer. Okay. Kind of at at the end, kind of a smaller print off tough to the side.
Mike:Got it.
David:So I read that and scratched my head. So, Mike, I wanna bring this in. Can you decode what's going on here?
Mike:Sure. Just for our listeners to get a background, I mean, David, you, for many years, worked with helping people get Social Security benefits, kinda qualifying the medical side of it all.
David:Sure.
Mike:And then we brought you over to Kedrec To help with Social Security, Medicare, and things like that. So you really didn't work with another financial services company before.
David:I did not.
Mike:We we were your first.
David:Yes.
Mike:So I've got 10 years of being in here. I've coached financial advisory practices all over the country. This is gonna be fun, but I I don't wanna hold anything back. Okay.
Mike:We're exposing the truth, this expose.
David:Oh, alright.
Mike:But if you wanna ask the question, I'm gonna do my best to answer it. So Yeah. Here's what you need to understand. The history of this is true. The history of the dinner event in the financial services space was inspired by timeshare.
Mike:So back in the day, timeshare companies are the ones that would offer timeshare high commission product. You'd sign up for it, you know, partial ownership, and you can vacation there, and, you know, it's a cost efficient way to vacation to the same place over and over again. I really don't have hesitancy against it if you use it, but it's just it's something you buy and you're kind of stuck with. There's no such thing as a perfect vacation solution. I I don't know how to say that, but that's where it started.
Mike:And then the company or companies, there's a couple that do this, that were supporting mailing out timeshare dinner invitations, figured out that they could do it in other industries, and they then started marketing towards financial advisors, I would say specifically insurance agents, in saying that, hey. We can mail a bunch of people out. We'll get them in your room, and you can pitch them and then close them. Them. Now what's interesting about this, and this is my opinion based on my observation, the only financial professionals that really can do dinner events, a nice steak dinner that's gonna cost them, what, 50, 60, $70 per person plus the 5 to $7,000 in mail cost is someone that sells an annuity.
Mike:And the reason is just on an economic level, it's really hard to recoup your cost if you're in the securities business.
David:Mhmm.
Mike:So if you're gonna make 1% on someone's assets per year and the average person has, let's say, $1,000,000 saved up for retirement, it's gonna take a long time to recoup those costs. It's it's not cost effective for for someone who just does securities. Now someone that does securities and insurance, that might make sense, but, really, almost everyone I see is someone selling an annuity product. I say almost. There are always exceptions to the rules.
Mike:Sure. There are could be client appreciation events Yeah. For someone that manages your portfolio or, you know, there's always exceptions. But by and large they're typically selling it a high commission of product because that's how you can recoup your cost after this expensive marketing tactic and I I don't think that's right or wrong It's just a way to help educate people about something that may or may not be right for you. Now I say that with a smile on my face.
Mike:I know this is over the audio waves, but, I wrote an entire book, how to retire on time, suggesting that you don't sign up for the lifelong insurance income stream that locks up your assets. Some people, that might make sense. But, by and large, I just I would not do that. I have no problem with annuities as a bond alternative or a CD or a bond instead of a bond fund alternative. Right?
Mike:There's no such thing as a perfect investment product or strategy, but, by and large, I have found that the dinner seminar at a steakhouse usually, sometimes they do an Italian restaurant, sometimes they do a local other restaurant, is to say something to the effect of don't retire and give up your working income until you've secured your retirement income.
David:I see.
Mike:There's probably a radio ad out there that says basically that. That just kind of came off the top of my head. K.
David:Uh-huh.
Mike:Should we decode this a little bit?
David:Yeah. Go through it.
Mike:There are lists. I've actually compiled personally a 3 page word document of every bullet point I've ever heard of someone using in this. It's very interesting, especially when you have a disclaimer that says you can't offer investment tax or financial advice and consult other people for it. That's basically saying I'm going to sell you a product. Yeah.
Mike:But people don't read the disclosure. They don't connect the dots. So let's go through some of those. You've got your the the mailer here. Let's have some fun with this.
Mike:Let's read let's decode it. So okay. The first one I see here, ways to avoid running out of income during retirement. Well, I wonder what that is. David, based on your knowledge, what's the only way you can guarantee that you never run out of money in retirement?
David:Well, I guess to just have a huge, very large pile, Scrooge McDuck style pile. I don't know.
Mike:Nope. Can't guarantee that because the markets may crash. You may have a life event. The only way you can guarantee not running out of money is by buying an annuity and turning on the income stream.
David:Uh-huh.
Mike:Now what it doesn't say, and this is important, is it doesn't guarantee that you have comfortable income for life. What a lot of people don't realize is you may turn on your income. It's flat income, and so cost of living adjustment inflation eats away at it, and so it becomes more difficult to sustain your life in 10, 20, 30 years.
David:Yeah. So you're saying there's no on these flat income, like, income for life, quote unquote, the, the income doesn't rise?
Mike:Not always. So there are flat income streams. So you've got guaranteed income for life, but it doesn't increase with inflation.
David:Okay.
Mike:There are other products out there that will say that you are guaranteed, let's say, a 3% increase each year. But once the cash value that's associated with this income stream goes to 0, it usually levels off. It goes flat again. And then there's another one where it's indexed income, so it's guaranteed for life. And if the associated benchmark that the index is tied to goes up, your income would go up.
Mike:If that index doesn't make money, then you just have the same as as the last year. But, again, once the cash value dries up, you don't really get any more increases. And so when I see of, ways to avoid running out of income during retirement, I'm thinking, okay. There's some sort of strategy on how to take multiple different annuities and how do you take these tools and plan for inflation. So one of them, the most popular one, I think this is from Tom Hegna.
Mike:He's the guy that wrote that Amazon book, something like how to retire happy, wild, and and something like that. Like, there's a horse on it with a guy, and they're riding on a child's cartoon. You've probably seen it on Amazon. One strategy that he suggests and a lot of insurance agents have adopted is where you take a flat income stream, and you you basically ladder it out. So in year 1, you turn on your income, and that's what you're living off of.
Mike:And when you feel like you don't have enough income coming on, you then turn on your second annuity and then your 3rd annuity. These people will brag saying I've got 14, 15 annuities out there, and I'll just if I need more income, I'll just turn on the next income stream. I get heartburn over that because of the legal complexities of what insurance companies can do and potentially cutting your legs out from under you on the growth potential and the, in my opinion, potential lack of lifestyle flexibility in the future. There are many blind spots that I don't think are accounted for in these conversations. I mean, it sounds great.
Mike:Ways to avoid running out of income during retirement. Yeah. But when you pop open the hood, and you've got someone that actually knows what to look for, how to challenge these strategies, it's often a sobering experience. Now even though I wrote the book how to retire on time, which tries to convince people not to have a guaranteed income for life income stream through an insurance company, I still get clients that say, I need my baseline covered for peace of mind. Sure.
Mike:That's okay. People. Yeah. So sometimes people do buy an income because they would rather transfer longevity risk to an insurance company and have their baseline coverage so they can sleep better at night, and then they fill in the gaps through their portfolio, the reservoir strategy, and other things. That's okay too.
Mike:We need to live within our economic and emotional limits. Even though the right plan mathematically could exist, it may not be right for you from an emotional state, and that needs to be acknowledged.
David:Sure.
Mike:So let's let's read the second one. Ways to reduce your risk and keep more of your hard earned money so if you buy an annuity you are technically reducing your risk because they cannot go backwards But to keep more of your hard earned money, that's an interesting one because it might be just put the money in the market and let it grow and then that'll just be for inheritance or whatever it is. You've you've already guaranteed your income. The death benefit of annuities is not as compelling as I think people would realize. So that would be an interesting one to understand more about what that really means because if you put it into an annuity, the cash value is gonna go up pretty soon.
Mike:Once the cash value is gone, there is no death benefit. These are things that people often miss.
David:Mhmm.
Mike:Here's the next one. Ways to use your money and still have something to leave to your beneficiaries. Okay. So this is a strategy I I have heard about in that you get around 60% of your assets, you put them into annuities, and then you ladder out the income streams, like we talked about before, and then the rest of it is to just grow and either buy another annuity later if you need it or let it go to your beneficiaries. If that's right for you, great.
Mike:If Yeah. Not, that's okay too, but let's just decode this. I'm not disparaging this person. I don't wanna disparage this philosophy. There's just no such thing as a perfect investment product or strategy.
Mike:But when I read these things, it's like, oh, fear fear fear. If someone puts enough fear into you on a psychological level, you lose your ability to critically think. Take your time. Understand what's going on. We have a habit as humans to associate negative emotions to things we don't understand.
Mike:If we are hearing fear based marketing over and over again, we will lose our ability to critically think. If we can't critically think, we won't fully understand it, and we we may make emotional decisions, which is exactly why this is all written in a fear based position. Let's see. Here's another one. Ways to obtain an income you can't outlive.
Mike:Wasn't that the same as the first one? What's the first one? Ways to avoid running out of income during retirement? Ways to obtain an income you can't outlive? Yeah.
Mike:That's that's funny. And then here's the last one. Inflation on all caps. Will the yields of your savings be able to keep up with rising inflation?
David:Decent question.
Mike:Yeah. That might be the latter approach of taking these different income streams and lettering them out. Here's my heartburn with this. You're going all in on one strategy and just trying to work within those confines. Because there's no such thing as a perfect investment product or strategy, blending or diversifying your income strategies, I think, is more beneficial.
Mike:It's more holistic. It's it's healthier. I mean, when has an extreme ever really been the the solution? There's balance in everything. Hey.
Mike:Can you have dessert tonight? Yeah. But probably a little bit. Not a lot. Yeah.
Mike:And having none is kind of sad too. Yeah. Right? There's balance in all things, and so going all in on one strategy or saying this is the only tool I can use to generate income might be a bit extreme. That's just how I feel, and that's not just how I feel.
Mike:I should say there's 10 years of research that backs up that statement.
David:Right.
Mike:But here's some things that these dinner events don't often tell you. So what is often not told is the risk of the insurance income not keeping up with inflation. If you fund an annuity and turn on the income stream with pretax dollars, that means if taxes go up, you get less income. That's the problem. Social Security tax optimization is difficult to do if you've locked up your assets.
Mike:It's kind of like a pension. It's difficult, but not impossible, to optimize from a tax standpoint a pension income stream, That's often not talked about enough. Shopping around these annuities, just like CDs, some CDs offer 5% or so, some offer 0.5%. There are some annuities out there that offer very uncompetitive income rates, but it's because the person recommended it. They say, I guess this is what it is, and then they proceed.
Mike:There are independent people that will do research. We do all of our own internal independent research to challenge the insurance companies. Independent research to challenge the insurance companies just because I don't trust them. Yeah. Okay.
Mike:So things like this. Now, here's a great income stream. Oh, here's a great annuity. Great. Would you know to ask what's the renewal rate of that company?
Mike:No.
David:Nope. Never heard of it.
Mike:But there are companies out there that have a reputation that promise you great returns, and then 2 years later, they drop the ability to participate in growth down, and there's nothing you can do about it other than surrender it and pay a penalty. That doesn't mean that all insurance companies do this. It means there are some that have a bait and switch reputation and others that do not. Is your insurance agent looking for this? Are they disclosing it?
Mike:Are they even letting you know that it's even possible? That's not really discussed in in these dinner events or even in the sales process, as I've experienced. Balanced tax minimization strategies, we talked a little bit about that. How to incorporate a real estate portfolio into a retirement plan? That's often not really discussed.
Mike:It's because most financial professionals, at least that I'm aware of, in the great state of Kansas and in the great state of Missouri can't. Just from a compliance standpoint, they're not able to or they're limited to talking about Delaware statutory trust. Did you know that you could sell your your real estate properties, 1031 it, into a Delaware statutory trust, maintain your cash flow, and also let the asset appreciate in value? But a limited adviser or an insurance agent would not be able to even mention it.
David:Mhmm.
Mike:And that even assumes that they even know it exists. Right. How to manage a portfolio when the markets crash? Usually, it's, hey. The markets crash every 7 or 8 years, so put your money into this all all your money or as much money as you're comfortable into this thing that can't lose money.
Mike:Well, okay. An annuity will never, on the good years, outperform the market. And every now and then, yeah, a principal protected account won't lose money, but the stock market has more growth potential over the long run than any insurance product would on a general basis. It's balance, and it's not talked about enough. If you wanna see what a more balanced portfolio could look like, what an optimized and customized plan fitting your lifestyle expectations, what it would look like, and then how to create a portfolio balanced and dynamic so that you have a strategy to maintain your life when the markets are up or down while maintaining flexibility for your lifestyle, while maintaining a position of growth for your future beneficiaries and and so on.
Mike:If you wanna see a more balanced approach, then here's what I want you to do. Listen up. You're gonna text retire, keyword retire, to 913-363-1234. Again, that's keyword retire to 913-363-1234, or you can go to www dot retirement income dot report. And here's what's gonna happen.
Mike:You're gonna get a link. You're gonna fill out some basic information. It's gonna come to us, and we're gonna schedule a 30 minute call to have a conversation with you, really to bring context into the picture of what you want when it comes to your lifestyle and legacy plans. And then we'll create a custom analysis specifically for you, showing you what your life could look like, exploring your lifestyle and legacy potential, and then showing you how to properly create a balanced portfolio that could help increase your overall income potential while lowering your overall risk. That might seem like we're saying you can have your cake and eat it too.
Mike:In some sense, you can. It's the nuance. It's the strategies. But consider, just for a moment, the importance of growth today and how you wanna have more flexibility in the future. I mean, David, 10 years ago, 15 years ago, did you know that you'd be so dependent on your iPhone
David:I couldn't have imagined this. No.
Mike:Or computers. And think about how AI is advancing at an even faster rate what our lifestyle is gonna look like. Are you incorporating future expenses into your budget that you don't even know exist? You couldn't possibly do that. So maintaining a portfolio that focuses on growth but can get you through the market turbulence, so that you have more flexibility in the future, that is is so paramount.
Mike:And a flat income stream is a restrictive option that may not be in your best interest. Just my opinion. But text retire right now to 913-363-1234 to really grasp and explore your future lifestyle and legacy potential. That's retire to 913-363-1234, or go to www.retirementincome.report. 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.