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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 to How to Retire on Time, a show that answers your retirement questions. My name is Mike Decker. I'm a licensed financial adviser and fiduciary. And joining me here, Mr. David Franson.
Mike:David, thanks for being here.
David:Yep. Happy to be here.
Mike:As always, we're gonna answer your questions. Text them to (913) 363-1234. And remember, this is just a show, not financial advice, so make sure to do your research and follow-up with whatever we talk about. David, let's begin.
David:Hey, Mike. I want to plan my retirement like the rich. What do they do? That's a whole, like, group of people. Right?
David:Yeah. We have this fantasy about, you know, quote unquote, the rich. Right? I mean
Mike:Yeah. So I wanna I wanna start by mentioning a book. I won't say the title of the book, but it talks about what the Rockefellers did. That may actually be the title. I forget.
Mike:But the book was written to sell indexed universal life insurance. Now indexed universal life insurance is an insurance product, and it has a purpose. The purpose, as I'm defining it, is that you need a death benefit and that you want some cash flexibility, cash accumulation as a part of it, and maybe there's some additional things like if you were to get sick, there's some long term care help or whatever it is. Like, that that is insurance, though. You're paying fees for it.
Mike:Okay? What this book did was they took what the ultra wealthy do, which as an oversimplified explanation, is to lock up their assets into an irrevocable trust that they can't touch, so they separate the tax burden from themselves, and then they borrow against that trust that they can't touch from a bank, because if you borrow money tax free, you don't pay taxes on it, and then whenever they pass, the trust was set up to then resolve the debts and things like that, and then pass to the next generation. They're manipulating the estate tax laws and estate planning laws and working with banks who are willing to talk with people with many, many multiple millions of dollars. If you have a $100,000, $500,000, even $2,000,000, you're not going down that path. So that's a trap.
Mike:The idea of I want to invest like the rich is well intended because you think, well, what did they do that I'm not doing? Well, what the rich did was one of a couple of things. To get rich, they either were born into it, you can't replicate that. They either took a significant amount of additional risk in life, like starting a company. They worked extremely long hours, and luck was on their side, and they were able to be industrious in starting a business or something like that.
Mike:Or maybe they won the lottery. Maybe that's something that's not replicable.
David:Or they're like really, really good at the the sport that they play. Yeah.
Mike:Yeah. Now that's the ultra wealthy. Yeah. And even sports, should say, most of them squander their money within five to ten years. That's unfortunate.
Mike:Very very few are like Shaq Right. Where he picked a boring adviser, a boring CPA, and they made boring decisions with franchises and things that they learned. Now the other side of the wealthy, this isn't the ultra wealthy. K? So if you've got $1,015,000,000 dollars, $50,000,000, or more, you did something where you increased your risk or you were born into a situation that you can't replicate.
Mike:So to compare that amount of money and that lifestyle, it's an apples to oranges situation. Now for those that are retiring with one, two, five, or up to $10,000,000, those individuals typically, this is what I've noticed, they lived an extremely simple life. They weren't lavish. They worked really, really hard in their careers. They developed a skill set that was difficult to acquire.
Mike:So think of a very specialized engineer. Think of like a neurosurgeon. Alright? I'm not saying other doctors are less than, I'm saying it's just really tough to be a neurosurgeon. Yeah.
Mike:I don't wanna compare that to any other medical profession because they're all really difficult. But those professions are very different, and the amount of time and effort and work it took to get that specialized profession the high school job I had was that the electronics counter at Target. That's what I did when I was 16 years old. No training necessary. Right?
Mike:I could just show up and just hang out. So the wealthy, there is an element of discipline and competitiveness. Now that's not to say that someone who doesn't have a lot of money is not disciplined. That's not true at all. There are many professions that just don't pay as well, but you enjoyed it, you're more passionate about it, or it's your specialty.
Mike:So let's let's first just have this conversation of life is not equal. It may be quote unquote fair, depending on your definition, but it's not equal in the opportunities. It's not equal in all of the pursuits that were going on in our life. Some people are born with different gifts than others. Some people are more comfortable in certain industries than others.
Mike:Okay? And I'm going to one point here. Based on the life that you've been living will directly reflect how you should continue to maintain your life. If you have a simpler life, you wanna stick to simpler investments. That's not condescending.
Mike:That's not weird. It's just it may be more appropriate to what you're doing, and here's why. Let's say you've got x amount of money and you wanna invest like the wealthy, and somehow you find some private deal. Right? A private business.
Mike:You're not a business owner. You don't understand businesses. You don't know how to to invest in this. You just say, oh, they said it was a good idea, so I put some money into it. And then the business goes belly up.
Mike:You just lost that money. You don't wanna invest out of your purview of what you're comfortable with. And if you think, well, Mike, that's very condescending. Look at Warren Buffett. He's not investing in private equity.
Mike:He's not doing anything fancy. He's investing in American publicly traded companies. Look at the janitor out of Vermont who passed away with many multiples of millions of dollars. He just bought a couple of stocks that he understood and was disciplined about it. So the reason why I'm going down this path is, yeah, people are gonna have more money, and others that have less money saved for retirement.
Mike:Fine. People are gonna expect different amounts of income in retirement, and it's typically based on the life they've already been living. Someone living off of 60,000 a year is probably gonna want retirement around 60,000 a year, maybe 70,000 a year, maybe 50,000 a year, depending on their lifestyle. Someone who's accustomed of having more money, hopefully saved money. But I know people that have made $2,300,000 a year and have no savings in retirement, and they have to go to two very simple jobs just to make ends meet, and it's miserable.
Mike:So this idea of it's almost like we all want the forbidden fruit, or we all want the thing that we can't have. Get that out of your head, because it is a great way to get manipulated into a product pitch that may not be appropriate for you. You can get rich and stay rich off of the stock market. You can get rich and stay rich off of real estate. You can get rich and stay rich in so many different ways.
David:Just not insurance products. Insurance is not an investment. There we go. Yeah. Yeah.
David:I wanted to get that catchphrase out.
Mike:Yeah. You're you're not gonna get rich buying a bunch of life insurance unless you deliberately got it. Somehow you had a crystal ball that says you're gonna die in five years, but the insurance companies didn't know about that, your medical and everything was fine, and then the bus hits you. But then you're not rich. It's your beneficiaries are rich.
Mike:So the reason why I bring it up is there's a lot of people that want the over complicated side of their investment portfolio, when the reality is a simpler portfolio with a complicated plan. When I say complicated plans, I mean, really, our job is more on taxes than anything. Tax planning and protection planning, so understanding alternative investments like buffered ETFs and structured notes. That but that's not what the wealthies do. That's just an option that a lot of people don't talk about.
Mike:So in the end, you don't want to do what someone else is doing because it may not be suitable. It may not be congruent with your behavior. I don't believe it's appropriate for people to invest in things that they don't understand. I am not cut out to be a landlord. That's why I don't have real estate personally.
Mike:I'm just not cut out to do it. No. I am not a handyman. I I don't know how to value these things. I have many clients and many friends that are incredibly successful in real estate, and that's what they should be doing.
Mike:That makes sense.
David:Yeah. They're doing something that they get, they understand, and they're happy doing, but you couldn't task those same people to do like what you do. Right? I mean, because it's just not in them. So they shouldn't try to, like, keep up with the Joneses or do something that's just out of their person.
Mike:Know. Here here's an analogy. So incentive investments, look at career for a second. Take someone that is in sales. Okay?
Mike:They love the intricacies of the conversation, the relationship, and just how dynamic that conversation can be, the competitive nature of living commission only, things like that. And now take that person and put them into an engineering role or a CPA role where it's all structure, it's all math, it's completely rigid. Are they gonna do well in that situation? No. And take an engineer, for example, or a CPA, or even like a teacher, or someone that operates off of complete structure, and put them into something where they don't know where their next paycheck's gonna come in.
Mike:They don't know how the conversations are gonna evolve. It's completely dynamic. They're probably gonna flounder. So when people say, well, hey, Palantir has made a lot of money. Let's invest in that.
Mike:Do you realize the risk that you're taking, and are you emotionally capable of taking that risk? Well, you know, so and so says I should be all in s and p 500. Are you capable of taking the risk that you're taking? It's good in the good years. It's not good in the down years.
Mike:And what I have found is many people talk big until things change. And you've got to find the best way that's suitable, not just for your economics, but also that your emotions can handle it.
David:I think that's exactly right. And we can really get caught up in sort of trying to step in someone else's shoes because it seems glamorous or it seems really cool or interesting.
Mike:David, do you have Bitcoin? I do not. Do you understand how Bitcoin works? Not really. Do you have any interest in getting into Bitcoin?
David:None at all. K. But I hear I have some acquaintances who talk about it, but I I could type something to say to them. Like, oh, yeah. Yeah.
David:I I wanna get on to that too, but but I've chosen not to.
Mike:Yeah. That's exactly how the conversation should probably be when it comes to your investment product strategies, plans, and so on. Do you understand it? Are you comfortable with it? Don't do things because other people are doing it.
Mike:Do what is right for you. I cannot emphasize that enough. 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.
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