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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.
Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to that oversimplified advice you've heard hundreds of times. This show is all about getting into the nitty gritty. Now that said, remember, this is just a show. It should not be considered financial advice.
Mike:As always, text your questions to (913) 363-1234, and we'll feature them on the show. Let's begin. Hey, Mike. How does a retirement plan change if you have 250,000 versus 2,500,000.0? I see what you did there.
Mike:Little poetic numbers. Okay. So the the question here is basically if you have less, how does that affect your plan if you have more? So there's several layers to this, but I wanna talk about, I think, the most fundamental layer of risk or complexities that you may not pick up on, and that is the core inflationary metrics. So the cost of food, the cost of gas, all of those core expenditures really revolve around if inflation gets out of control, it's going to hurt more the person with 250,000 as opposed to the person with 2,500,000.0.
Mike:And the reason is, just look at the body for example. There's a certain calorie intake we all need just to maintain our health. That's the same for all humans. I mean, it might vary a little bit if you're a slightly larger human being or a slightly more petite individual, but we all need roughly a certain calorie amount wherever you get that. That's up to you.
Mike:But that idea that you're going to need food, all humans need food to live, all humans need water to live. We have some basic needs. If inflation gets out of control, it's more likely to affect those with less more than those who have more. It's easier to say, hey. This year, I know we're gonna go to, I don't know, Australia or New Zealand and and go to through the Lord of the Rings quest or whatever it is.
Mike:But maybe we don't fly first class this year. The wealthier can make a more easier adjustment to hedge against inflation than someone saying, gosh. Food prices are getting out of control. We were already kind of struggling. This is a tough spot.
Mike:So that's the first line is understand inflation, which could get out of control again. If you look at the was it late sixties, early seventies, inflation got out of control. They fixed it allegedly, and then it came roaring back again, and then they fixed it allegedly. And then they came roaring back a third time, and then you got Paul Volcker in there, who's then basically jacked up interest rates, really stomped out inflation, and then things became more normal. Whether you believe tariffs are gonna cause inflation or not, whether you believe that they're delayed inflation or that Trump solved it, that's just one metric, one influence of a very complex situation because inflation is very complex.
Mike:There are many factors that could add or take away to inflationary rates. So with that said, maybe after Trump's out of office, we're on to the next president or whoever, maybe two presidents from now, whatever it might be, inflation can still come roaring back. You need to be prepared and have some growth in your portfolio. In my opinion, everyone should have growth in their portfolio so that they can better hedge against inflation. Because if you put everything into, let's say, an annuity for lifetime income that's flat income after, let's say, 3% inflation year over year for ten years, you've lost 25% of your buying power.
Mike:That can sting. Are you aware of that? How do you plan around that? So that's the first part. Now the second part, I'm not talking on both sides of my mouth here, but the second part is just understanding market volatility.
Mike:If the markets go way down for the first little bit and then they eventually recover, it's more difficult to get through those turbulent times, those market crashes when you have less money. The bear market protocol, it's intended to help you go through all these different things, the market crashes and so on. It's intended to help you sail through it. It can get more difficult because there's just less money to work with. So be mindful of that.
Mike:Because if the markets go down by, let's say, 30 to 50%, you're really hurting for them to pay for basic needs. Two fifty versus 2,500,000. You can absorb a lot if you have 2,500,000. 250,000, little bit more difficult. My general advice, by the way, for not actual financial advice, but rule of thumb, is if you have 250 or 500,000 or less, say, for retirement, you may want to work a little bit longer and wait to retire at 70 years old.
Mike:67 at the earliest, but 70 years old, so you have the highest Social Security benefit, and you can leave more money in your portfolio for strategic growth, whatever that growth strategy is, to help you offset for future inflation, future costs, even future just random expenses. I mean, in ten years from now, we all may wanna buy our little robot to follow us around. AI is fundamentally changing the health care industry, catching different illnesses before most people could even catch them. And they're catching them sooner than before, helping them get resolved. They're getting things cured or solved earlier than expected.
Mike:That's extending people's life expectancy. Is your lesser amount able to endure a longer lifespan? Just these are things to consider. And then how your portfolio is managed may be different. I wrote the book, how to retire on time, as an argument against the guaranteed income for life strategy.
Mike:If you have less money and you have certain needs, you may want a part of your income to be guaranteed because if you trip up, especially in the first couple of years, you could be suffering and enduring that issue for the rest of your life. Those who have saved more can better take that blow. So even though it may not sound like it makes financial sense, look, the reality is if you've saved less, you cannot afford to take the same amount of risk, in my opinion. So maybe having your Social Security lined up with some guaranteed income so that you know regardless of what happens, you're able to account on that income. Now you don't need a flat income stream.
Mike:There's other ways you can do guaranteed income. You could have a fixed cost of living adjustment with your income stream. So you'll start at a lower rate, but it will increase over time. That's beneficial. Or you can do indexed income.
Mike:So that's basically if it index goes up, your income increases. If the index goes down, it's just the same as last year. That can help hedge against inflation. A flat income stream will start at a higher rate, but doesn't increase. The other ones will start at a lower rate, but increase over time.
Mike:Be mindful of the inflationary cost that could erode your retirement because you don't wanna be the 85 year old that's on a fixed all fixed budget. There's no flexibility just trying to make ends meet. You want flexibility to some extent in your portfolio to your plan, to your income, to your lifestyle. Because without it, you've just basically thrown your hands up and said, my comfort, my happiness, my ability to make decisions is now deferred to whatever fate has in store for me. That's not a good spot.
Mike:Now if you have 2,500,000.0, and it's not this is an arbitrary number. It can be a million dollars. It can be $5,000,000. If you have more money, then maybe you don't need a guaranteed for life income stream. Maybe your income needs you just need a couple of buffers, a couple of protected accounts just to sail through a couple of market crashes, and that's it.
Mike:So treat things very differently. Your tax planning will fundamentally change between these two. 250,000, you might do some tax planning to get you to tax free Social Security. 2,500,000.0 may not make sense. You might have to spend too much in taxes just to get the zero tax bracket.
Mike:It might not be worth it. Instead, maybe you do some IRA to Roth conversions to build in your income within your RMD, and you're utilizing as best you can the different deductions, standard deduction, the senior deduction, and the new Trump deduction to then get more out of your money, and you're managing all through your modified adjusted gross income. Very different conversations. So the answer is yes, depending on how much you have. Your retirement plan will look vastly different, and that's why what's right for you is probably not what's right for someone else.
Mike:Please avoid cookie cutter plans. Ask questions. Slow down. Spend time looking for problems, and then come back and solve them. That's how planning should be done.
Mike: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. 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.
Mike:This is not your ordinary financial analysis. 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.